Accredited vs Non-Accredited Investors

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Accredited vs Non-Accredited Investors

By Christopher Starr

So, you have $100,000 and you want to invest in real estate.  You begin researching your options. You want to be a passive investor, so you are looking for an experienced active investor, or sponsor, to place your money. However, in your research, you find that you must be an “accredited investor” to invest in opportunities you have found.  

So, what is an Accredited Investor anyway, and do you qualify?

The most recent update by the Securities and Exchange Commission, or SEC, on January 31, 2019, provides the definition, which can be found here.  Below is a summary of the basic requirements to be qualified as an Accredited Investor, as outlined by the SEC.

An accredited investor, in the context of a natural person, includes anyone who:

  • earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR

  • has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

There are other categories of accredited investors, including the following, which may be relevant to you:

  • any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, or

  • any entity in which all of the equity owners are accredited investors.

In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.

A Non-Accredited Investor is a person or entity that does not meet the above financial requirements, nor do they have experience in the field they are investing in, real estate in this case.  Does this mean you can’t invest in real estate, maybe not? It’s important to have a discussion with the Sponsor you are wanting to invest with. At IndyCal Capital, we offer a short-term investment option where the investor is actually a private lender and their investment is secured by a trust deed and promissory note.  For our commercial deals, in most cases, our investors will be accredited investors. There may also be a case where the investor is the only investor on a transaction and this would not be considered a security.

Now that you know the difference between an Accredited and Non-Accredited Investor, do you qualify to invest in real estate?   You may learn you can invest, even if you have doubts!

Always make sure to seek professional legal and accounting advice from the respective professionals. IndyCal Capital is not providing legal or accounting advice. This article is for educational purposes and should be confirmed for your specific situation.

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