Accredited Investors vs. Non-Accredited

As a passive income investor you will always want to be on the lookout for new investment opportunities. The goal is to always get the highest return on your money for the smallest amount of risk. In theory, if one could get a 50% return each year by just keeping their money in the bank, there would be little reason to invest in other financial instruments like the stock market.

The problem with alternative investments is that sooner or later you will run into the term accredited vs. non-accredited investors. So, it's good to know early which type of investments you can qualify for as you look at new opportunities.

Who Defines Accredited Investors vs. Non-Accredited Investors?

The Securities and Exchange Commission (SEC) set the requirements for accredited investors under Rule 501 of Regulation D. In simplest terms, the rule is "designed" to protect small (e.g. retail) investors from losing all their money in highly risky investments. The thinking is that someone with a lot of money will tend to be 1) a more sophisticated investor, knowing the risks associated with certain types of investments and 2) will not be financially ruined on just one bad investment deal.

In reality, we feel the SEC rules for accredited investors are outdated and need to be changed. With the amount of information now on the Internet, there are many people who are sophisticated investors, and know more about alternative assets, but may not meet the criteria in terms of income or net worth. Hopefully these rules will change over time.

Accredited Investors	Non-Accredited Investors
An individual or entity that meets specific wealth or income thresholds or holds a professional designation Net worth must exceed $1MM USD (excludes primary residence), individually or with a spouse OR annual income is greater than $200K for an individual ($300K with spouse) Income/net worth requirement must be maintained for the 2 years prior to making an investment that requires accreditation Individuals holding a license related to investments such as Series 7, Series 65, or Series 82 can also be considered accredited Types of investments qualified for: Publicly Traded Stocks, ETFs, REITs, Mutual Funds, HYSA, CDs, Crowdfunding, Hedge Funds, Venture Capital, Private Equity Offerings, Private Placements, Regulation A/A+, Angel Investments	An individual or entity that falls below the threshold defined by the SEC for being an accredited investor Net worth is below $1MM or individual makes less than $200K annually (less than $300K with spouse) Investment managers will typically ask for income tax statements or a letter from a tax attorney that will attest their client meets the criteria if investor feels they are accredited Thankfully, crowdfunding companies and some real estate syndicators have developed workarounds to let more non-accredited investors into certain deals with restrictions* Types of investments qualified for: Publicly Traded Stocks, ETFs, REITs, Mutual Funds, HYSA, CDs, Crowdfunding, Regulation A+ (Tier 1 up to $5MM), some real estate syndication deals

Accredited Investors

Non-Accredited Investors

An individual or entity that meets specific wealth or income thresholds or holds a professional designation
Net worth must exceed $1MM USD (excludes primary residence), individually or with a spouse OR annual income is greater than $200K for an individual ($300K with spouse)
Income/net worth requirement must be maintained for the 2 years prior to making an investment that requires accreditation
Individuals holding a license related to investments such as Series 7, Series 65, or Series 82 can also be considered accredited
Types of investments qualified for: Publicly Traded Stocks, ETFs, REITs, Mutual Funds, HYSA, CDs, Crowdfunding, Hedge Funds, Venture Capital, Private Equity Offerings, Private Placements, Regulation A/A+, Angel Investments

An individual or entity that falls below the threshold defined by the SEC for being an accredited investor
Net worth is below $1MM or individual makes less than $200K annually (less than $300K with spouse)
Investment managers will typically ask for income tax statements or a letter from a tax attorney that will attest their client meets the criteria if investor feels they are accredited
Thankfully, crowdfunding companies and some real estate syndicators have developed workarounds to let more non-accredited investors into certain deals with restrictions*
Types of investments qualified for: Publicly Traded Stocks, ETFs, REITs, Mutual Funds, HYSA, CDs, Crowdfunding, Regulation A+ (Tier 1 up to $5MM), some real estate syndication deals

*As with any investment, the same level of due diligence should be done whether you are an accredited or non-accredited investor. Some investments carry very high risk and will just limit the number of non-accredited investors in the deal, but those individuals are taking on the same level of risk as the accredited investors for their share of the investment.

Accredited Investors vs. Non-Accredited Investors

Accredited Investors vs. Non-Accredited

Who Defines Accredited Investors vs. Non-Accredited Investors?

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