As people begin to tailor their interests towards apartment investing, they learn of the great opportunities that come with passively investing in syndications. Invevitably, they will learn that there are SEC rules and guidelines that govern securities and raising money for syndications. Rather than go deep into the restrictions and guidelines in this article, we will address a common question for new and aspiring passive investors: Do I have to be accredited to invest passively in apartments?
What is an Accredited Investor?
According to the SEC, any offer to sell securities must be registered through the SEC or subject to certain exemptions. There are two exemptions under which most syndicators operate: 506(b) and 506(c); both involve the subject of accredited investors. According to the SEC, an accredited investor is classified as such by having met the following requirements:
- earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
More recently, in August 2020, the SEC modified the term to include expanded groups of potential investors. For more details, check out the press release here.
Do I have to be Accredited?
Of course, after reading this, new investors can be discouraged from investing and may assume that because they do not meet the net worth or income to meet the accreditation requirement, they cannot invest in real estate syndications. But there is more:
The 506(b) exemption allows for both accredited and “sophisticated investors” who do not meet the accreditation requirement to invest in these types of deals. There are limitations for how many sophisticated investors a syndication can have. It is also important to note that the fundamental requirement for 506(b) there must be a “pre-existing and substantive relationship” between the offerer and investors (you). In summary, in order to passively invest in syndications, you do not have to be accredited (for certain opportunities), but must first find and develop a relationship with a sponsor (Side note: For 506(c) offerings, however, sponsors need not have a preexisting relationship and can advertise freely; however, all passive investors must be accredited).
Bonus: How Do I Find Syndicators?
Now that we answered your question, as an added bonus, let’s answer your next question. How do you find these opportunities and syndicators? There are many groups out there, and they are easier to engage especially during this time where online connections are becoming more common. If you have not already, reference the article How to find Syndicators, and I dropped some of the notes below.
1) Bigger Pockets – I have found that the multi-family investing section of the BiggerPockets.com forum is helpful for discovering syndicators and to begin to follow their content.
2) Linkedin – I am actively involved on LinkedIn and in 3 months have been able to 10x my network of other apartment investors and active syndicators
3) Podcasts/Blog Content – Once you learn of a few syndicators, they may have a podcast; if they do, check it out and subscribe. This will allow you to understand follow them and become a part of their network.
4) Meetups – as I stated above, these Zoom meetups are popping up all over. I have found a meetup for nearly every day of the week! If you have not already, explore these avenues and after having immersed yourself in the network, as well as developed solid relationships, you can find opportunities to invest as a sophisticated investor.
I hope this helps your understanding of they types of exemptions that exist in syndicated real estate investment opportunities as well as those toes of deals in which you may participate. Please let us know if you have any additional questions.
Reference:SEC: Rule 506 of Regulation D
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Rodney Robinson II