How to Qualify as
an Accredited Investor
(and Why You May Not Need To)
This is a relatively short article on an important topic I get asked about all the time. It usually goes something like this...
“Tyler, this commercial real estate investing thing sounds great, but don’t I need to become an accredited investor to participate?”
And the answer to that question is… it depends.
Now, before you get nervous, it’s a fairly simple question to answer. According to the U.S. Securities and Exchange Commission (SEC), you don’t really become an accredited investor, so much as you qualify to be one.
And even if you qualify, there are types of investing strategies that remove the necessity for those qualifications.
But we’ll get to that in a minute.
First, let’s take a quick look at the definition of, as well as some pros and cons of qualifying as an accredited investor.
What is an Accredited Investor?
There are a lot of interesting investment opportunities out there, including outside the world of stocks and bonds.
These opportunities include things like real estate, venture capital, and private equity, to name just a few.
But, as we’ve already established, some of these investment vehicles require you to qualify as an accredited investor in order to participate.
So what, exactly, is an accredited investor?
When it comes to the U.S. Securities and Exchange Commission (or any Federal institution), you don’t want to mess around. When you have some time, take a few minutes and look at the more expanded (and specific) definition the SEC gives us in their Rule 501.
The short version? The SEC defines an accredited investor in two main ways (via Investopedia):
A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
A natural person who has an individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person.
Simple, right? There are a few more details you’ll find in the actual SEC Rule 501, but for the purposes of this article, that will get us far enough for now.
How to Qualify as an Accredited Investor
How do you qualify as an accredited investor, so you can join investment projects like the ones I described above?
The simple answer is to meet the qualifications as laid out in SEC regulations.
That’s it.
There’s no schooling, no certificate, no sticker on your driver’s license, generally, you just need to be a United States citizen of a certain net worth, and be able to prove that net worth during a process of due diligence.
Again, per Investopedia, an accredited investor in the U.S. is anyone who meets one of the below criteria:
Individuals who have an income greater than $200,000 in each of the past two years or whose joint income with a spouse is greater than $300,000 for those years, and a reasonable expectation of the same income level in the current year
Individuals who have an individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the investment (The net worth amount cannot include the value of the person's primary residence.)
Individuals who hold certain certificates, designations, or credentials, such as Series 7, Series 65, and Series 82 licenses
Individuals who are "knowledgeable employees" of a private fund
And that’s it. Simple, but not necessarily easy. The next question you might ask is something like “Why would I want to qualify as an accredited investor?”
Glad you asked...
The Pros and Cons of Being an Accredited Investor
Is it worth becoming qualified as an accredited investor?
Again, it depends.
It depends on the types of investments you’re interested in, the current health of your net worth, your risk tolerance, and many other factors that only you can answer.
If you’re not sure whether you should go down this road, let’s take a moment to look at a few of the pros and cons...
The Pros of Qualifying as an Accredited Investor
You’ll have the opportunity for increased diversification of your investment
You’ll have more access to more diverse investment deals
You’ll have a chance of bringing in much higher returns on your investment
The Cons of Qualifying as an Accredited Investor
Fees, fees, fees, (much higher)
You’ll usually need to buy in with higher minimums to invest
Your capital investment could be unavailable for longer periods of time
You’ll be exposed to higher-risk investment opportunities
If you’re a reader of my site, I think those pros and cons will be fairly self-explanatory. There are definitely benefits and drawbacks to both paths, and I would never advise you to go against your own goals, but, as usual, I do have an opinion here!
Let’s say you’re a professional with some amount of capital that you’d like to invest. You’re an absolute beast in your field, but you don’t have a lot of experience investing and have some concerns about the best place to put your money.
What exactly do you do with that $100,000? Stocks? Crypto? Art? Futures? Real Estate?
There’s a good argument to be made for any one of those vehicles, but let me show you one in particular that does away with the need for accreditation, is virtually effortless, and has a historically high opportunity for return.
Can You Invest Your Money Without Becoming an Accredited Investor?
In the introduction to this article, I alluded to types of investing strategies that could remove the necessity of qualifying as an accredited investor.
So, can you invest your money in commercial real estate without qualifying?
Yes.
The investment vehicle here is called a 506(b) commercial real estate syndication, which is how Hamilton -- my investment and development company -- raises capital to invest in commercial real estate opportunities.
In the 506(b0 syndication scenario, you don’t need to be an accredited investor… you only need to be a sophisticated investor and you must have a pre-existing relationship with the general partners who are managing the deal.
The beauty of these syndications is that they allow almost anyone to start investing in commercial real estate, in properties like apartment complexes, shopping centers, ground-up development, and more.
And, if you’ve never heard the term “syndication” before, don’t worry. It’s essentially the easy button of commercial real estate investing. We do all the work on your behalf. We’d be happy to answer any and all of your questions, anytime.
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