Groundfloor Notes vs LROs (2026): The Yield-vs-Structure Decision When the Issuer Has a Going Concern Warning

If you have $1,000 to put on Groundfloor, the first decision is not which deal — it's which product. Notes and LROs look similar from the marketing copy. They are not the same security. They have different yield curves, different liquidity profiles, different risk concentrations, and — crucially in 2026 — different exposure to Groundfloor Finance Inc.'s going concern qualification.

This article is the structural read. Sourced from SEC EDGAR (Form 1-A, 1-K, and 253G2 filings for Groundfloor Real Estate 1, LLC and the Yield/Loans note issuers), the Groundfloor live notes page, and the offering circular language verbatim. It is not investment advice.

The Two Products at a Glance

How the Cash Flow Actually Works

Notes: pooled exposure, fixed yield, fixed term

When you buy a Groundfloor Note, you are lending to Groundfloor, not to a specific borrower. The cash flows look like this:

1. You wire $1,000 to Groundfloor for a 12-Month Signature Note at 8.5% (September 12, 2026).
2. Groundfloor combines your money with other Note buyers' deposits.
3. The pool funds Groundfloor's broader loan origination operation — short-term residential renovation/flip loans, typically.
4. Each month, Groundfloor pays you 8.5% / 12 = about 0.708% (our arithmetic) in interest on your $1,000.
5. At month 12, you get $1,000 back (assuming Groundfloor remains solvent).

The yield is fixed regardless of how the underlying loans perform. If Groundfloor's loan book has a tough quarter — say, delinquencies keep climbing from the 73.4% of the legacy book already more than 90 days late — your 8.5% does not change. You bear platform credit risk, not individual loan credit risk. Groundfloor absorbs the volatility on the loan side.

This is why Groundfloor can market "100% on-time payments since 2018" on the Notes track record — the platform has been making the contractual coupon payments out of operating cash flow regardless of the loan-level default experience.

LROs: 1:1 exposure, variable yield, term-dependent on borrower

When you buy an LRO, you are buying a security whose payment depends specifically on one underlying loan. The structure:

1. Groundfloor underwrites a loan (say, a 12-month residential bridge loan, $500,000 principal, 11% interest, Grade C).
2. Groundfloor packages that loan as an LRO offering on the platform.
3. You and 49 other investors fund the LRO at $10–$20,000 each, totaling the $500K loan principal.
4. Each month or at maturity, the borrower pays Groundfloor → Groundfloor pays you proportionally.
5. If the borrower defaults, Groundfloor's collection / foreclosure recovery is what you receive. There is no contractual obligation by Groundfloor to make you whole.

The 4.71% "official" default rate is a third-party figure that does not appear in Groundfloor's SEC filings; the FY2025 Form 1-K shows 73.4% of the legacy loan book more than 90 days past due. The published reality, from real LRO investor reports compiled in third-party analyses (Real Estate Crowdfunding Review, Reddit thread aggregations), is that portfolio-level losses for individual investors who didn't diversify across 50+ LROs have ranged 24–35%, because losses on a single Grade-G default can wipe out a year's worth of Grade-A interest.

The yield grade ranges from Real Estate Crowdfunding Review's 2026 review and consistent community data:

• Grade A (lowest risk): 5.5% – 8% — usually 6-month terms
• Grade B–C: 8% – 13% — 9–12 month terms
• Grade D–E: 12% – 18% — 12–18 month terms
• Grade F–G: 18% – 25.5% — 12–18 month terms, deepest subordination

Higher grade does not mean higher quality borrower. Higher grade means higher yield to compensate for higher disclosed risk. The Form 1-A POS filings on EDGAR for individual loan series include the underwriting characteristics: LTV, ARV, borrower experience, geography. Read them. Most LRO investors don't.

Where Notes and LROs Diverge in a Default Scenario

This is the part marketing materials minimize.

Default scenario 1: A single underlying loan defaults

LRO: You eat the loss in proportion to your participation. Groundfloor's recovery efforts (typically foreclosure + auction) determine how much you recover. Industry data from Groundfloor's own quarterly reports shows recovery on defaulted LROs has historically ranged 60–95% of principal — so a $1,000 LRO investment that defaults might return $600–$950, with the haircut as your loss. You have no claim on Groundfloor's other loans or other revenue.

Note: No effect. Groundfloor still owes you 8.5% (or whatever your fixed rate). The default is absorbed by Groundfloor's operating cash flow, balance sheet, or the next reserve buffer in the loan-pool structure.

Default scenario 2: Groundfloor Finance Inc. files bankruptcy

This is the scenario the FY2024 going concern qualification highlights as material. (See our forensic read of the going concern filing for the full SEC EDGAR walkthrough.)

LRO: GRE 1's offering circular (Form 1-A/A, July 24, 2023, accession 0001104659-23-083137) says: "If GRE 1 becomes subject to a bankruptcy or similar proceeding, you as holder of a LRO will have a general unsecured claim against GRE 1 that may or may not be limited in recovery to borrower payments in respect of the corresponding Loan." The LRO is an obligation of GRE 1, which is a wholly-owned subsidiary of Groundfloor Finance Inc. In a parent-level Chapter 11, three things would happen in some order: (1) the Bankruptcy Court appoints a trustee; (2) the trustee assesses whether GRE 1's assets and liabilities should be substantively consolidated with the parent estate under §105(a) of the Bankruptcy Code; (3) if consolidated, all LRO holders become unsecured creditors of the combined estate. Even if not consolidated, LRO holders rank as unsecured creditors of GRE 1 — and the underlying loan documentation specifies that Groundfloor (via GRE 1) is the named lender, so the loans themselves are estate assets, not investor assets. PeerStreet's June 2023 Chapter 11 is the precedent we have: it took ~22 months from filing to the first investor distributions, and the recovery rate on similar Mortgage Payment Dependent Notes was approximately 30–50% of principal depending on loan-level recovery.

Note: Same problem, structurally. Notes are issued by Groundfloor Yield LLC or Groundfloor Loans 1–3 LLC — wholly-owned subsidiaries. Substantive consolidation doctrine treats wholly-owned subsidiaries with no independent governance as candidates for pooling with the parent estate. GFY's offering circular says the Notes are secured by "a first priority security interest in the assets (and related property and rights) of the Company" — meaning Note holders could be senior to general unsecured creditors of the issuing subsidiary. But in a substantive consolidation outcome, that priority within the subsidiary's estate is reset against the consolidated parent estate. The Notes' real protection is the going concern itself — if Groundfloor stays operating and continues servicing Notes, the marketing claim of "100% on-time payments" remains literally true even through stressful loan-book quarters.

What this means in plain English

In the good world (Groundfloor stays solvent for 12 months past your investment date):

• Notes give you a fixed 5.0% – 8.5% (September 12, 2026) with no individual-loan-default exposure.
• LROs give you 5.5% – 25.5% (averaged ~10% gross) with individual-loan-default exposure offsetable through diversification across 50+ LROs.

In the bad world (Groundfloor files Chapter 11 during your investment window):

• Notes and LROs are both unsecured claims on the parent estate (or its subsidiaries) and recovery is a multi-year bankruptcy process at 30–60% of principal — based on the PeerStreet precedent.
• LRO holders may have a stronger argument that GRE 1 is structurally separate from the parent, but the offering circular's own bankruptcy disclosure gives them only "a general unsecured claim against GRE 1 that may or may not be limited in recovery to borrower payments in respect of the corresponding Loan."

The honest summary: Notes are not safer than LROs in a Groundfloor-bankruptcy scenario. They're safer in a normal-operating scenario where individual loans default but Groundfloor remains solvent. The going concern qualification means the latter scenario is no longer guaranteed.

When to Choose Notes

Choose Notes if any of these describe you:

1. You want predictable yield without the time cost of selecting individual LROs. Picking LROs well requires reading Form 1-A POS filings for each series, evaluating LTV/ARV/borrower experience, and tracking your portfolio. That's a real time investment. Notes are passive.

2. You want short lock-ups. The 1-Month (5.0%) and 3-Month (6.0%) Notes, as of September 12, 2026, give you near-cash flexibility. LROs lock you in for 6–18 months with no early redemption.

3. Your portfolio's other RE crowdfunding exposure is already idiosyncratic. If you're holding 30 LROs at Groundfloor plus Fundrise plus Arrived plus EquityMultiple, adding more LROs adds correlated single-loan risk. A Notes position diversifies into platform-pool risk.

4. You're a non-accredited investor seeking the highest available coupon. The 12-Month Signature at 8.5% (September 12, 2026) is the highest fixed-rate offering Groundfloor has for non-accredited investors. Comparable offerings in 2026: Concreit's variable rate is ~5.5%; mogul.club's 4.75% on Concreit Fund I. Groundfloor's Signature beats those.

5. You believe Groundfloor will survive 12 months but you're nervous about loan-book volatility. Notes shift your risk from "this specific borrower defaulting" to "Groundfloor staying solvent" — an institutional bet rather than a deal bet.

When to Choose LROs

Choose LROs if any of these describe you:

1. You want the highest available yield and you'll diversify aggressively. A 50-LRO portfolio with a mix of Grade B–G can target 12–18% gross IRR if Groundfloor's underwriting holds. Concentrating in 5–10 LROs is where investors get hurt.

2. You enjoy reading underwriting documents. LROs are the only Groundfloor product where you can directly assess the deal: LTV, ARV, comparable sales, borrower track record. This is the LRO advantage over Notes — informational asymmetry available to investors who do the work.

3. You want term-by-term cash flow control. LROs let you stagger maturities — a 6-month Grade A maturing soon, a 12-month Grade D mid-cycle, an 18-month Grade F at the end. This is how to construct a self-amortizing income stream without a fund's expense ratio.

4. You're comfortable with the platform-level credit risk anyway. If you're going to hold money on Groundfloor under a going concern qualification, both products carry the same parent-bankruptcy exposure. LROs at higher yields compensate you more for that platform risk.

5. You're testing the platform with $10–$100. The $10 LRO minimum is the lowest dollar barrier in the industry. It's a legitimate way to learn Groundfloor's product without committing the $100 minimum a Note requires.

What I Personally Watch in 2026

Three signals I watch on Groundfloor specifically:

1. The FY2025 1-K (filed April 1, 2026) answered the last round of questions: the going concern qualification persisted, the accumulated deficit grew to $64.8 million, and the $62,063,000 of Mortgage Trust 2025-1 notes issued in May 2025 are disclosed in it. The next annual report is the FY2026 1-K. The 1-K is the single most important document Groundfloor publishes per year, and it lands on EDGAR for free. Read it.

2. LRO grade distribution and default rate trajectory. The 4.71% figure circulated as "official" is a third-party lifetime number absent from the filings; the audited FY2025 Form 1-K shows 73.4% of the legacy book more than 90 days past due. The recent trajectory matters more — defaults rising on 2023–2024 vintages would be a leading indicator of capital impairment. Quarterly reports on the platform site disclose this.

3. Notes coupon rate trajectory. Groundfloor's Notes are demand-driven — if they need more cash, they raise the coupon. The 12-month rate was 7.5% in GFY's June 2025 offering circular, up to 8.25% by April 2026 (per Groundfloor's Preferred Note announcement) and 8.5% by September 12, 2026. Each step up is itself a market signal. If we see 9.0%+ on the 12-Month Signature in a future quarter, the platform's funding cost has risen materially.

The Honest Verdict

Notes and LROs solve different problems on a platform that, in 2026, carries non-trivial issuer risk.

If you're putting less than 5% of your liquid net worth on Groundfloor, the academic question of Notes vs LROs matters less than the position sizing. Either one is fine.

If you're putting 5–15% of liquid net worth on Groundfloor — and you're a non-accredited investor without the alternative of EquityMultiple's Alpine Notes — the 12-Month Signature at 8.5% (September 12, 2026) is the most rational allocation. Pooled exposure, fixed yield, you're done.

If you're putting above 15% of liquid net worth on Groundfloor, you're concentrated. The going concern qualification means you should not be doing this. Reduce.

If you already have 30+ LROs spread across grades and you've been doing this since 2020, you understand the platform. You don't need this article. You're probably right about the platform risk being acceptable for your portfolio context.

For everyone else: read the 1-K, decide your allocation size, then choose the product that matches your time-to-liquidity preference. Yield differences within Groundfloor are smaller than the platform-vs-platform yield differences elsewhere in this niche.

Cross-references

• Groundfloor Review 2026: Going Concern Warning + Real Default Rate
• Groundfloor's Going Concern Warning Explained: A Forensic Read of the 2024 Audit
• Bankruptcy-Remote vs Not: Which Real Estate Crowdfunding Platforms Actually Protect You If They Fail
• Best Groundfloor Alternatives in 2026 (One Platform Has a Going Concern Warning)
• Groundfloor vs Arrived Homes 2026
• Concreit vs Groundfloor 2026

FAQ

Sources (primary)

• Groundfloor Notes live page: groundfloor.com/notes/ (September 12, 2026)
• Groundfloor Finance Inc. Form 1-K, fiscal year 2024 (SEC EDGAR, filed March 31, 2025) — going concern qualification and accumulated deficit disclosure
• Groundfloor Finance Inc. Form 1-K, fiscal year 2025 (SEC EDGAR, filed April 1, 2026) — going concern repeated; accumulated deficit $64.8 million
• Groundfloor Real Estate 1, LLC Form 1-A POS filings (SEC EDGAR, CIK 1694600) — LRO offering circular language and bankruptcy disclosure
• PeerStreet Inc. Chapter 11 docket (Case 23-10815, U.S. Bankruptcy Court for the District of Delaware, filed June 26, 2023) — precedent for crowdfunding platform parent bankruptcy outcomes
• Groundfloor Yield LLC and Groundfloor Loans 1–3 LLC Form 1-A qualifications (SEC EDGAR) — Notes structure
• The Real Estate Crowdfunding Review, "Comprehensive Groundfloor 2026 Comprehensive Review and Ranking" — third-party LRO grade-yield ranges and platform analysis
• Groundfloor support center disclosures on Notes vs LROs (support.groundfloor.us)
• Mayer Brown legal analysis, "Trust Indenture Act Here's the deal" (January 2024) — substantive consolidation doctrine background

This article was written and verified May 2, 2026. All yields, terms, and minimums reflect current Groundfloor disclosures as of that date and may change without notice. Read the actual offering circular before investing in any specific Note or LRO.