Passive Investing for the Unaccredited Investor
List of Crowdfunding websites that offer opportunities to non-accredited investors. This list isn’t comprehensive and I don’t specifically endorse any company below.
In our last episode we discussed what threshold you had to meet to be an accredited investor. If you don’t meet the net worth or income requirements of an accredited investor there’s still a way for you to access high yield real estate syndications and other private equity offerings. And no, I’m not about to tell you to buy REITs with your brokerage account. Of course, if you are accredited then everything available to unaccredited investors is available to you as well.
Let’s start with real estate syndications. If you want to invest passively by pooling your money with other investors to buy an apartment complex, for example; you’ll want to find what’s called a rule 506(b) syndication. There are different rules under the SECs Regulation D which spells out what is exempt from being registered as a security with the SEC. Rule 506(b) is one. These investments can have 35 or fewer unaccredited, but sophisticated, investors and unlimited accredited investors. This type of offering cannot be advertised publicly, and you’ll only be approached to invest with one if you’ve established a relationship with the syndicator beforehand. There are a few key takeaways here:
1.These offerings aren’t going to pop up in a targeted advertisement while you’re scrolling through your favorite online celebrity gossip site. You have to find the company offering the investment, not the other way around!
2.You have to be sophisticated. In this context, sophisticated means the person must have (quote) sufficient knowledge in financial matters (unquote). A syndicator must assess that the person they’re offering the security to is able to meet this requirement. For Example, If I’m raising money for a 3 million dollar apartment complex and you express interest in my offering, I have to make sure you have the sophistication to know what you’re putting your money into. If I find that you’ve only invested in mutual funds before and you know nothing about real estate, you won’t meet the requirements to invest in the offering. But if you already have a rental property or two, or are actively educating yourself about real estate investing by reading books, listening to this podcast or others, you’ll probably qualify as a sophisticated investor.
3. There’s a third requirement that also applies. The person offering the security must have a pre-existing and substantive relationship with you. Since rule 506(b) offerings cannot be solicited or advertised, a pre-existing relationship is required to find out about the investment offering. The substantive part basically means the person offering the security knows enough about you to verify you’re sophisticated, accredited, or educated enough about the company and investment model to make an informed decision with your money.
We’ve explained all this to make the following point. If you’re unaccredited and want to invest passively in syndications you’ll need to do some research and find syndicators offering investments to unaccredited investors. It shouldn’t be that hard. Most will say very clearly on their website if they only deal with accredited investors. Looking through a website like Bigger Pockets would be helpful in finding syndicators who offer investments to unaccredited investors. Once you find a few, join their email lists and schedule phone calls so they can get to know you. Then, you’ll be in the know when their next investment is unrolled. You can do this with us by going to our website and clicking on the blue “Invest with us” button.
There are other options out there, too. In 2015 and 2016 the SEC took pity on 99.8 percent of the population and created some new rules that let unaccredited investors access investments that previously only accredited investors could. For example, have you ever heard of crowdfunding? You probably have. That’s where a large number of people can pool smaller amounts of money together to buy equity in a company. And it’s becoming more common. Let’s look at some of the requirements for this type of offering.
-The offerings can be made to anyone. You don’t need to be accredited or sophisticated
-The maximum capital raise can be 1 million in a 12 month period
-There is no limit to the number of investors that can participate
-If an investor has an income of less than 100,000 then they can invest a maximum of 2,000 dollars
-If an investor makes more than 100,000 they can invest up to 10,000.
While this is a real estate investing podcast, I’d be misleading you if I didn’t acknowledge that you can invest in more than just real estate through crowdfunding. A lot of what you’ll find to invest in with in Crowdfunding has to do with startup companies who are selling a doodad, software, or booze. Feel free to invest in those. Also, you can find websites that specialize in crowdfunding real estate developments. Open up your favorite search engine and type in “real estate crowdfunding” and see what pops up. You can also visit our website at highyieldre.com/podcast/regcf that’s r-e-g-c-f for a small list of companies available.
But wait, there’s more still to talk about! We’ll talk about even more opportunities for unaccredited investors in our next episode.