Key Takeaways:

  • Accredited vs. Non-Accredited Investors: Accredited investors meet specific financial criteria set by the SEC, while non-accredited investors face restrictions on investment opportunities.
  • Investment Options for Non-Accredited Investors: Crowdfunding, real estate investments, municipal bonds, P2P lending, and ETFs allow non-accredited investors to diversify their portfolios.
  • Regulation D Limitations: Businesses can accept an unlimited number of accredited investors but are restricted to 35 non-accredited investors.
  • SEC Investment Caps: Non-accredited investors with an income or net worth under $100,000 can invest up to $2,000 or 5% of their annual income/net worth; those earning more can invest up to 10%.
  • Expanding Investment Access: Some states have equity crowdfunding laws that allow non-accredited investors to invest in startups.
  • New Opportunities: Real estate syndications, interval funds, and private REITs offer additional investment options for non-accredited individuals.
  • Importance of Due Diligence: Non-accredited investors should assess risks and research opportunities before investing.

How to invest without being an accredited investor requires only that the investor has a net worth of less than $1 million. This includes the net worth of his or her spouse. The investor must also have earned $200,000 or more annually for the last two years.

Differences Between Accredited and Non-Accredited Investors

Accredited

The criteria set by the Securities and Exchange Commission's (SEC) Regulation D states that an accredited individual investor must have a net worth of more than $1 million (including the spouse), must have earned $200,000 or more annually for the last two years, and must also be a general partner, director, executive officer, or related combination.

There are no formal certifications or qualifications required to be an accredited investor. As long as an individual meets the minimum net worth, they are automatically accredited. The only distinction between being accredited and non-accredited is the amount of personal wealth a person has.

In the United States, an accredited investor has access to investment opportunities that are not available to everyone. For non-accredited investors, this means it would be illegal if someone were to present investment opportunities available in private businesses to you unless you know the founder of the company making the offer. One of the things that make being accredited appealing is the fact it opens up new opportunities for investing in areas such as venture capital and hedge funds.

Another asset of being accredited is noted by the SEC. The organization points out that an investor is considered sophisticated and maintains sufficient funds that can keep the investor protected. This is not the case for an unsophisticated investor.

Non-Accredited

While non-accredited investors are allowed to invest, there are certain restrictions. For example, a company interested in raising private equity to invest in something like a hedge fund or a new business can receive investments from an unlimited number of accredited investors, but according to Regulation D, it is limited to no more than 35 non-accredited investors providing funding.

Due to Regulation D, more than 80 percent of non-accredited American investors are shut out from investment opportunities. This means that only the wealthiest individuals have access and can participate in early-stage investment.

Few states have made it possible for non-accredited investors to attain equity in startups. These states are:

  • Alabama
  • Colorado
  • Georgia
  • Idaho
  • Indiana
  • Kansas
  • Maine
  • Maryland
  • Michigan
  • Tennessee
  • Washington
  • Wisconsin

Non-accredited investors based in these states have the ability to invest in high-growth opportunities with early-stage firms through a model known as crowdfunding.

The SEC approved specific rules that limit the amount a non-accredited investor can invest. Those with an annual income or net worth that is below $100,000 are limited to investing no more than $2,000 or up to 5 percent of the lesser of their net worth or annual income. Those making at least $100,000 have a 10 percent cap of either their net worth or annual income.

With the new rules in place, small business owners and startup founders are allowed to raise $1 million per year through crowdfunding.

SEC Regulations & Investment Limitations

The Securities and Exchange Commission (SEC) regulates private investments to protect non-accredited investors from high-risk opportunities. Key rules include:

  • Regulation D (Rule 506b & 506c) – Allows private companies to raise capital from accredited investors but limits non-accredited participation to 35 individuals per offering.
  • Regulation A+ – Enables non-accredited investors to invest in early-stage companies under specific conditions.
  • Regulation CF (Crowdfunding) – Sets investment limits based on annual income/net worth, capping investments for non-accredited investors at $2,000 or 5% of their net worth/income if under $100,000.

These regulations ensure that non-accredited investors can participate in private investments while mitigating excessive risk.

Investment Opportunities for Non-Accredited Investors

Although non-accredited investors face restrictions, they still have access to various investment opportunities, including:

  1. Crowdfunding Platforms – Websites such as Republic, Wefunder, and StartEngine allow non-accredited investors to buy equity in startups.
  2. Real Estate Investments – Options include real estate investment trusts (REITs), real estate crowdfunding (Fundrise, Roofstock), and real estate syndications.
  3. Peer-to-Peer (P2P) Lending – Platforms like Prosper and LendingClub let individuals invest in personal loans, earning interest over time.
  4. Exchange-Traded Funds (ETFs) & Mutual Funds – Non-accredited investors can invest in ETFs that track stocks, bonds, or alternative assets.
  5. Municipal Bonds – Investing in municipal bonds provides a stable return and potential tax advantages.
  6. Private Equity & Interval Funds – Some funds, such as interval funds and private REITs, accept non-accredited investors with certain limitations.

Before investing, non-accredited investors should conduct due diligence and consult financial professionals to understand the risks and returns.

Crowdfunding

In simple terms, the crowdfunding platform offers those looking for investors an opportunity to network with friends, family, colleagues, and the community to encourage investors to join in funding a new business. As the network expands, more people become privy to information about the new business and the investment opportunity.

The SEC has approved equity crowdfunding rules for investors. These rules allow small businesses and startups looking for investors to use brokers or online platforms to find them. Also, the investors can be anyone. For non-accredited investors, the barriers to participating in crowdfunding are extremely low, especially when looking at small businesses and financing startups. Some have minimums as low as $10.

Other options for non-accredited investors to participate in include single-family rentals, P2P loans, municipal bonds, equity investments in energy projects, and real estate. Several other options exist, as well. Overall, the SEC believes that the crowdfunding platforms will be crucial in establishing fair marketplaces as well as guiding potential investors and helping them figure out their best investment options.

Real Estate Investments for Non-Accredited Investors

Real estate is one of the most accessible asset classes for non-accredited investors, offering various ways to participate:

  • Publicly Traded REITs – These allow investors to buy shares in a portfolio of income-generating properties.
  • Real Estate Crowdfunding – Platforms like Fundrise, Crowdstreet, and RealtyMogul enable investors to contribute to property developments with lower entry costs.
  • Private REITs & Real Estate Syndications – While traditionally limited to accredited investors, some platforms now offer participation to non-accredited investors.
  • Rental Properties – Investing in rental properties is an option for those who can afford down payments and manage property maintenance.

Each type of real estate investment comes with its own risk profile, so investors should carefully assess their financial goals before committing.

Frequently Asked Questions

  1. What qualifies someone as an accredited investor?
    An accredited investor must have a net worth of over $1 million (excluding primary residence) or an annual income of $200,000 ($300,000 for joint income) for the last two years.
  2. Can non-accredited investors invest in startups?
    Yes, through equity crowdfunding platforms that allow small investors to purchase shares in early-stage companies under SEC guidelines.
  3. What is the safest investment for non-accredited investors?
    Low-risk options include municipal bonds, ETFs, mutual funds, and publicly traded REITs, which offer stability and lower volatility.
  4. How much can a non-accredited investor invest in crowdfunding?
    If their income or net worth is below $100,000, they can invest up to $2,000 or 5% of the lesser of their net worth or income; higher earners can invest up to 10%.
  5. Are there alternatives to hedge funds for non-accredited investors?
    Yes, interval funds, P2P lending, private REITs, and diversified ETFs provide exposure to alternative investments without accreditation requirements.

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