If you don’t meet the qualifications to be an accredited investor, don’t fear. There are still plenty of ways you can invest until you do qualify as an accredited investor. While accredited investors have access to more investment opportunities, like venture capital, angel investing, and equity financing, non-accredited investors still have options.
The most lucrative way to invest as a non-accredited investor is through crowdfunding platforms. Until May 2016, these platforms were limited to accredited investors. However, the SEC made some changes to Title III of the Jumpstart Our Jobs (JOBS) Act that now allow non-accredited investors to participate in crowdfunding investment opportunities.
Here’s what you need to know and how to get started.
Equity crowdfunding for non-accredited investors
Title III of the JOBS Act is primarily concerned with equity crowdfunding, which is when multiple investors pool money together to launch a startup. They get equity shares in return for their investment. Early stage companies use this type of investment campaign during seed funding when the startup is trying to get enough money to get the attention of venture capital groups.
Why invest in equity crowdfunding as a non-accredited investor
Equity crowdfunding can be lucrative for non-accredited investors in a lot of ways. First, you get equity in a company, which means that if and when that company has a successful IPO, you’ll get a nice return by getting your investment back when you sell your shares plus any profits.
Perhaps one of the most appealing things about investing in equity crowdfunding is that you don’t have to invest very much to get a sizeable ROI. You can often invest as little as $1,000.
Keep in mind that it can take years for a startup to take off, if it ever does. You risk losing your entire investment if the company fails. If it’s successful, you might have to wait a good 8 years for a company to go public.
How much can you invest in equity crowdfunding?
You’re limited to how much you can invest as a non-accredited investor, based on your net worth or annual income. This limit is in place to prevent investors from investing more than they can afford to lose in a company.
If either your net worth or your annual income is less than $107,000 for the calendar year, then within a 12-month period you can only invest up to either $2,200 or five percent of the lower amount (either your net worth or annual income).
If your net worth or annual income is over $107,00 for the calendar year, then you can invest up to 10 percent of whatever is less, your net worth or annual income, over a 12-month period. You can’t invest more than $107,000.
Real estate crowdfunding for non-accredited investors
Real estate is a popular form of investment for non-accredited investors. Real estate crowdfunding gives you the option to invest in either real estate debt or equity. Essentially, you invest a certain amount of money toward the mortgage note. You then receive interest on your investment as the mortgage is paid back. This can be less risky than equity crowdfunding, but you don’t have the potential for as great of ROI.
As with equity crowdfunding, real estate crowdfunding doesn’t require a huge investment amount. You can invest as little as $5,000, compared with the tens of thousands of dollars you would have to invest to secure a private real estate deal.
Peer-to-peer (P2P) lending for non-accredited investors
Peer-to-peer lending is another great option for non-accredited investors who want to get their feet wet in the investment world. You can sign up for an online P2P platform and then invest in individuals. The main difference here is that you’re investing in personal loans instead of business loans. You’ll be able to assess the risk of each loan you make based on the borrower’s credit history. The higher the risk, the higher the interest (but also the higher the chances of the borrower defaulting on their loan).
Bottom line
As a non-accredited investor, you still have options for investing. If you’re looking for something different than traditional stocks and bonds, look into crowdfunding as a way to invest in a company and get a high return. Make sure to sign up as a member on CapitalRaisingClub.com to get access to exclusive investor-focused newsletters and have access to small businesses who are looking for investors.