Alternative Investments for Non-Accredited Investors

Do you want to explore and diversify your real estate investments, only to find out that some good deals are only open to accredited investors? To be accredited, you need to meet certain income and net worth levels. I know it’s frustrating to see some opportunities are off-limits unless you have this status.

But don’t let that stop you. Just because you’re not accredited doesn’t mean you’re out of options. There are plenty of great real estate investments that don’t need that accredited investor badge.

And honestly, some of the best deals don’t even require being accredited. There’s a whole world of real estate investing open to everyone as long as you know where to look.

And since you’re reading this, you’re already on the right track! Keep reading as I share the best alternative investments for non-accredited investors in real estate. I’ll walk through the pros and cons of each to help you make the best choice for you. Let’s get started!

TL;DR

• Accredited investor status provides access to exclusive, high-risk real estate deals, but it requires meeting strict income or net worth thresholds that are out of reach for many.

• Non-accredited investors still have ample opportunities to invest in real estate through strategies like rental properties, fix-and-flips, crowdfunding, partnerships, peer-to-peer lending, and real estate syndications.

• Each investment approach has different considerations in terms of upfront costs, control over the asset, potential returns, risk levels, and liquidity. Investors should evaluate their financial capacity and involvement preferences when choosing.

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What is an Accredited Investor?

An accredited investor gets special access to investment opportunities that aren’t available to the general public. These deals do not require registration with government agencies like the Securities and Exchange Commission (SEC).

In the United States, the SEC sets specific criteria to define an accredited investor. You must meet at least one of the following requirements to qualify:

Income Requirements:

• If you’re on your own, you need to be making more than $200,000 a year.

• Or, if you’re combining income with your spouse, you both need to be making over $300,000 together for the past two years, and you should expect to make the same or more this year.

Net Worth Requirements:

• You should have a net worth of over $1 million, individually or jointly with a spouse, not counting your main home.

Professional Experience:

• Having certain professional certifications or licenses, like Series 7, 65, or 82, also qualifies you.

There’s no actual accredited investor certificate or badge. When you want to invest in these special deals, the company you’re investing with will need to check that you meet these criteria. They might ask for financial documents like your tax returns or bank statements to make sure your income or net worth fits the bill.

Why the Accredited Investor Status Matters?

The accredited investor status matters because it allows you to invest in certain investment opportunities that are usually riskier and not as tightly regulated as the ones open to everyone. This includes:

• Private Placements: Investing in private companies not traded on the public stock market.

• Hedge Funds: Investment pools that use different strategies to earn active returns for their investors.

• Venture Capital Funds: Funds that invest in startup companies with high growth potential.

• Real Estate Investments: Opportunities in commercial real estate or luxury residential real estate that the general public can’t invest in.

How to Invest as a Non-Accredited Investor?

We’ve discussed what it takes to be an accredited investor, and if you find yourself not ticking any of those boxes, you fall into the category of a non-accredited investor.

That means certain higher-risk investments are off-limits to you. But don’t worry! You still have plenty of options to invest in real estate.

Here are seven ways to invest in real estate as a non-accredited investor:

1. Rental Properties, Airbnb, House Hacking

2. Fix and Flip, BRRR

3. Joint Venture Partnerships

4. Real Estate Crowdfunding

5. Peer to Peer Lending

6. Real Estate Syndications

1. Rental Properties, Airbnb, House Hacking

When you get into real estate, you most probably start with what seems easiest: buying properties to rent out, listing places on Airbnb as a short term rental, or doing house hacking. These are solid ways to make money, whether it’s from renters who stick around for a while or guests who are just in town for a short visit.

House hacking is where you live in one part of your property and rent out the other parts. It’s a smart move because it can cut down or even get rid of your own housing costs.

Pros and Cons

These properties give you direct ownership of your assets and complete control over decision-making. On top of that, it brings in a consistent income stream.

However, managing these properties can take up much of your time and energy, especially if you’re dealing with demanding tenants or endless repairs. Plus, these properties demand some big upfront cash, and growing your portfolio means shelling out even more.

2. Fix and Flip, BRRRR Method

If you’re the type who can spot a diamond in the rough and isn’t afraid of a bit of hard work, then fixing and flipping houses could be right up your alley. This involves purchasing underpriced homes in need of repair, renovating them, and selling them for a profit.

Another approach is the BRRRR strategy is like Fix and Flip’s more ambitious cousin. It starts the same way—by finding a property and giving it a makeover. But instead of selling right away, you rent it out, rehab, refinance and then repeat. 🔄🔄🔄

With this method, you start making some steady cash. Then, you refinance the property at its new, higher value, which lets you pull out some of the money you’ve put in.

Pros and Cons

There’s a real chance to make some good money with these strategies. Fix and flip can give you fast cash if everything goes according to plan, and BRRRR can help you build your wealth over the years by smartly reusing your initial investment for buying and fixing up more properties.

But, both methods require a substantial upfront investment—not just for purchasing the property but for covering renovation costs as well. There’s also a considerable amount of risk involved. Misjudging the market, spending too much on repairs, or encountering unexpected issues can quickly turn a promising project into a financial sinkhole.

Plus, these strategies demand a lot of effort and time, from managing renovations and dealing with contractors to screening and managing tenants and refinancing.

3. Joint Venture Partnership

If the first two options are too pricey for you, you might want to look into forming or joining a joint venture partnership. This is basically where a small group teams up to invest in a property.

Each person in the group brings something to the table, whether that’s money, skills, or expertise. For instance, one person might handle the underwriting, another might deal with renovations, and another might be an investor that provides the necessary funding.

Pros and Cons

Joint venture partnerships can be a smart move when you’re looking to get into real estate without shouldering all the investment risks and costs by yourself.

But it’s not without its challenges. When you’re making decisions as a group, it’s easy for things to get tricky. Everyone has their own ideas and priorities, so you might not always see eye to eye on everything from property management to dividing up profits.

Plus, the success of your investment heavily depends on everyone doing their part. If someone drops the ball, it could spell trouble for everyone involved.

4. Real Estate Crowdfunding Platforms

If you’re still finding the cost of a joint venture too high or you’re looking for a more passive investment, real estate crowdfunding could be the way to go.

With crowdfunding, you can start investing with minimal amounts, sometimes as little as $10. This method collects money from a “crowd” of investors to fund real estate projects online.

However, it’s important to note that accredited and institutional investors have exclusive access to many of these crowdfunding opportunities. That said, some crowdfunding platforms do offer real estate investment opportunities for non-accredited investors.

Pros and Cons

Real estate crowdfunding offers a low-cost entry point into property investment and can be a good way to make some passive income.

It’s also a great way to diversify your investments. You also get the chance to make money off rentals or when a property sells without managing any of it yourself.

However, you’ll have little control over the project’s day-to-day decisions, which can be a downside if things don’t go as planned. There’s also the market risk to consider. Like any real estate investment, economic changes could impact your returns.

Another point to consider is liquidity. Your money will be tied up in the project for a while, often several years, and it’s not as easy to pull out your investment as it would be with more liquid assets like stocks.

Lastly, the success of your investment is somewhat dependent on the crowdfunding platform’s reliability and project management skills. Any mismanagement on their part could negatively affect your investment.

5. Peer-to-Peer Real Estate Lending

If you’re sitting on some extra cash but can’t find the time to manage properties, peer-to-peer real estate lending could be your thing. It’s also sometimes called private lending.

This approach involves investing your money in loans rather than buying into the property itself. You’re basically playing the role of a bank, providing debt investment to real estate investors or developers. You make money from the interest they pay you, which means you’re earning without having to do much.

Pros and Cons

Peer-to-peer real estate lending is a great way to invest without the need to buy or own properties, deal with tenants, or oversee renovations. You lend your money, earn interest, and that’s it—no need to worry about tenants or repairs. It’s also a good strategy to diversify your investments.

But it’s important to do your homework on each project and check out how reliable the borrower is with paying back loans before you put your money in. If you don’t, you might end up losing what you invested. Also, keep in mind that the loan period will lock in your cash, so you won’t be able to pull it out quickly if you suddenly need it.

6. Real Estate Syndication

Real estate syndications have been my go-to investment strategy for years! Real estate syndications are investments where multiple investors pool their capital to purchase a property. Unlike crowdfunding, syndications typically involve a more direct relationship with the investment. These investment opportunities often focus on larger commercial real estate investing.

In these deals, most investors play a passive role. As a limited partner (LP), you leave the big decisions, the fixing up, and the day-to-day management to the general partners or sponsors.

If you’re not an accredited investor, you might find it difficult to locate these deals. However, non-accredited investors have access to a unique opportunity through 506(b) deals.

The tricky part is that no one advertises these deals, so you need to know the right people to discover them. And they only allow 35 non-accredited investors, so you have to act quickly.

Thankfully, platforms like SparkRental make it easier for you. SparkRental is an investment club that carefully selects these investments and offers fantastic networking opportunities. If you’re part of SparkRental, you get monthly notice of these deals, which helps you get in before they fill up.

Pros and Cons

Syndications are usually less risky and don’t need much work from investors. You can invest in big properties without buying them all alone and make money passively without dealing with the day-to-day hassles. But, the downside is you don’t get much of a say in the operations, you have to share your profits, and it’s tough to get your money out fast if you need it.

Conclusion

Finding real estate investing opportunities as a non-accredited investor can seem tricky at first, especially when you see deals only open to accredited investors. But as I covered, there are many opportunities available without needing a high income or net worth.

From hands-on rental properties and house flips to more passive crowdfunding and partnerships, there are options for different investment capacities and involvement levels. Each investment strategy comes with its own set of risks, levels of control, and potential returns.

The key takeaway is that being non-accredited doesn’t limit your ability to invest in real estate. It just means adjusting your approach for different types of deals. With the right strategy and knowledge, you can access diverse investments to grow your portfolio and meet your financial goals.

So don’t let the “non-accredited” label hold you back—a whole world of real estate investing is open, waiting for you to jump in.

Alternative Investments for Non-Accredited Investors FAQs

What is the JOBS Act, and what is its role for non-accredited investors?

The JOBS Act, or Jumpstart Our Business Startups Act, is a U.S. law passed in 2012 that eases securities regulations to help small businesses raise funds more easily. For non-accredited investors, it opens up opportunities to invest in startups, private real estate syndications and some crowdfunding platforms, subject to certain limits.

What is equity crowdfunding?

Equity crowdfunding is a type of crowdfunding where investors make equity investments in startup businesses. In return, they receive shares in the company. Thanks to the JOBS Act, equity crowdfunding has been opened up to include non-accredited investors as well.

What is the minimum investment required to invest in real estate syndication?

The minimum investment in real estate syndication as a non-accredited investor can vary widely depending on the specific syndication deal and the syndicator’s requirements. Usually, you’ll find that the minimum investment for real estate syndication falls somewhere between $25,000 and $100,000, with $50,000 being a typical minimum.

But if you’re part of an investment club like SparkRental, you can co-invest in syndications that let you get in with as little as $5,000, making it more accessible for a wider group of investors.

Can non-accredited investors invest in hedge funds?

Non-accredited investors generally cannot invest directly in hedge funds due to regulatory restrictions. While direct investment in hedge funds is largely off-limits for non-accredited investors, there are alternative ways to invest in hedge fund strategies.

For example, non-accredited investors can invest in hedge fund ETFs or mutual funds, which attempt to mimic hedge fund strategies and are available to the general public. These ETFs are traded on public markets and do not have the same accreditation requirements as direct hedge fund investments. Non-accredited investors can also invest in real estate investment trusts (REITs).