Once you decide to dive into the real estate investing world, it won’t be long before you hear the term “Accredited Investor.” Many passive commercial real estate or crowdfunded investment opportunities are publicly advertised and limited to accredited investors.
Even if you’re a total newbie, it’s essential to know the difference between a sophisticated investor and an accredited investor and if you’re one of them.
Neither of these titles requires an application or an approval process. You can determine whether you’re an accredited investor based on a few simple criteria.
What to Look For
To be an accredited investor, you must:- 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.
- Have a net worth of over $1 million, not counting your primary home.
It May Help to Run Through Examples
Meet Amelia
Amelia has had a corporate career for ten years and is single. She just got a raise two months ago and now makes $200,000 per year. Amelia’s primary home is worth $1.5 million. She has $700,000 in her 401K and $350,000 between her savings and a few brokerage accounts. She owes $100,000 to student loans.Is Amelia an Accredited Investor?
Even though Amelia currently makes $200,000 and has reason to believe she will continue making that amount or more in the coming year, her annual income has been below the $200,000 criteria over the past two years. Amelia’s net worth is: $700,000 (401K) + $350,000 (savings and brokerage accounts) – $100,000 (student loans) = $950,000, Since her net worth is just under the $1 million requirement, Amelia is a non-accredited investor.Amy & Kieran
Amy is a physician and earns $285,000 per year. Kieran is a stay-at-home dad, so he 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. They have $250,000 in savings, plus $600,000 in retirement. Kieran recently received $250,000 in inheritance.Are Amy & Kieran Accredited Investors?
They do not qualify 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, Amy and Kieran are accredited investors. Woohoo!What Are the Perks?
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 better positioned 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 have to search harder to find them. — If you’re ready to begin replacing your active income with passive income so you can build time freedom AND financial freedom, apply to the Vestus Capital Investor Club today!How To Get Started
The first step to invest with us is to fill out our Interest Form. We’ll connect and discuss your goals, then we’ll find the best investments to help you meet these goals. After you invest you can just sit back, relax, and receive quarterly cash flow payments from your passive investments.This work by Annie Dickerson is licensed under CC BY-NC-SA 4.0
