Back in 3rd grade, Jamie didn’t invite me to her roller skate party. What I didn’t know couldn’t hurt me, right?
Oh, but it did! When I found out afterward that there had been a super-cool roller skate party and that I didn’t even get invited, I was heartbroken! Who knows if I could have gone anyway, but it was the feeling, that I’d been robbed of the chance to attend THE party of the year, that stung so badly (everything’s dramatic when you’re 8 years old).
You’ve been there too, maybe in a different scenario. That feeling of finding out about an event you weren’t invited to leaves you grappling with the wish you had been invited, even if you wouldn’t have gone anyway. It’s just nice to know that opportunities exist and to have the chance to choose whether or not to take advantage.
Real estate syndications can be the same way. Most individual investors haven’t heard about them because you have to qualify to be told about these private offerings. It can seem like this exclusive party you wish you’d heard about earlier in life.
Luckily, the SEC just amended the definition of accredited investor in August of 2020. Expanding the pool of people who can qualify for the title of accredited investor and participate in the exclusive “party” of private securities offered, such as real estate syndications.
Since most real estate syndication deals are only available to accredited investors, and even fewer deals are available to sophisticated investors, you want to know immediately which bucket you’re in (sophisticated or accredited) and how to leverage your assets to gain access to the investments you deserve. In other words, you at least want a chance to be invited to the party!
So, you might be wondering – Do I fit into the new accredited investor definition?
The Old Definition of Accredited Investor by the Securities and Exchange Commission
To earn the title of accredited investor, you must meet at least one of the monetary requirements, according to the Securities and Exchange Commission. This deems you financially stable enough to invest in a real estate investment syndications.
According to the SEC, individuals (i.e. natural persons) may qualify as an accredited investors based on yearly income or net worth.
Yearly income: If you have an individual income of over $200K per year or a joint income of over $300K per year. If you meet that income requirement, you’re in! If not, then you see if you meet the next monetary requirement.
Net worth: If you have a joint net worth of + $1M outside of the person’s primary residence, then you would qualify to be an accredited investor.
Remember, you don’t have to meet both requirements to reach accredited investor status. If you do, great, but only one is required. One caveat to the net worth requirement is your primary residence can not be included in your net worth.
If you don’t meet either of these requirements, don’t give up yet! The amended definition of accredited investors might help you, or you might fall into the non-accredited investor (financially sophisticated investor) bucket of investors – Keep reading 🙂
The New/Expanded Definition of Accredited Investor by the SEC
In August 2020, the Securities and Exchange Commission expanded the definition of accredited investors beyond the income or net worth requirement. This is because prior to then, the majority of participating investors in private offerings were institutional investors from venture capital firms or an investment company.
Now the expanded definition of an accredited investor will promote private capital and expand investment opportunities for more individuals with sufficient knowledge while maintaining appropriate investor protections.
Highlights of the updated accredited investors’ definition according to the Investment Advisers Act include spousal equivalent, qualifications based on certain professional certifications or designations issued by an accredited educational institution, “knowledgeable employees” in respect to investments in a private fund, and a few others about governmental bodies, rural business investment companies, and family offices.
Spousal Equivalent
As of the recent amendment, the joint income requirements not only qualify legally married couples but also include “spousal equivalent,” allowing non-traditional couples to meet the original accredited investor definition requirements by calculating joint income or pooling assets. Now couples in a relationship generally equivalent to traditional marriage, no matter their LGBTQIA+ status, can invest in unregistered securities just as any other couple.
This part of the amendment to the accredited investor definition now provides access to those who previously couldn’t qualify simply because of their lifestyle, breaking down barriers for non-traditional couples and allowing them to qualify as accredited investors just as any traditional partners would. Yay for progress!
Professional Certifications, Designations, or Credentials
The recent update also provides natural persons with professional certifications designations in good standing holding a Series 7, 65, or 82 would qualify as accredited investors. This amendment by the Commission also is open-ended, meaning they will have the ability to reevaluate or add certifications, designations, or other credintals in the future.
These individuals with financial sophistication would have the experience and knowledge to understand the financial and business matters associated with these types of investments of private funds. The Commission thought it only right these individuals, some of whom are investment advisers, should be able to participate in the private capital markets.
So, if you carry a general securities representative license, it might be worth checking into the details, qualifying with your state-registered investment advisers, and becoming an accredited investor based on these new definitions.
Knowledgeable Employees
Individuals, natural persons, who are “knowledgeable employees” of a private fund may qualify as accredited investors. This means, even if you don’t meet the income or net worth requirements, but you have professional knowledge in these types of investments, this may give you a foot in the door because of your knowledge of the business.
The SEC also accepts persons to be accredited investors if they are the director of the company, executive officers, or general partners issuing the private offering. This amendment to the accredited investor definition now provides access to those individual investors who are knowledgeable and experienced with these types of investments, regardless of their income or net worth.
If you now fit into the expanded accredited investor definition, congratulations! We can’t wait to celebrate with you for achieving the amazing accredited investor status.
How Non-Accredited Investors Can Still Participate
It’s no secret that real estate syndication investments are exclusive, and this is why the federal securities laws limit participation to individuals who qualify as accredited investors.
Sophisticated Investor (Non-Accredited Investor)
You’re a high-net-worth individual determined to build wealth, even though you don’t quite meet the accredited investor status! So, how can you get into one of these accredited investors based investments to increase your net worth?
Are you a financially sophisticated investor? The SEC provides a broad definition of a sophisticated investor as someone with sufficient capital or net worth and experience to weigh the risks and merits of an investment.
Industry-wide best practices classify a sophisticated investor as someone with +$100K individual income (+$200K joint) or +$350K in assets outside the primary residence in combination with sufficient experience.
The key here is “sufficient experience,” which is why we want to have a conversation with you! Even if you meet the income or net worth requirements, we can’t share certain securities offerings with you (or even mention them) without establishing a relationship first.
Even if the thought of talking finances on a call makes you nauseous (we aren’t scary, I promise!), it’s never too early to begin a working relationship if it means you gain access to otherwise-exclusive investment opportunities. Plus, if there is a prospective investment deal on the table there are only a limited number of sophisticated investors allowed to join in the deal alongside accredited investors; therefore, you want to make sure you get notified about those opportunities.
Related: Not Yet Accredited? Here’s A Step By Step Guide To Becoming An Accredited Investor
How The Updated Accredited Investor Definition Affects You
The definition of accredited investor expands the criteria to include non-traditional couples, experienced investors, and licensed investment professionals who, according to the original guidelines, would have all been excluded before August of 2020. If that’s you, this is your invitation to the party!
We’re so excited to welcome you, and you know who you are, you newly qualified accredited investor! According to this amendment, you’re a high-net-worth individual, and we can’t wait to include you in the exclusive world of wealth-building real estate syndication investments.
Now Is the Time to Pick Up the Phone
If you’re still unsure about what type of investor you are, a sophisticated investor or an accredited investor, the important takeaway is that we create a relationship beginning with a call.
In this call, you will speak with one of our syndication team members about your experience and investing goals so that we can share prospective investment deals with you.
You deserve to know about opportunities for which you qualify. It’s time to reach out and seize the chance to Join the Club and build the life and the passive income you deserve.
