In Episode 2 of Beyond the Stock Market, Groundfloor CEO Brian Dally sits down with Patrick Donoghue, Vice President and General Manager of Groundfloor Lending, to unpack how private credit is shaping real estate investing and what both borrowers and investors need to understand about the market ahead.
The Loan Behind Every Investment
For many investors, private credit real estate can feel abstract. But in practice, every investment starts with a loan—and a borrower who has to execute. At Groundfloor, that process is built in-house.
“We’re the manufacturer of the real estate fractional loan investment,” Donoghue said. “That product is a fix and flip loan or new construction loan. We originate it, we close it, and we service it—taking that loan from inception through repayment, the entire loan life cycle.”
The end-to-end approach creates direct alignment between borrowers, lenders, and investors.
As Donoghue noted, “We service 98% of our book,” meaning borrowers maintain a direct relationship with the lender throughout the life of the loan.
Real Estate Entrepreneurs, Not Just Borrowers
The borrowers themselves are not large institutions. They are operators, often managing multiple projects at once while navigating changing market conditions.
“These are our neighbors,” Donoghue said. “These are entrepreneurs, small businesses, taking on a residential real estate project to improve it.”
Their work goes far beyond profit. Renovating and building homes creates housing supply, generates local jobs, and supports broader community development.
But the work is rarely straightforward; timelines shift, costs evolve, and outcomes depend on the ability to adapt quickly.
Why Cash Flow Matters More Than Rate
In that environment, how a loan is structured can matter more than the headline rate. Groundfloor’s approach—deferring interest payments until the end of the project—is designed around that reality.
“What is critical to every small business owner? It’s cash flow,” Donoghue said. “When your business is renovating a home, you need that cash flow that would otherwise be going to an interest payment.”
By allowing interest to accrue instead of requiring monthly payments, borrowers can keep more capital deployed in the project itself, which is especially important for those managing multiple renovations at once.
For investors, that structure reflects a key concern: loans that support successful execution are more likely to be repaid.
A Fundamental Shift in Exit Strategy
One of the most significant changes in recent years is how deals are exited.
“The predominant trend I’ve seen since late ’22 is the shift in exits,” Donoghue said. “What used to be primarily sales has flipped—now you’re seeing more refinancing into long-term rentals.”
Rising interest rates and affordability constraints have slowed buyer demand in many markets. In response, experienced operators are increasingly pivoting. Instead of relying solely on resale, many are:
- Holding properties as rentals
- Refinancing into longer-term financing
- Building portfolios rather than flipping quickly
At the same time, Donoghue noted that “new construction has taken on a bigger portion of our book,” as developers look for stronger margins and more predictable value creation.
The Evolution of Capital in Real Estate Investing
The capital behind these projects has evolved alongside borrower strategy.
A decade ago, most real estate entrepreneurs relied on local lenders or fragmented sources of funding. Today, private credit has matured into a broader, more integrated ecosystem.
“It’s really compelling to see institutional capital and retail capital work side by side, in tandem,” Donoghue said. “That relationship is where Groundfloor really is unique.”
This convergence allows individual investors to participate in the same types of real estate debt opportunities that historically attracted institutional capital.
It has also introduced more discipline into the market. With greater access to capital comes greater competition—and less tolerance for poorly structured or executed deals.
The Reality Behind the Opportunity
Despite improved access to financing and more sophisticated platforms, one misconception persists.
“That it’s easy… it’s very difficult,” Donoghue said of real estate investing.
Even experienced operators face unknowns on every project, from construction surprises to shifting market demand.
What has changed is the infrastructure around those risks. Borrowers have more flexible financing options. Investors have greater transparency into how deals are structured and managed.
A Market Defined by Adaptation
Looking ahead, Donoghue expects the real estate market to remain steady, but constrained.
He described the outlook as “a bit sluggish,” citing continued affordability challenges and broader economic uncertainty.
In response, both borrowers and lenders are adapting—expanding into longer-term financing solutions and creating more flexibility around how projects are completed and capital is returned.
Where Borrowers and Investors Meet
Private credit only works when the project works. That starts with the borrower, the property, and a plan that can hold up in a market where exits are less predictable than they were a few years ago. As Donoghue explained, more borrowers are now refinancing into long-term rentals instead of selling, while others are shifting into new construction to find stronger returns.
At the same time, the capital behind these projects has changed. Individual investors and institutional capital are now participating in the same loans, which has expanded access but also raised expectations for performance.
For borrowers, that means having financing that supports cash flow and execution throughout the life of the project.
For investors, understanding how real estate loans are structured is critical to evaluating risk and return. As Donoghue explains, many of today’s borrowers are shifting their exit strategies, with “more refinancing into long-term rentals” instead of relying solely on property sales, a change driven by affordability constraints and slower buyer demand.
At the same time, loan structures like deferred interest are designed to preserve borrower cash flow during renovations, which can support project completion and repayment. Together, these trends highlight how private credit in real estate is evolving—and why investors should pay close attention to both borrower strategy and loan design when evaluating opportunities.
Listen to or watch the full conversation at Groundfloor.com/podcast.
