Accredited investors are able to make better investment decisions simply because they have a lot more options available to them. They can access investments that are generally considered “riskier” such as hedge funds, venture capital funds, private equity funds, etc. These investment opportunities are not available to the public for a number of reasons.

The US Securities and Exchange Commission (SEC) limits access to these investments in order to protect those with less investing experience and those who do not have a big enough financial safety net to protect them in case an investment does not work out. [1]

Accredited investors are known to have a certain level of financial sophistication due to their net worth and income level.

Based on the SEC’s definition, an accredited investor is a person or entity that is allowed to invest in securities that are not registered with the SEC. In order to become an accredited investor, the individual or entity has to meet certain net worth and income thresholds. [1]

Companies and private funds are able to sell these assets without registering them as long as they sell it to accredited investors.

There are many different investment opportunities that come with being an accredited investor. Real estate syndication is just one of them. But before we discuss one of the best investments for accredited investors, we will discuss how the verification process works and whether or not you are able to self-certify.

Who are Accredited Investors?

The SEC defines an accredited investor as an individual or an entity with at least $200,000 of earned income over the past two years. There also has to be a reasonable expectation that they will earn the same amount in the present year. For married couples or spousal equivalents, they need to have a joint income of $300,000. This is according to Regulation D of the Securities Act of 1933. [2]

While the SEC’s definition of an accredited investor determines who can participate in these lucrative investment opportunities, they have recently expanded their definition so that more people can qualify.

The SEC identifies accredited investors based on their annual income but also their net worth. To verify accredited investor status, an individual or entity needs to check their net worth to see if it exceeds $1,000,000. Do keep in mind that when calculating net worth, one has to exclude the value of their primary residence. [2]

The modernized definition was released in August 2020 and it expanded the requirements to also include knowledgeable employees of a private fund and other investors with certain professional certifications, like those who have Series 7, 65, or 82 licenses.

Limited liability companies (LLC) with $5 million in assets that were not specifically formed to invest in a certain security can be considered accredited. The new definition now also applies to Indian tribes, government bodies, funds, and entities organized under the laws of foreign countries that own investments over $5 million. This also applies to any business development company that has assets exceeding $5 million. [2]

Income and net worth are still part of the equation. But now more individuals and entities qualify as accredited investors, allowing them to join syndication deals and other exclusive investments.

How to Achieve the Accredited Investor Status

If you fit the description above, then you are qualified to become an accredited investor. You can work with a registered investment company or a small business investment company to participate in these exclusive investments. But what kind of process do individuals and entities have to go through in order to get accredited?

It is actually a common misconception that there is an official “accreditation process” for accredited investors.  There is no agency or independent body that gives you their stamp of approval saying you are now accredited. [1]

However, accredited investor verification still happens in some form but that burden falls on the investment vehicle itself. The company issuing the unregistered securities is required by the SEC to confirm whether they are dealing with an accredited investor or not. This is why you can expect these companies to require some documents and financial statements that prove your financial sophistication.

Accredited investors who wish to participate in these exclusive investments may have to submit financial statements, tax returns, W-2 forms, and other requirements to prove their status. This is done with every single unregistered security that they want to join.

Investment managers are often the ones in charge of the screening process. Accredited investors also may be asked to submit letters of reviews by CPAs, tax attorneys, investment advisors, and investment brokers.

Once their accredited investor status has been confirmed, they can participate in their desired investment venture.

Can You Self-Certify as an Accredited Investor?

Since there is no actual accreditation process, there’s no need for self-certification. Of course, accredited investors may secure the required financial statements ahead of time so that it is easier to prove their status during the investor verification process. But the SEC cares more about sellers of unregistered securities verifying the status of their potential investors.

In fact, there is nothing stopping you from trying to invest in these exclusive securities. But you may not be able to find these securities in the first place because the SEC prevents them from being sold to a non-accredited investor. There’s a possibility that you would not even hear about these investment opportunities.

Most companies are sensitive to the possibility that any of their investors are potentially unaccredited. For this reason, their own verification process may be intensive. Investors have to fill out an “accredited investor questionnaire” and provide the requirements before they can give their money to the company.

Being an accredited investor is definitely worth it because it has plenty of benefits. With this status, you are able to participate in highly rewarding investment opportunities. Once you qualify as accredited investor, you can enjoy access to these potentially lucrative investments. [3]

Accredited investors can join investment opportunities that offer generally higher yields compared to those that are available in the public markets. For example, they are able to invest in startups and small businesses by becoming angel investors.

Through venture capitalism, they provide funding for promising startups that want to grow or explore new ideas. Accredited investors offer funding in exchange for a share of the company. This can be lucrative if the company proves to be a success. Once the business expands, the investors earn based on their share of the company. [3]

It may be risky to put money into a growing company, but the potential to earn much larger returns is also there. This is why venture capital is generally exclusive to accredited investors. They have the income and the net worth to survive such ventures, whether or not it turns out to be successful.

Accredited investments also tend to involve long capital lock up time. This means funds will become inaccessible for significant periods of time—sometimes even years, depending on the type of investment. Hedge funds, venture capital funds, and even real estate syndication deals come with a lot of illiquidity. These investments also require higher minimum investment amounts. Accredited investors, however, are equipped to deal with this. [1]

Accredited investors are able to diversify their investment portfolio easily just by having access to more investment options. They can easily find and join alternative investments thanks to their accredited investor status. Meanwhile those who are limited to the public markets may struggle to find options for diversification.

Aside from having a larger financial safety net, accredited investors are also expected to have more experience when it comes to investing. They are generally more knowledgeable about investments and can therefore assess their risks and rewards. Accredited investors are able to make smart financial decisions. [1]

Accredited Investor Verification

The fact that investors need to verify their accredited status every time they invest in a new opportunity leads to a lot of wasted time and money. It takes up a lot of time for issuers and investors alike. Issuers have to go through each investor’s credentials manually and this can be both time-consuming and inconvenient. This may also lead to a bit of confusion. As for investors, going through this process repeatedly is also inconvenient.

But thanks to Rule 506(c), there is a solution to this verification problem: third-party verification. [4]

This verification process is an alternative to the traditional approach of having the issuer review each investor’s accredited status. Instead of this, the issuer can get a letter from a third-party that attests to the investor’s accredited status. This letter can only come from a registered investment advisor; a registered broker dealer; an attorney; or a certified public accountant. [4]

For this letter, there is no specific verification requirement for what it should look like, but it must indicate the investor’s accreditation status and which test the investor meets.

The only other option is the traditional investor verification process of submitting brokerage statements, tax returns, and other financial statements.

Multifamily Syndication: What Makes it Potentially the Best Investment for Accredited Investors?

When people talk about investments for accredited investors, venture capitals, private placements, and hedge funds usually come to mind. But there is another example of a lucrative investment opportunity that is exclusive to those with the accredited investor status: real estate syndication.

Even on its own, real estate is already known as one of the most lucrative investments for regular investors. There are many ways to invest in it. Some people buy and flip houses to resell them. Some take on the role of landlord by renting out a single family home. But real estate syndication is exclusive to accredited investors.

Real estate syndication involves multiple investors putting their money together to buy a single real estate property. This can be done with a single family home with just one unit, but the multifamily approach is more popular for a lot of reasons. [5]

Multifamily real estate properties are duplexes, triplexes, apartment complexes, condominiums, and any other property with more than one unit. Because they have multiple units, they can generate more income through monthly rent. Multifamily properties can offer strong and consistent cash flow, which also makes it ideal for a syndication deal.

Additionally, these large real estate properties are generally too expensive to obtain for a lone investor. In a syndication deal, investors get to pool their resources together to purchase a property that they otherwise would not be able to.

A syndication deal is put together by a syndicator, also known as the general partner. They will locate the real estate property, coordinate the funding, and find accredited investors who will participate in the deal. The syndicators provide most of the capital needed to obtain the property in exchange for equity and a share of the cash flow, depending on the deal structure. [5]

A limited liability company or limited partnership (LP) is usually formed for the syndication deal. The investors serve as the limited partners.

Multifamily syndication is known for its steady and reliable income through monthly rent. But on top of that, the investors do not even need to take care of the property. The syndicator handles property management. This means investors don’t have to become a landlord or worry about any of those responsibilities.

Real estate syndication is a truly passive investment. Accredited investors do not need to collect rent, manage tenants, handle emergencies, etc. They can just sit back, relax, and enjoy their share of the monthly cash flow.

With real estate syndication, you get to enjoy all the benefits of owning multifamily real estate without the associated hassles. It is worth noting that real estate syndication deals are only offered to accredited investors.

There are many types of investment options for accredited investors. They can become equity owners, or look into hedge funds and venture capitals. But multifamily syndication can be one of the best sources of passive income. If you are interested in multifamily syndication, work with BAM Capital.

Multifamily Syndication: What Makes it Potentially the Best Investment for Accredited Investors?

BAM Capital lets you invest in high quality multifamily apartment complexes without the headache of running them yourself.  With a strong Midwest focus, this Indianapolis-based syndicator prioritizes Class A, A-, and B++ multifamily real estate properties.

BAM Capital is known for its award-winning multifamily investment strategy that helps accredited investors grow their wealth through syndication. [6]

This syndicator can mitigate investor risk using its vertical integration strategy that creates forced appreciation. BAM Capital also has a consistent track record. In fact, it now has over $700 million AUM and 5,931units. [6]

BAM Capital provides a safe and passive investment for their investors. They negotiate the purchasing and financing of high quality real estate in the Midwest.

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.

Sources:

[1]:https://www.investopedia.com/articles/investing/092815/how-become-accredited-investor.asp

[2]: https://www.bluelake-capital.com/post/the-new-accredited-investors-definitions

[3]:https://percent.com/blog/accredited-investors-regulations/

[4]:https://parallelmarkets.com/blog/a-guide-to-the-accredited-investor-verification-process/

[5]:https://www.qccapitalgroup.com/post/ultimate-guide-to-multifamily-real-estate-syndication

[6]: https://capital.thebamcompanies.com/