Difference between Accredited and Non-Accredited Investors

When it comes to investing in real estate, it's important to understand the difference between accredited and non-accredited (also called sophisticated) investors. Accredited investors are individuals or entities that meet certain financial criteria, while non-accredited investors do not.

The financial criteria accredited investors must meet are set by the Securities and Exchange Commission (SEC). To be considered an Accredited Investor you must meet one of the following criteria:

Income Test: The individual must have an annual income of at least $200,000 or $300,000 for married couples filing jointly for the past two years, with a reasonable expectation of maintaining a similar income level in the current year.

Net Worth Test: The individual’s or if married combined net worth must exceed $1 million (excluding the value of their primary residence).

A non-accredited (sophisticated investor) is a person who does not meet the accredited investor requirements listed above but has knowledge and experience in financing and business matters and is therefore capable of evaluating the merits and risks of a prospective investment.

It's worth noting that the SEC's rules are subject to change and the criteria for becoming an accredited investor may change over time, although these are the requirements as of the time this article was written.

Only qualified investors are permitted to passively invest as limited partners in apartment syndications. To qualify to invest in apartment syndications, you must be an accredited investor or sophisticated investor.

One common question is, “How do I prove I’m an accredited investor?” There are a few ways of doing this, although the most common is to get a letter from your CPA, attorney or banker. Before investing in a syndication the General Partner can provide you a very common template for them fill in if you don’t already have one.

We hope you found value in this article. If you know someone who would enjoy this article or similar articles, please have them reach out to us. They can go to our website and click on the Contact tab.