Accredited vs. Sophisticated Investors

We want to teach you about Accredited Investors and Sophisticated Investors. This is important to understand, because your status as an LP will affect which opportunities are available for you to invest in!

 

An accredited investor is an individual or entity that meets certain criteria set by securities regulations, allowing them to participate in various types of real estate securities offerings. The criteria for being classified as an accredited investor primarily revolve around income and net worth:

 

• Must have a net worth of $1M+ (individually or joint with a spouse/partner)

• Or an income of $200K (individually) / $300K (joint with a spouse/partner) from the last two years.

 

Sophisticated investors do not meet the financial criteria to be an accredited investor, but still possess a sufficient level of financial knowledge, experience, or professional expertise to make them capable of evaluating the merits and risks of a prospective investment.

 

They also must have a relationship with the General Partner (GP) / Sponsor before they can participate in eligible investments.

 

Why does this matter?

Real estate opportunities driven through syndication can be made available to investors in one of two ways under Regulation D of the Securities and Exchange Commission (SEC): Rule 506(b) and 506(c).

 

506(b) investments are private and require a preexisting relationship with their non-accredited investors. The sponsoring team (the GPs) can advertise their company and brand, but cannot advertise the deal in question. These opportunities are available to both Accredited and Sophisticated Investors. However, such deals are restricted to a maximum of 35 Sophisticated Investors! No such restrictions exist for Accredited Investors.

 

506(c) investments can be advertised to the public by the GPs, but are restricted to Accredited Investors only. No preexisting relationship is required, and Sophisticated Investors are blocked from participation.

 

What if I don’t Quality as an Accredited Investor?

Don’t worry! You can become (or already are) a Sophisticated Investor, which can still grant you access to the private 506(b) investment opportunities. As your net worth grows, you have the increasing potential to meet the criteria of an Accredited Investor to unlock additional opportunities to continue increasing your passive income.

 

Being sophisticated means being educated, and we’re here to help you learn!