Does an investor have to be accredited to put 50k into a 90 unit deal, or does it depend on the deal

Question

A situation that comes up constantly and confuses nearly everyone the first time. Say a deck for a 90 unit in Greenville gets forwarded around an investing group. The minimum is 50k, with a 7 percent preferred return and a five to seven year hold. A prospective investor asks the sponsor's investor relations person whether they qualify, she asks if they are accredited, and when the answer is "not sure" she says "then this one is a 506(c), so unfortunately no." That leaves two half-answers competing. One source says anyone can invest in an apartment deal as long as the sponsor knows them first, and another says non-accredited investors are basically shut out of apartments entirely. Those cannot both be right. Is the difference the deal or the person? And what should an investor be doing now so the same conversation does not repeat on the next deck that comes across?

Rena Guide · Accepted Answer

The difference is the deal, and specifically which exemption the sponsor is using to sell the interests without registering them as a public offering.

Most apartment syndications are sold under one of two paths. Under the first, a sponsor can include a limited number of non-accredited investors, but only people they had a real relationship with before the deal existed, and they can't advertise the offering publicly. Under the second, the sponsor may advertise all they want, and every investor has to be accredited and actually verified, usually with a letter from a CPA or attorney or by handing over tax returns. That verification requirement is why the IR person shut the door so fast. It's not a judgment about you, it's that a 506(c) has no room for a maybe.

"Accredited" is defined by federal securities rules using income and net worth tests, plus some professional license categories. Thresholds and the verification mechanics do get updated, so confirm the current definition with a securities attorney or CPA rather than a forum post, including how your state treats it.

The part worth thinking about before you chase eligibility: a 50k check into a 90 unit deal is illiquid for the whole hold, there's usually no way out early, and many operating agreements allow capital calls, meaning the partnership can ask you for more money to cover a shortfall. You'll also get a K-1 rather than a 1099, and those often arrive late enough to push your personal filing. Read the subscription documents for the capital call language before you read the return projections.

ehernandez74 · Answer

The relationship rule bites people in a way they do not expect: a webinar you attended once, a mailing list you joined off a landing page, or a sponsor's LinkedIn post about "new opportunity coming" can all look like general solicitation. Which means the friendly small deal you thought was open to you may have been closed the moment they marketed it that way. Asking a sponsor flat out which exemption they are using, before reading anything else, saves a great deal of time.

mikeoconnell7 · Answer

Also ask what happens to your preferred return if it is not paid. On some deals unpaid pref accrues and compounds, on others it simply goes unpaid that quarter and disappears. On a 7 percent pref against a 50k check that is 3,500 a year of difference in whether it is owed to you later or gone. The deck almost never says which. The operating agreement does.

brandonlee36 · Answer

One more thing to look at on a 90 unit at current pricing is the loan. Ask for the term and the interest-only period, and whether there's a rate cap and when it expires. The debt maturity date sets the real hold period far more reliably than the five to seven years in the deck. If the loan comes due in year three and the market hasn't recovered, your exit gets picked for you.

Does an investor have to be accredited to put 50k into a 90 unit deal, or does it depend on the deal

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