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Best Investments for Accredited Investors

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Becoming an accredited investor comes with a few perks. Accredited investors are an elite group of people with the financial means to access investments that others cannot. Accredited investments include certain hedge funds, venture capital firms, commercial real estate, private equity real estate, etc.

Accredited investors are recognized by the Securities and Exchange Commission for having a level of sophistication and experience when it comes to investments that makes them capable of building a somewhat riskier investment portfolio. Since accredited investors understand the financial risks, a lot of these investment opportunities don’t have to be registered with authorities in the financial sector.

Accredited investors have a larger annual income and therefore a larger financial safety net. This allows them to shoulder more risk should the investments suddenly fall in value.

For those who have reached this status, it is worth exploring the different types of investments for accredited investors. These investment opportunities will allow you to generate passive income, diversify your investment portfolio, and build wealth.

But before we get into it, we must discuss the definition of an accredited investor according to the Securities and Exchange Commission. How does one know if they have achieved accredited investor status? Let us take a closer look.

What is an Accredited Investor According to the Securities and Exchange Commission?

According to the US Securities and Exchange Commission, an accredited investor is a person with an income over $200,000 in each of the two most recent years, with a reasonable expectation that they will earn the same level of income in the current year. For spouses, they must have a joint income that exceeds $300,000. This is dictated in Rule 501 of Regulation D of the Securities Act of 1933 (Reg. D). [1]

An individual may also qualify as an accredited investor if they have a net worth that exceeds $1 million, either alone, with a spouse, or with a spousal equivalent. Net worth is calculated by adding up all your assets and subtracting all liabilities. This calculation excludes the value of the person’s primary residence.

Also included in the definition are limited liability companies (LLC) with $5 million in assets.

Top Investment Areas for Accredited Investors to Grow Their Wealth

For high net worth individuals (HNWIs), the goal is usually to maintain, secure, and protect their wealth. But part of this is growing their wealth, and this involves putting some of that money into the right investment vehicle. Anyone can choose an asset class that works for them. But accredited investors have access to even more options.

Because of their high net worth and larger financial safety net, accredited investors enjoy access to a much greater array of investment opportunities. They can explore venture capital funds, private equity funds, commercial real estate investments, and many other potential investments that are not available to those with less access to capital.

These investments are typically associated with greater risk, hence they are limited to accredited investors. But with that in mind, these investment opportunities also come with greater potential rewards. They are suitable for investors who are interested in adopting a more aggressive approach to their investment strategy. They face greater risks, but they may also enjoy higher returns.

Hedge Funds

Hedge funds are actively managed investment pools that generally use non-traditional investment strategies or asset classes. Sometimes it involves buying with borrowed money and trading esoteric assets. Hedge funds require a high minimum investment or net worth, which means they are only accessible to HNWIs and accredited investors. [2]

Because of the nature of hedge funds, they are typically considered risky investment choices. Although they are still controversial, the number of hedge funds has continued to grow over the past five years.

Back in the 1990s and early 2000s, hedge funds were known for their market-beating performances. Some have underperformed, particularly during the financial crisis of 2007-2008, however. [2]

This alternative investing strategy has a unique way of operating. Usually, the manager of an investment fund will set aside a portion of their available assets for a hedged bet.  This is a bet against the fund’s primary focus, which is done so that any losses will be offset. For example, a fund manager for a cyclical sector may devote a portion of the assets to stocks in a non-cyclical sector to offset the losses in case the economy tanks. [2]

Some hedge fund managers use riskier strategies like using borrowed money to purchase more of an asset simply to multiply their potential returns. This of course also multiplies their potential losses.

Similar to mutual funds, hedge funds are professionally managed by career investors. However, unlike mutual funds, hedge funds are not as strictly regulated by the SEC. This is why they are subject to less scrutiny. Hedge funds can apply to different investments like shorts, options, and derivatives. They can also make alternative investments. [3]

Accredited investors may choose a hedge fund manager based on their preferred investment approach. You may choose one whose investment philosophy aligns with yours.

Do keep in mind that these hedge fund money managers do not come cheap. Hedge funds typically charge a fee of 1% to 2% of the assets, in addition to 20% of the profits which serves as a “performance fee”.

Stock Market

The stock market refers to several exchanges in which shares of publicly held companies are bought and sold. The terms “stock market” and “stock exchange” are often used interchangeably. These activities are done through over-the-counter (OTC) marketplaces that operate under a set of regulations. [4]

The New York Stock Exchange (NYSE) and the Nasdaq are some of the leading stock exchanges in the US. The SEC and the Financial Industry Regulatory Authority (FINRA) are the main regulators of the US stock market.

Buyers and sellers of securities can meet and transact through the stock market. Beyond that, the stock market can also act as a barometer for the economy. Because the stock market allows for price discovery for shares of corporations, it assures that buyers and sellers get a fair price. Accredited investors enjoy a high degree of liquidity and transparency because of the open market. [4]

The London Stock Exchange was the very first stock market. It was established in 1773. Meanwhile the first stock exchange in the US began in Philadelphia in 1790.

The stock market works this way: first, a company divides itself into several shares. The stock market then allows companies to sell their shares to the public, at a certain price per share. This then helps the company raise necessary capital with the help of investors.

Investors who participate in stock market trading can transact with confidence, often with zero operational risk. They can own company shares in the expectation that the share value will rise, which will then lead to a profit. [4]

Venture Capital

Venture capital is a form of equity financing wherein angel investors and venture capitalists provide funding for small businesses and startups that show promise. This is in exchange for a share of company ownership. Startups and businesses can then use the venture capital to test product ideas and explore new business ventures. In some cases, these funds are used for growth and expansion of an established company. [3]

Accredited investors can potentially enjoy much larger returns on their investment if the business happens to take off. While this may be a risky venture, it gives small businesses the chance to take their company to the next level. This can also be very rewarding for the venture capitalists that supported them because they own a certain percentage of the company.

REITs

Most investors know that real estate investing can be very lucrative. There are many ways to participate in the real estate market. You can go for commercial real estate investments, residential real estate, or even private real estate investments. But some real estate investments are more suitable for accredited investors than others.

Real estate investment trusts, or REITs, is a good example of this. REITs are companies that pool together funds and invest them in different properties for the purpose of generating profit. [3]

Accredited investors invest in the REIT itself, rather than the property that the REIT is investing in. REITs may own a wide range of properties in the real estate market, such as condominiums, warehouses, apartment buildings, and hospitals. REITs can also invest in other commercial structures.

In exchange for their investment, REITs offer accredited investors a means to earn income on these holdings without having to deal with the responsibilities of owning a real estate property. This can improve your financial portfolio without having to become a landlord. [3]

Private Equity Real Estate

Although they have a few similarities, private equity real estate is different from REITs. REITs give investors access to publicly-traded shares in real estate investments. Meanwhile, private equity real estate refers to investing in professionally-managed funds that may invest in speculative property offerings, including undeveloped land to luxury high-rise properties. [3]

This is another one of the accredited investor opportunities that you can enjoy once you reach a high enough net worth or joint net worth with your spouse. But there is another way accredited investors can enjoy the benefits of real estate investing, and that is in the form of real estate syndication.

Multifamily Real Estate Syndication

Real estate syndication is when multiple investors pool their resources together to purchase a single property from the real estate market. While this can be done with most real estate investments, multifamily syndication is the most popular type because these large properties are known to provide strong and consistent cash flow through rental income.

This may sound similar to a REIT, but syndication is actually different. Investors looking into real estate syndication can make their own investment decisions and choose the syndication deal they want to join based on the real estate property being syndicated. With REITs, investors have no say in what real estate properties are invested in, since they are investing in the company itself.

In a syndication deal, there are two parties involved: the syndicator, also known as the general sponsor, and the passive investors. The syndicator puts the deal together, secures the funding, and then looks for accredited investors who will provide most of the capital. The syndicator scouts and secures the property and handles the investment contracts. [3]

Multifamily syndication is a true source of passive income because investors don’t need to get involved in property management. The syndicator will handle that as well. They may hire a third party property management company or take on this responsibility themselves. Either way, accredited investors do not have to worry about becoming a landlord.

Multifamily syndication allows investors to invest in large properties that are normally too expensive for a lone investor to purchase. Multifamily properties have several units, which is why it is able to produce a large stream of income for investors through monthly rent. Vacancies are no problem because the remaining units can still provide cash flow even if one or two tenants leave. [3]

Investors in a syndication deal get a share of the equity upon resale as well as a portion of the cash flow. This makes multifamily syndication a good long term investment for passive investors.

Work with BAM Capital for Multifamily Syndication

If you want to invest in multifamily apartment complexes without the headache of running them yourself, you should work with BAM Capital.

This Indianapolis-based syndicator has a strong Midwest focus, prioritizing multifamily real estate properties that are Class A, A-, and B++. BAM Capital uses an award-winning multifamily investment strategy that allows investors to grow their wealth through syndication. [6]

BAM Capital mitigates investor risk and uses a vertical integration strategy to create forced appreciation. They have a consistent track record of providing a safe and passive investment for their investors.

BAM Capital negotiates the purchasing and financing of high quality multifamily properties on behalf of passive investors. Their vertical integration strategy has worked wonders for the company so far. In fact, BAM Capital currently has $700 million AUM and 5,000 units. [6]

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions

Accredited investors can schedule a call with BAM Capital and invest today.

 

 

BAM Multifamily Growth & Income Fund III

BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.

  • Consistent passive income
    Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
  • Significant tax benefits
    A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
  • Vertically integrated company
    In-house property management and construction allow for predictable cost reduction and value add.

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The contents on this site are for informational and entertainment purposes only and do not constitute financial, investment, or legal advice. BAM Capital cannot guarantee that the information shared on this post or page is appropriate for you and your financial situation. By using this site, you agree to hold BAM Capital and any and all entities related to the writing & publishing including BAM Capital’s parent company harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site. Always consult your investment advisor, CPA, and other professionals before making an investment. BAM Capital is excited to help you grow your investment assets. Please contact us to see how we can help you.  

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