Why Does It Matter?


Why Does It Matter?

Have you ever missed out on an investment because you didn’t hear about it soon enough?  Or you might have seen that an investment is only open to accredited investors?

Do you ever get investment FOMO? (Fear of missing out)

The investment landscape is changing.  The number of accredited investors is increasing.  Diligent investors who have been funding their 401(k)s and IRAs for years are becoming IRA millionaires.  And more opportunities are being created every day for accredited investors.  

Many of these are in the form of private offerings, such as real estate syndications, that are open to only a limited number of investors.  Others do not require investors to be accredited.

Why Does It Matter?

Why should it matter whether or not someone is an accredited investor or not?  

First, let me say that I am not an attorney or CPA.  I am an investor, providing information from my experiences.

The Securities and Exchange Commission, SEC, has regulation D that allows private offerings to be made to investors.  But there are strings attached.

Offerings made under Rule 506(b) allow up to 35 non-accredited investors and an unlimited number of accredited investors.  The offering is limited to investors with whom the syndicator has a pre-existing relationship.  It must be made without solicitation or advertising.  And the syndicator is responsible to ensure that non-accredited investors have investment experience and understand the risks associated with the investment.

Offerings made under Rule 506(c) allow the syndicator to advertise, but the offering is limited to accredited investors.

This leaves syndicators with a decision to make.  Should I provide an opportunity to “friends and family”, many of whom are not accredited investors?  Or should the opportunity be limited to accredited investors so that I can advertise the opportunity to more people?

Do you see the conflict?

Accredited investors have more options.

Non-accredited investors should not give up hope, but need to establish relationships with syndicators so that they can be informed as opportunities arise.  Accredited investors also need to establish these relationships for the same reason.

How do you know if you qualify?

What Is An Accredited Investor?

What is an Accredited Investor?

There are several ways to qualify as an Accredited Investor.  The two most common are annual income and net worth.

  1. Have an annual income for the last two years as an individual over $200,000 if single, or over $300,000 if married, OR
  2. Have a net worth that exceeds $1,000,000, excluding your personal residence.

These are simplified to provide a basic understanding.

Are you there yet?  If so, congratulations!  If not, let’s talk about how to get there.

Final Thoughts

Many people have not really thought about what it means to be an accredited investor.  But they do realize that having a net worth of $1,000,000 is significant when it comes to attaining financial independence.  It is a major milestone.

Accredited investors have access to more investment opportunities.  Non-accredited investors can still take advantage of some real estate syndications.  Both need to establish relationships with syndicators early on so that they can be informed of opportunities when they become available.

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