What does it take to become an accredited investor and why does it matter?

One question we get all the time is: What does it take to become an accredited investor and why does it matter? While you do not have to be an accredited investor to invest in real estate syndications, there are rules that regulate which types of investments accredited and non-accredited investors can participate in. 

Accredited vs. non-accredited sophisticated investors
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‍To become an investor in a syndication, you must be qualified. There are two types of qualified investors:

• Accredited Investors meet at least one of the following for the last two years with reasonable expectation it will continue:

• Annual income exceeding $200,000 for individual income
• Annual income exceeding $300,000 for joint income
• Net worth exceeding $1,000,000 (not counting your primary residence)
• Private business development company or an organization with assets exceeding $5,000,000

• Non-Accredited Sophisticated Investors may not meet the requirements of being an accredited investor, but have the knowledge and experience necessary to understand and evaluate the benefits and risks of investing.

Why does it matter when it comes to investing in syndications?

It is important to know where you fall, as this could potentially change what type of offerings you are allowed to invest in. There are two main types of offerings: 

• 506(b) Offerings allow accredited AND non-accredited sophisticated investors to become limited partners. These offerings are limited to 35 investors for each deal. 506(b) offerings cannot be publicly advertised and therefore require the syndicator to have a relationship with the passive investor before they can present the offering. If you fall into this category it is important to build a relationship with a sponsor in order to have access to these types of deals. 
• 506(c) Offerings are only open to accredited investors. These deals can be advertised to the public. That means deals that you see advertised on social media or other means of advertising are most likely 506(c) offerings and require you to be an accredited investor to participate in the offering.

Knowing which category you fall under and understanding the two types of offerings is an important first step in beginning your investing journey. Whether you are an accredited or non-accredited sophisticated investor, building a relationship with a sponsor is crucial if you want to receive 506(b) offerings. 

Want to learn more about a different way to invest in real estate? Download our FREE Passive Investor's Guide to Multifamily Syndications and begin your path to financial freedom!