was successfully added to your cart.
BlogCommercial Real EstateInvesting

Who is an Accredited Investor and Why is it Important to Become One?

By April 11, 2019 No Comments

Accredited investors receive privileged access when it comes to investing in securities. So, it’s important to know if you are an accredited investor. An accredited investor is a person or business entity who is allowed to deal in securities, which may be publicly-traded stocks or private units in a limited liability company (LLC) or a number of other things, which may or may not be registered with financial authorities like the Securities and Exchange Commission (SEC) or a state securities commission.

Accredited investors are entitled to view certain securities offerings if they satisfy one (or more) requirements regarding income, net worth, asset size, governance status or professional experience. Under federal securities laws, only persons who are accredited investors may participate in certain securities offerings. One reason these offerings are limited to accredited investors is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus making it unnecessary to protect them through a registered offering.

Most real estate companies that sell interests or units in an LLC that owns a real estate asset or assets sell those units interests only to accredited investors so they can remain exempt from SEC registration and can solicit to the general public. Accredited investors include natural individuals, banks, insurance companies, brokers and trusts. So, what are the qualifications for an individual who is a natural person?

According to the SEC, an accredited investor, in the context of a natural person, includes anyone who:

  • Earned income that exceeded $200,000 (or $300,000 together with a spouse, if they are investing together) in each of the prior two years, and reasonable expect the same for the current year, OR
  • Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

If you are an investor who is considered accredited because you meet either of these qualifications, you will have access to investment information and will be permitted to invest in real estate opportunities that nonaccredited investors are not permitted to invest in.

These unregistered offerings available to only accredited investors may have a higher degree of risk, but they also have the potential for a higher return. If you are not an accredited investor, continue to work hard to achieve that status. If you do qualify as an accredited investor, you can invest in real estate opportunities that are only available to this class of sophisticated investor.