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What Does It Mean to be an Accredited Investor?


Let's face it, as successful professionals we often put pressure on ourselves to 'know' things. When we don't and believe we should it can be difficult to ask.


I've noticed during calls with new investors a hesitation when I ask, "Are you an accredited investor?".


{This question is really one of those industry terms that those new to investing aren't familiar with and yes, I throw a lifeline out when I notice a new investors caught in the headlights.}


Now that you've decided to learn about real estate investing, you're going to encounter the term "accredited investor" regularly.

Understanding the difference between a sophisticated investor and an accredited investor will help you identify the opportunities you can participate in.


Which is why I'm going to break it down for you here.

The good news is that neither of these titles requires an application or an approval process. You can find out whether you’re an accredited investor based on a few simple criteria.

How do you know if you're accredited?

To be an accredited investor, you must:

1. Have had an annual income of $200,000 (or $300,000 for joint income) for the past two years, and expect to earn the same or higher income this year.

OR

2. Have a ​net worthof over $1 million, not counting your primary home.

Let's run through two examples that will bring this full circle.


Meet Mark

Mark has had a corporate career for 10 years and is single. He just got a raise 2 months ago and now makes $200,000 per year. Mark's primary home is worth $1.5 million. He has $700,000 in his 401K and $350,000 between his savings and a few brokerage accounts. he owes $100,000 to student loans. Is Mark an Accredited Investor?

Even though Mark currently makes $200,000 and has reason to believe he will continue making that amount or more in the coming year, his annual income over the past two years has been below the $200,000 criteria.

Mark's net worth is: $700,000 (401K) + $350,000 (savings and brokerage accounts) – $100,000 (student loans) = $950,000,

Since his net worth is just under the $1 million requirement, Mark is not an accredited investor, he is a sophisticated investor.

Meet Ryan & Sarah

Ryan is a physician and earns $285,000 per year. Sarah is a stay-at-home mom, so she earns no income. Their primary home is valued at $800,000. They bought a single-family rental home for $500,000 and have a $200,000 balance on it. They have $250,000 in savings, plus $600,000 in retirement. Sarah recently received $250,000 in inheritance.

Are Ryan and Sarah Accredited Investors?

Based on income alone, they do not qualify, since their joint income is below $300,000. However, excluding their primary residence, their net worth is...

$500,000 (single family rental) – $200,000 (balance owed on single family rental) + $250,000 (savings) + $600,000 (retirement) + $250,000 (inheritance) = $1.4 million, which is above the $1 million threshold. Because they meet one of the two criteria, Ryan and Sarah are accredited investors.


Woohoo!

What Are the Perks of being accredited?

The main perk of being an accredited investor is access to more deals.


Why is this?


Well, in the eyes of the SEC, being an accredited investor means that you are savvy enough to have figured out how to accumulate some wealth. Thus, more investment opportunities are open to you, since you are in a better position to take on risk.

If you’re a non-accredited investor who happens to love real estate, there are still plenty of investment opportunities available, including passive investments through real estate syndications.


However, since SEC regulations do not allow investments for non-accredited investors to be publicly advertised, you may just have to search harder to find them.


This is why it's important to fill out our investor qualification form and hop on a quick call with Three Keys Investments. Once we've established a relationship with you, we're able to keep you in the loop on the deals we're offering, even if you're not accredited!


Be certain to take a moment to apply to the Three Keys Investor Club!


CLICK HERE to apply now!




This work by Annie Dickerson is licensed underCC BY-NC-SA 4.0