WHAT IS AN ACCREDITED INVESTOR?
How Can I Get In On The Action?
Investing can be like fishing.
If you fish from a dock you might catch some small fish. Or you might find a bridge that goes over deeper water to catch something a little larger. But it seems that you need a boat to get to where the larger fish are hanging out. This seems true either in a lake, low country boundary waters, or my favorite, deep sea fishing.
If I want to bring home something really good and large enough to feed a group for dinner then my best odds are found by chartering a private boat to go deep sea fishing.
Anybody can fish from the dock.
Anybody can go to the bank and buy a CD. Anybody can buy shares in a stock or mutual fund.
But the Securities and Exchange Commission will not let everyone put their money in certain investments. Like certain real estate partnerships and many syndications.
Here’s the bottom line. If you have enough income or net worth then you are mostly free to choose what you want to invest in. This group consists of Accredited Investors. If you are in this group then congratulations are in order for a job well done.
If you don’t have enough assets or earn enough to qualify as an Accredited Investor, then you might still be able to participate in some investments by certifying as a Sophisticated Investor.
Why does this matter? Syndications have been a tool used by the wealthy to fund business startups and real estate partnerships. These organizations are small and nimble, able to take advantage of their size in the marketplace. They also offer the potential for greater than average returns. And real estate has proven itself to be one of the most reliable tools to generate wealth and cash flow.
So how do you know where you are now?
HOW TO QUALIFY AS AN ACCREDITED INVESTOR
The SEC defines several ways that you may qualify as an Accredited Investor. Here is a summary of the most common.
- Annual income of at least $200,000 per year (or $300,000 joint with their spouse), or
- Net worth of at least $1,000,000, not including primary residence.
There are others which can qualify, such as “family offices” with at least $5 million under management and their clients.
HOW TO QUALIFY AS A SOPHISTICATED INVESTOR
Even if you have not reached one of the milestones to qualify as an Accredited Investor you may still qualify to participate in some offerings as a Sophisticated Investor. The determination as to whether or not you are a Sophisticated Investor is up to you. Yes, the SEC lets you self-certify. But before you say “Yes” or “No”, it would be a good idea to take inventory of your investing experience and experience with the type of investment being offered.
You should be able to show that you understand the risks and rewards, and then feel comfortable with the amount of your nest egg that you are considering investing. The syndicator also needs to know that you understand the risks involved.
Here are a few questions to help you decide whether or not you would be considered a Sophisticated Investor.
Please note, you do not have to say “yes” to all these questions. If you have enough of the following experience or knowledge, you may be able to say you can understand the investment being offered. Take a look at some of the areas to consider.
What is your occupation or profession? Does it have anything to do with real estate? Even a part-time position may lend experience to understand the risks and rewards associated with a real estate investment. Property managers see the daily activity that drives income and expenses.
What is your business or financial experience? Do you run a business or have accounting experience? Do you have financial responsibility for any projects?
What is your experience investing in the stock market? Have you experienced both up and down markets? Reading through a mutual fund prospectus can give you an idea how the company intends to diversify its assets. How well did your investment grow compared to your expectations?
What is your experience investing in real estate? How many years have you been investing in real estate? Did you have an active role making decisions? Do you have a good understanding of what makes up the income and expenses? What were your goals? How well did you meet those goals? What lessons did you learn?
Many people are able to say “I am a sophisticated investor”. You might be able to yourself. We would be glad to talk about this with you as you make this self-designation.
WHAT DO I DO NEXT?
If you are an Accredited Investor, or believe that you can self-certify as a Sophisticated Investor, then the best time to start looking for opportunities is now. Talk with syndicators who are putting together opportunities. Find out what they are investing in. Fill out their investor questionnaire so that they can talk with you about past and upcoming opportunities.
LET’S GET TO KNOW EACH OTHER BETTER
Attune Investments provides a better return for our investors. And we make a positive impact in people’s lives and in our world.
If you want to learn more about how others are investing with us then we invite you to join our club and request a conversation with us.
Through the power of a syndication partnership with other investors like you, working with managing partners who are experienced in managing apartment complexes, you can own multifamily assets.
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Mike is a retired aerospace engineer with a passion for real estate investing and teaching financial literacy. He lives with his wife in Daytona Beach, Florida.