Accredited and Non-Accredited Investors and Securities Exemptions. Investing in real estate syndication can be a great way to diversify your investment portfolio and potentially earn significant returns. However, it’s important to understand the different types of investors in real estate syndication and the securities laws and regulations that govern them.
Investors in real estate syndication can be divided into two categories: accredited and non-accredited investors. Accredited investors are individuals or entities that meet certain financial criteria set by the SEC. They typically have a net worth of at least $1 million or an annual income of at least $200,000. Non-accredited investors, on the other hand, do not meet these financial criteria.
But just because an investor is non-accredited doesn’t mean they can’t participate in a real estate syndication. If the syndication is set up with proper securities exemptions, non-accredited investors can also participate. These securities exemptions are provided under Regulation D of the Securities Act of 1933, which allows issuers to raise capital without registering with the SEC.
However, there are limits to the number of non-accredited investors who can participate in a syndication. Under Regulation D, issuers can offer securities to up to 35 non-accredited investors, who are considered sophisticated investors. A sophisticated investor is someone who has sufficient knowledge and experience in financial and business matters to evaluate the risks and merits of an investment opportunity. To qualify as a sophisticated investor, an individual must have either a degree in business, finance, or accounting, or at least five years of experience in a related field.
Real estate syndication can be a lucrative investment opportunity, but it’s important to do your due diligence and understand the risks involved. Before investing in a syndication, it’s important to research the sponsor’s track record, the property’s location and condition, and the terms of the investment, including the expected return and any fees or expenses.
Investing in real estate syndication can be a passive way to generate income and build wealth over the long term. By understanding the different types of investors and the securities laws and regulations that govern them, you can make informed investment decisions and potentially reap significant rewards. Whether you are an accredited investor or a sophisticated non-accredited investor, real estate syndication can be a valuable addition to your investment portfolio.