Accredited vs. Non-Accredited Investors: Understanding the Difference
If you have looked into passive real estate investing, you have probably come across the term "accredited investor." Understanding what this means — and what options exist regardless of your status — is an important part of evaluating investment opportunities.
What Is an Accredited Investor?
The term "accredited investor" is defined by the Securities and Exchange Commission (SEC) under Regulation D of the Securities Act of 1933. The SEC established these criteria to identify investors who are presumed to have the financial sophistication and ability to bear the risks of certain types of private investments.
As of the most recent SEC updates, you may qualify as an accredited investor if you meet any one of the following criteria:
Income Test
You earned more than $200,000 in annual income (or $300,000 combined with a spouse or spousal equivalent) in each of the last two years, and you reasonably expect to earn at least the same in the current year.
Net Worth Test
You have a net worth exceeding $1,000,000, either individually or jointly with your spouse, excluding the value of your primary residence.
Professional Certifications
You hold certain professional certifications, designations, or credentials recognized by the SEC. Currently, this includes holders of the Series 7, Series 65, and Series 82 licenses in good standing.
Knowledgeable Employees
"Knowledgeable employees" of a private fund, as defined under the Investment Company Act, also qualify as accredited investors with respect to investments in that fund.
Entities
Certain entities may also qualify, including entities owning more than $5,000,000 in assets, entities in which all equity owners are individually accredited, and certain trusts with assets exceeding $5,000,000.
What If You Are Not Accredited?
Being a non-accredited investor does not mean you are shut out of real estate investing. There are several pathways:
Regulation D, Rule 506(b)
Under Rule 506(b), an offering can accept up to 35 non-accredited investors, provided they are "sophisticated" — meaning they have sufficient knowledge and experience in financial matters to evaluate the merits and risks of the investment. Importantly, Rule 506(b) offerings cannot use general solicitation or advertising.
This means the operator and investor must have a pre-existing, substantive relationship before the investment opportunity is discussed. The operator must also provide non-accredited investors with additional disclosure documents similar to what would be required in a registered offering.
Regulation A+ (Mini-IPO)
Regulation A+ allows companies to raise up to $75 million from both accredited and non-accredited investors, with SEC qualification of the offering. These offerings are less common in smaller real estate deals but are used by larger platforms and syndicators.
Regulation Crowdfunding
Under Regulation Crowdfunding (Reg CF), companies can raise up to $5 million from any investor, though individual investment limits apply based on income and net worth. Several online platforms facilitate real estate crowdfunding.
Why Does Accreditation Matter?
The SEC requires accreditation thresholds because private investments — those not registered with the SEC — typically carry higher risk. They are often illiquid, may lack the disclosure requirements of public securities, and may involve complex structures.
The accredited investor standard is meant to ensure that participants in these offerings have the financial capacity to bear potential losses. However, the SEC has evolved its thinking over time, which is why professional certifications were added as a qualifying criterion — recognizing that financial sophistication is not solely determined by wealth.
How Fern Fresh Holdings Works With Both
At Fern Fresh Holdings, we believe in creating opportunities for investors at all levels. Our approach:
- Accredited investors may have access to a broader range of investment structures and opportunities.
- Non-accredited investors with whom we have a pre-existing relationship may be eligible to participate in certain offerings under Rule 506(b), subject to sophistication requirements and applicable securities laws.
- All prospective investors receive transparent information about risks, returns, and deal structure, and are encouraged to consult with their own advisors.
Our investor qualification form helps us understand your situation so we can direct you toward appropriate opportunities. There is no obligation, and your information is kept confidential.
Your accreditation status determines which regulatory pathway an offering uses — it does not determine whether you can build wealth through real estate. There are legitimate opportunities for both accredited and non-accredited investors.