Accredited vs. Non-Accredited Investors

What is an accredited investor? There are two primary ways to qualify as an accredited investor.

• Somebody who earns over $200,000 a year, $300,000 jointly with a spouse for the last two years and has the expectation of continuing to earn that much or higher in the coming year.
• The second criteria that can qualify somebody as an accredited investor is a net worth of over $1 million, excluding the value of their primary residence.

If you have been saving in your retirement accounts for a while meeting this million-dollar threshold may be closer than you think. In fact, according to Investopedia in 2020, over 10% of American households are qualified as accredited investors. However, I bet most of them don't realize what this means and the opportunities it unlocks for them.

There are certainly several details and other ways to qualify as well. Now I'm not a CPA or an attorney and you should always consult with yours.

Accredited or non-accredited, why does it matter? It matters a lot! It matters because the SEC has some very specific rules about who can invest in what type of unregistered securities. Unregistered securities are things like hedge funds, private placements, and real estate syndications that are often made available through one of two different means.

The first is a 506C. These are for accredited investors only. These are the ones that you may see advertised. In fact, you are allowed to advertise 506C opportunities. However, only accredited investors can invest in them.

The second kind of offering is a 506B and available to accredited investors and up to 32 non-accredited investors as well. However, there are two criteria that allow a non-accredited investor to invest.

• The first is they must be sophisticated. They must have sufficient knowledge in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.
• The second criteria is that there must be a prior existing relationship. These opportunities can NOT be advertised generally. So, you need to have an existing relationship with the person that is offering the 506B security.

Which is better? Well, it doesn’t matter which mechanism is used as to if it is better. What matters is how good the investment opportunity is and your evaluation of that opportunity and the sponsor of the deal. It just so happens that there are different rules based on the type of investor you are.

What you need to do. Whether you're accredited or non-accredited, if you're interested in investing in these opportunities, you need to build a relationship with an experienced syndicator. This is someone that has these offerings, and now that you will have the relationship, you can be given access to those offerings.

For instance, people in my Spire Investor Group get access to opportunities that can not be openly advertised. And, accredited investors will see the 506C opportunities as well. If you're interested in seeing these opportunities, you need to join my investor group.