BUSINESS FUNDAMENTALS
WHAT ARE YOU BUILDING?
LENDING
Payment Possibilities
DIFFERENT LOAN OPTIONS PROVIDE DIFFERENT BENEFITS FOR REAL ESTATE INVESTORS.
Content provided by GROUNDFLOOR
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ne of the things that makes GROUNDFLOOR unique as a source of funding for real estate
qualify) to keep the most cash in hand to use towards their projects. Since payments are not collected monthly in the deferred payment model, the terms of the loans revolve around regular property inspections and updates from the borrower regarding the progress of the project. Borrowers are required to order inspections every 60 days and send monthly progress updates to ensure work is progressing according to schedule. GROUND- FLOOR withholds the renovation budget in escrow and releases the funds to the borrower as they complete the renovations. Some developers, however, choose to stick with the more traditional monthly payment loan option. The in- terest and points on these loans are slightly lower than on deferred loans, and as such a monthly payment loan may make more financial sense for shorter-term proj- ects. Under the terms of our monthly payment loans, borrowers agree to make payments each month. Pay- ments are due on the 1st of the month, with the final day to pay with no penalties by the 15th of the month. If a borrower is late on a payment, draws to receive addi- tional funds will not be processed until their account is current. More than one late payment causes GROUND- FLOOR to issue a notice of default, and additional inter- est is charged to encourage timely repayment. If a loan becomes 60+ days delinquent, GROUNDFLOOR begins the foreclosure process. (Fortunately, in the company’s history, we have only had one monthly payment loan ever go into foreclosure.) •
projects is that we offer a true deferred payment loan option in addition to the more standard monthly pay- ment option. The difference between the two is simple. The monthly payment option requires the real estate developer (whom we commonly refer to as the “bor- rower”) to pay interest to GROUNDFLOOR on a monthly basis until the loan term ends. The deferred payment option, however, allows the borrower to not pay a single interest payment until the end of the loan term, at which point he will pay the entire interest balance known as a “balloon payment.” Each kind of loan offers different benefits for real es- tate developers and having the option to choose allows them to pick a loan structure most suited for their proj- ect. However, there are some key differences between the monthly payment and the deferred payment option. A BORROWER’S PERSPECTIVE For real estate investors looking to get financing, having the option to choose between monthly payments and deferred payments can make a big difference for their projects. Since unanticipated problems — and therefore unanticipated costs — happen frequently in the real estate industry, it is an advantage to be able to keep all funding in hand until the very end of the loan term. As a result, most borrowers we work with choose the deferred payment loan option (provided they
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