Accredited & Non Accredited Investors

Hi, this is Devin Elder, I wanna talk today about accredited versus non accredited investors. If you've been looking into investing in a multi-family project you may have seen these terms thrown around, and I wanna basically define them at a high level. And why it's important, why you need to understand this as an investor in a multi-family project. So an accredited investor is defined by the Securities and Exchange Commission as someone that earns $200,000 a year, or $300,000 together with a spouse, has earned that in the past, and expects to earn that in the future. Reasonable expectation of earning that moving forward. Or they have a net worth of a million dollars, minus their personal residence. So if you meet either of those benchmarks, you're an accredited investor, and I'll talk about why that's important in a minute. A non accredited investor is simply somebody that does not meet that benchmark, net worth of a million minus the house, or a certain income level. And why is this important? It's important because when a sponsor like our company, or another sponsor running a multi-family deal is putting together a multi-family investment, they're gonna typically do a 506 B offering or a 506 C offering, and a 506 B offering limits the sponsor to 35, I'm sorry, 35 non accredited or unaccredited investors. So let's call it a $5 million capital raise on a large multi-family project, that investor only has 35 spots for non accredited investors. And furthermore those investors must have a certain level of sophistication and understanding finances and how to evaluate investments. So, there can be a cap for non accredited investors, so you might be talking to a sponsor that says hey, we're putting together money for a deal, but our sponsor filled up we don't have any room for non accredited investors, and that's why. It's an SEC guideline that you obviously can't violate, nobody wants to go to jail running multi-family properties. So, for the accredited investors, on a 506 B offering, it's usually just a self verification where the investor's saying yes, check the box, my net worth is X, my income is X, I'm an accredited investor, I'm okay to be in this deal. Furthermore, the sponsor's got to have a preexisting relationship with these investors. And it's got to be a substantive relationship, as defined by the SEC, so it can't be, for a 506 B offering, it can't just be blasted out across marketing channels, and so you cannot solicit strangers is the idea, with a 506 B offering. With a 506 C offering, you can market it, but only to accredited investors. Hopefully all this jargon isn't making your head spin, but I wanted to put up this video because I've had questions from investors, do I need to be accredited to be in this deal? Well, it depends, it depends on what the sponsor's putting together. Now if it is a 506 C offering that the sponsor's allowed to publicly market, there's gonna be more rigorous process for verifying that the investors are accredited, so the accredited verification process is a little bit easier on the 506 B side. Those are just two approaches that syndicators who put multi-family deals together have in order to raise capital for projects, and just a couple of things you need to be aware of, that's what accredited versus non accredited means, you don't necessarily have to be accredited to invest in a project, but you'll wanna ask your sponsor on any particular investment that you're evaluating if that's a requirement or a hurdle cause it may mean you can't participate in a deal, but it doesn't 100% mean you're out, just means you need to dig a little further. Hope that helps, take care.