Co-Founder and Managing Partner of Disrupt Equity. Learn more about our multifamily investment opportunities by visiting our website.
Real estate is almost always one of the best investments a person can make. The potential for property appreciation, plus the continuous rental income stream, makes real estate unparalleled in the investment world. While you can invest in equities and bonds, they will seldom provide you with the level of recurring income that real estate can, nor will they provide you with the many tax benefits that real estate investments enjoy.
The best part is that anyone can invest in real estate. Whether you have $10 or $100,000 to invest, whether you are an accredited or unaccredited investor, you can begin your journey building wealth through commercial real estate. Here’s what you need to know to get started.
Unaccredited Real Estate Investing: What Is It?
If you have been looking at real estate investment opportunities, you have undoubtedly come across some sites and guidance that say that certain investments are only for “accredited investors.” Upon seeing this term for the first time, many people immediately look up how to become accredited, such as what classes you should take to earn this accreditation.
However, this term is somewhat misleading. There is no way to earn this accreditation. It comes from the SEC, and the SEC defines an accredited investor in two ways:
• Someone who has earned $200,000 or more in the past two years ($300,000 joint with a spouse) and has a reasonable expectation of making the same amount this year.
• Someone who has $1 million or more in net worth or joint net worth, excluding the individual’s primary residence.
The SEC deems you an accredited investor if you meet either one of those definitions. If not, you can only make an unaccredited real estate investment. Fortunately, there are still opportunities out there for unaccredited investment opportunities in real estate!
What Are Your Options With Unaccredited Real Estate?
If you are unaccredited, you should know that you have numerous options to start your investment journey. Some require thousands of dollars, while others require as little as $1 to start. Here are three options you’ll want to consider!
Real Estate Investment Trusts (REITs) are an easy entryway for unaccredited investors to invest in real estate. Since these companies trade on major stock exchanges, the company has registered the securities with the SEC.
REITs tend to pay dividends and invest in commercial real estate ventures. Depending on what REIT you invest in, your brokerage and whether or not they support fractional shares, you could begin your real estate investment journey using REITs with as little as $1. As long as you have a brokerage account, you can invest in real estate!
2. Buy-And-Hold Rentals
While this method requires a sizable investment, it is a hands-on way to get into real estate. You can buy real estate, rent it out and hold on to it to take advantage of the passive rental income and appreciation over time. However, keep in mind that active real estate investing is a larger task than other options outlined in this article. As an owner of cash-flowing real estate, you need to acquire, finance and manage your property strategically to take advantage of those profits.
3. Real Estate Syndications
People often erroneously believe that syndications are only available to accredited investors. That’s not true. You can invest in a real estate syndication as an unaccredited individual when real estate syndication companies offer up 506(b) offerings.
By law, syndications that accept unaccredited investors cannot advertise, so you need to know someone in the business to even hear about the opportunity. Furthermore, these syndications can only accept 35 unaccredited investors, so you’ll need to jump on quality opportunities quickly if you are unaccredited. Spots will fill fast!
By investing in a real estate syndication, you are a direct owner of the large real estate property and are able to take advantage of the passive rental income, tax benefits and appreciation it has to offer, without having to do the work of finding the real estate property, financing it or operating it efficiently! Real estate syndications are great passive income ways to get involved in high-yielding real estate investment opportunities.
What Doors Does Accreditation Open?
Given that an investor can invest in practically every unaccredited real estate investment, you may be wondering what accreditation even provides.
The SEC’s job is to protect investors. When offering securities, big companies register them with the SEC. For example, when Microsoft issues new shares, it files a bunch of paperwork with the SEC to make that happen. Companies that register their securities with the SEC can make them available to everyone.
However, many companies don’t have the resources to register their offerings with the SEC. They can still allow people to invest in their businesses, though, as long as the investors are accredited. The SEC’s thought process is that accredited investors can invest in more risky propositions since they have the net worth or the earning potential to withstand potential losses. Therefore, accredited investors can invest in anything. Unaccredited investors can, with some exceptions, only invest in securities registered with the SEC.
Practically speaking, for real estate, this only means that unaccredited investors must do a little bit of extra legwork to find opportunities to invest in syndications. Like REITs and buying and holding property, most options are available for all investors.
You Can Invest!
Ultimately, no matter your bank account balance or accreditation status, you can invest in real estate. Even if you put some money into REITs for now, consider diversifying your portfolio by adding real estate. As you grow your net worth, look into syndications, as I believe they are easily the best ways to invest in real estate.