As a passive investor, you need to be prepared to talk to operators. Your knowledge and confidence is a key factor in finding and participating in deals.
One question operators will have for you is, “Are you an accredited investor?”
You may wonder, how important is this?
Is It Possible For a Non-Accredited Investor To Do Deals?
Accredited Investors
Let's start with a definition. The term Accredited Investor is defined by SEC regulations.
This is someone whose annual income has exceeded $200K (or $300K with a spouse) for each of the last two years OR who has a net worth of $1M-plus, either alone or with a spouse, NOT including the equity in their primary residence.
Because accredited investors are high-net-worth individuals (HNWI), the SEC allows them to invest in deals without knowing the sponsor in advance. The logic here is, if they lose the money they put in real estate deal, they won’t lose their livelihood.
We all know there are obvious benefits to having more money, and there are benefits to being an accredited investor. You have access to different investments and a variety of asset classes.
In multifamily, some operators prefer to work with accredited investors, and they may get first access to a deal because they are pledging larger amounts. This means, of course, they may also get a higher a return on their investment than someone with a lower investment amount.
But this doesn’t mean a non-accredited investor is unable to participate in deals.
It’s true there are compliance restrictions in place. Operators must adhere to these specific guidelines, and it is easier for the to work with Accredited Investors. There is more risk involved in working with Non-Accredited Investors.
But it does happen.
As a non-accredited investor, you can do deals.
Sophisticated Investors
You do this by becoming what is known as a sophisticated investor. This is someone who does not meet the SEC guidelines, but does have previous experience investing outside the stock market or has been educated in alternative investments.
Non-accredited investors need to have a previous relationship with the sponsor before investing in a real estate deal.
A good operator will build a relationship with you, and in that process, they're going to ask you questions around your previous experience and knowledge.
As operators, we don't want to take someone's money that has no idea what they're getting themselves into. If you register with us at Nighthawk Equity, for example, we will get to know you before we present you with a live deal.
As a sophisticated investor, you have some education or real-life experience. Maybe you’ve taken a course, or own rental property. You can’t just start investing with someone that you've met yesterday. You must have a relationship with that person, and a good operator knows this. They won't just solicit and take anyone's money.
So if you’re going to do deals as a non-accredited investor, you have to know how to sell yourself. You must present yourself to the operator in a way that shows you know what you’re doing.
You have to put in the work of building relationships and remind operators that you’re ready to invest.
Your strategy as a non-accredited investors is to educate yourself, network, go to events, grow your knowledge base, and make contacts. You’ll have to put in more work than an accredited investor, but with the right attitude, you can do it.
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