Passive income is revenue that takes minimal effort to acquire. When you invest in Groundfloor loans, that’s exactly what you get — you put money in, and when the loan repays, you get the principal back plus interest. Our borrowers and Groundfloor do all the actual work to make that happen.
There are a few ways you can leverage this passive income.
Growth Engine
First, you can use passive income to grow over time and generate steady, compounded returns. If you simply invest your money in a Groundfloor Auto Investor account, it will automatically reinvest repayments into new loans. This will generate compound interest, which has historically returned about 10% to our investors. Easy peasy!
Monthly Income Engine
You can use Groundfloor to create your own annuity-like revenue engine. The difference is that the performance will likely be much higher than a typical annuity.
To use your capital to generate regular monthly payments, you can set up our Passive Income feature to set aside cash that you can withdraw at any time. Here’s how it works:
In your Auto Investor Account settings, set a target for monthly withdrawals.
When loans repay, they will not be reinvested until your target is reached.
Once the target is reached, subsequent repayments get reinvested again.
Withdraw from your account any time. When you withdraw, your passive income target starts refilling again as repayments arrive.
Some tips:
If you want to put a large amount of capital to work this way, you may want to invest it over the course of a few months so that it gets distributed into as many loans as possible. You can do this automatically by setting up a weekly transfer and let it run for 12 weeks. This would get you invested in about 200 loans, and you’ll likely start seeing your first repayments before the end of that twelve week period.
You want to keep as much money at work as possible, so set your passive income target to the lowest number you need. The cash reserve doesn’t accrue any interest.
Rules of thumb:
If you withdraw 1/120th (0.83%) of your portfolio every month, your principal will remain about the same if you earn 10% per year.
If you want to keep ahead of inflation, you can withdraw about 1/200th (0.5%) of your portfolio per month. This way you would be earning 6% on your principal per year, and the principal would grow by about 4% per year. Applying this rule, you would want to deposit $20,000 for every $100 per month of passive income you wish to receive.
If you want to slowly drain your account, you can set your target to be higher. You will gradually lose principal. Setting the target higher than 5% of your portfolio will probably result in unreliable monthly income due to variable repayments.