Non-Accredited Investors: Real Estate Investing 101
The best investments have traditionally been reserved only for accredited investors. How do you get ahead, and get into profitable real estate investments if you are a non-accredited investor?
For far too long the most appealing investments have been closely guarded and preserved for only already wealthy investors. That has been one of the key factors in the rich getting richer, while the poor get poorer. This divide is often the line in the sand between accredited investors and non-accredited investors. Newer rules may have opened a small window of opportunity for regular individuals. How can you take advantage of that?
Accredited Investor Status
The Securities and Exchange Commission (SEC) lays out the rules for qualifying as an accredited investor. In addition to big institutional investors like banks and pension funds, this also applies to individuals. To qualify you generally need to have a net worth of at least $1M. Or you need to be earning $200,000 per year, or $300,000 between you and your spouse.
This requirement has long been used to separate who can invest in what. The public argument is that these restrictions ‘protect’ consumers. Yet, they also prevent individuals from many investments and control who can offer investments. The result has often been ensuring only the big old finance companies can control the flow of money, and only their best clients with the most money get access to the best deals.
The JOBS Act & Crowdfunding
Things began to change with the JOBS Act. This new law was introduced as a solution to breaking down the barriers and allowing more people to start businesses and offer opportunities while giving regular people to invest in a broader and better range of choices.
Unfortunately, most crowdfunding platforms and companies with these opportunities have not actually begun accepting non-accredited investors. Why? Because the legal expenses can be costly oftentimes. Yet, structuring an offering and opening the doors to non-accredited investors, can mean a lot more up-front work for the crowdfunding platform. It also can afford the opportunity to a broader base of investors.
Options for Investing in Real Estate
Fortunately, there are some options for individuals who want to get into real estate investing and are eager to work their way up to accredited investor status. These include:
- Direct investment in properties all by yourself
- REITs and funds
- Select real estate crowdfunding portals
Without a lot of capital or experience of your own, and to avoid the high multiple layers of fees from old traditional brokers, it is normally best to leverage some expertise and partners to get the best investments. This increases upside potential and lowers your risk, by going into some form of private partnership or crowdfunding offer. Just make sure you understand what you are investing in, and ask lots of questions if you aren’t sure.