How to Know If You’re an Accredited Investor - Why Does It Matter?
If you already know that you are an Accredited Investor, feel free to skip over this article.
For other high-income earners new to the world of investing, this article may be for you. Many of us have come across the terminology "Accredited Investor" somewhere on a flyer, advertisement, TV, or other media outlets and probably have let it roll off without paying much attention to it. When you’re not actively in the space of investing, many people tend to brush it off since it doesn’t immediately pertain to us and our current interests. We might even refer to this terminology as reserved for the "Country-Club Elites" or the "golf-acquainted individuals" interests only.
Let’s cover what it takes to be an Accredited Investor and why it matters in the realm of investing, particularly in commercial real estate assets.
What is an Accredited Investor?
If you’re wondering what that means, let’s take a quick look at this. In the eyes of the SEC, an accredited investor is someone who was savvy enough to have figured out how to accumulate some wealth. The accredited investor is someone with a high net worth and generally has the means to take on risks according to the SEC. As a result, the SEC has certain qualifications an investor must meet to be called "Accredited."
To qualify, an individual must have a net worth of:
Over $1 million in assets, excluding their primary residence;
Or have a current income from the past two years of more than $200,000 as an individual
Or $300,000 combined income if married, per year.
A fairly recent inclusion to this qualification, however, is that any individual that holds a series 7, 65, and 82 licenses, in good standing, may be deemed an accredited investor.
On August 26, 2020, the U.S. Securities and Exchange Commission adopted amendments to the definition of "accredited investor" under the Securities Act of 1933, with updates to improve the definition more so to include individuals who possess the knowledge and expertise to participate in private capital markets, effective December 8, 2020.
There is also a long list of professional employees or companies that may qualify if you belong to one of such. Review this resource for more details not included in this article. Review this Resource.
Accredited vs. Non-Accredited Offerings
There are a couple of ways that deal offerings are structured and become available for you to invest. When a deal offering is presented to you as an investor, whether accredited or non-accredited, the opportunity was structured either for non-accredited or accredited investors-only, filed as a 506B or 506C offering with the SEC.
This matters since there could be many great deals that you don’t immediately have access to when an offering is registered as a 506B offering, which governs that capital may be raised without any general solicitation or advertisement. It must additionally be proven that all "investors" had a pre-existing and substantive relationship with the sponsor prior to the offering.
On the other hand, in 506C structured offerings, advertising and general solicitation are permitted, but the caveat is that the offerings may only be advertised to accredited investors only, thus non-accredited investors will miss out on such opportunities.
In the rules for 506C offerings, the sponsors must take reasonable steps to verify that accredited investors’ accreditation status can be verified. 506C Offerings must be Accredited Investors Only - No Exception.
Thus, when you are ready to invest in a real estate syndication as an accredited Investor, please be prepared to provide your proof when the sponsor team needs to check your accreditation status off to move along. You will want to prepare your:
Income in the form of tax returns or W-2s
Your assets based on brokerage or bank account statements
Your professional licenses
Since investment opportunities that are advertised may be widely communicated, it has certain limitations for who may invest. Fortunately, if you meet the criteria of an Accredited Investor, investment opportunities are much more visible to you than the typical non-accredited investor. This also allows you to have many more options to select from.
Not quite there yet to be qualified as an accredited investor? Have no frets - You’ve still got some great investment opportunities to passively invest in real estate syndications; you may just have to search harder to hunt it down.
Fortunately for you, we are one of those potential doors for you to open to your access to investment endeavors. We just need to begin by getting connected first!
Cheers to your Success!
Want to know if your are Accredited or not? Join our Investor Portal?
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