https://youtu.be/JffG2-GfQlA
What is an accredited investor? 
Quick Video
- To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income with your spouse) for the last two years with the expectation of earning the same or a higher income in the current year. An individual must have earned income above the thresholds either alone or with a spouse over the last two years.
- Net worth exceeding $1 million, either individually or jointly with their spouse. Note – this is often the harder one to achieve as we find high incomes are not uncommon.
- An entity is considered an accredited investor if it is a private business development company or an organization with assets exceeding $5 million.
- Also, if an entity consists of equity owners who are accredited investors, the entity itself is an accredited investor. However, an organization cannot be formed with the sole purpose of purchasing specific securities.
- In 2016, the U.S. Congress modified the definition of an accredited investor to include registered brokers and investment advisors. This continues to open up with new changes – If a person can demonstrate sufficient education or job experience showing their professional knowledge.
https://youtu.be/z5WHIa5FFng
Pondering how a person can be called an Accredited Investor? Do you need to be one to get access to private investment opportunites?
What do Accredited Investors Invest in?
Join our Private Investor Club
What qualifies as an accredited investor?
An accredited investor is an individual who has the institutional knowledge, experience, net worth, and/or financial sophistication to evaluate an investment opportunity.
Defined by the United States Securities & Exchange Commission as someone who makes a minimum of $200,000 ($300,000 if filing jointly) or has a net worth of $1 million dollars excluding personal residence – although one could easily do a cash out refinance or HELOC to get the equity out of the primary residence in order to put you over the $1M threshold if needed.
Importance of being an Accredited investor
The significance of being an accredited investor is that you can invest in things that those with less money, cannot which are mainly deals such as Reg D 506C offerings which are mass marketed and therefore can only allow Accredited investors.
Alternatives to having accredited investor status
If you are not Accredited don’t worry! Most deals out there are done through private networks and not mass marketed – these Reg D 506B offerings are accessible to “sophisticated investors” which has a much more nebulous definition but essentially says you know what you are doing even if you don’t have that much money.
In Reg D 506B offerings which require you to have a pre-existing relationship with the sponsor, you have the ability to invest if you can qualify as “a sophisticated person investor” which has a more ambiguous definition but essentially says you know what you are doing even if you don’t have that much money.
These laws were put in place long ago to “protect” the average person (non-Accredited investors) from predatory activity. The irony of this all is that there is no protection for the average Joe, or pension funds for that matter, against investing in a wildly bloated stock market at record valuations and being mislead by a commission based financial planner. Every major trader out there knows we are in a bubble but there is no protection for individuals dumping money into their retirement accounts to buy mutual funds. It’s an archaic system which makes little sense and I have always felt that it was the little guy (non-Accredited investor) that need access to good private alternative assets the most!
Certainly, there has been some recognition of this fact. The 2012 JOBS act made it easier for Main Street America to participate in “alternative” investments via crowdfunding and made it easier for sponsors to advertise previously unknown opportunities. However, we have a long way to go because it is not practical for a syndicator to raise private capital with current crowdfunding laws because the maximum that can be pooled together is very small.
I am not a fan of crowdfunding websites. When I invest personally, I need to know the lead syndicator personally. None of this “we met at a local event and he pitched me his deal”. If a guy does not have a list of solid investors they must lack the track record. Also I did a podcast with Amy Wan a syndication attorney talking a lot about this topic.
How do I get qualified as an Accredited investor?
For Reg D 506C offerings where third party verification is required… the steps involved with qualifying include a bank statement from a financial institution that has been approved as a bank, a mortgage (with a qualified purchaser), joint net worth or income of more than $200,000 to qualify as an accredited investor, or a non-bank financial information, including the net worth of $1M not including equity in your primary residence. (Because your home is not considered a good investment in our community)
Tax Hacks for Accredited Investors
Types of investments an accredited investor can make
Now that you’re an accredited investor, you started asking yourself “what type of investments should you get into to increase your net worth by getting away from retail investments?”
The golden rule is to work with investment firms that have a proven track record.
Potential SEC changes
Some rule changes rumor to pushing the threshold for Accredited investor status to $5 million or more of net worth. Or creating a new level of investors such as Accredited investor plus.
Go ahead and start your journey towards becoming an accredited investor.
Tax Tips and Best Practices
https://youtu.be/aqPWoki-MP8https://youtu.be/FTj-nJEGi-4https://www.youtube.com/watch?v=zCW-MbPxJxMhttps://youtu.be/umCsNG8sLNc