Real estate is a powerful vehicle for investors who want to diversify their investment portfolio and enjoy consistent returns. Residential and commercial real estate both have the potential to provide these benefits. But investors need to understand how to compare potential investment opportunities effectively. However, this is a lot easier said than done.

It takes a lot of skill, experience, and knowledge to properly assess prospective investments. Even with those qualities, there is no guarantee that an investment will pay off. You always have to deal with a bit of risk no matter what type of investment you are getting into.

Experienced investors know how to use different methods to assess investment opportunities. Equity multiple is one of these methods. Just like Internal Rate of Return, it is considered one of the most efficient ways to analyze and compare specific securities, particularly real estate investments.

Here we will discuss equity multiple in commercial real estate, what a good equity multiple looks like, and how to evaluate real estate investments using this metric.

Who are Considered Accredited Investors?

Accredited investors are allowed to invest in securities that are not registered with the SEC. A non-accredited investor simply has to meet certain net worth and income thresholds in order to be considered accredited. [1]

Following the SEC’s definition, an accredited investor is a person or entity with at least $200,000 of earned income over the past two years, with a reasonable expectation that they will earn the same amount in the present year. Married couples and spousal equivalents may also qualify if they have a joint income of $300,000. [2]

A person’s net worth may also be used to determine their accredited status. If an individual or entity’s net worth exceeds $1,000,000, excluding the value of their primary residence, they are considered accredited investors. This also applies to married couples and spousal equivalents with a joint net worth of $1,000,000.

In August 2020, the SEC released a modernized definition of “accredited investor” that allowed more people to qualify. Thanks to the expanded definition, knowledgeable employees of private funds, as well as investors with certain professional certifications including those with Series 7, 65, or 82 licenses, are now considered accredited investors.

Limited liability companies (LLC) that were not formed specifically to invest in a certain security may be considered accredited if they have $5 million in assets. Accredited investors now also include government bodies, Indian tribes, funds, and entities organized under the laws of foreign countries that own investments over $5 million are also accredited investors. [2]

How to Verify Your Accredited Investor Status

If you can meet the accredited investor verification requirement, then you are qualified to become an accredited investor. You may start working with a registered investment company or any company that is offering unregistered securities and begin investing.

What most investors don’t realize is that there is actually no official “accreditation process” for accredited investors. The SEC does not have to give you a stamp of approval that says you are now accredited. [1]

The burden of having to verify your accredited investor status falls on the investment vehicle itself. Companies that offer these unregistered securities are required by the SEC to check if their prospective investors fall under the definition of accredited investor.

There is still some form of verification that happens, but it is done by the investment vehicle or an investment manager for every single unregistered security that you wish to participate in.

These companies will typically require investors to provide documents and financial statements that show their annual income level or net worth. They may ask you to fill in a questionnaire and submit tax returns, W-2 forms, credit report, and other requirements that will help prove your status. [1]

Doing this every time you want to participate in an unregistered investment opportunity can prove to be tedious. This is why there is an alternative way of completing the verification process. An accreditation investor verification letter may be submitted to the company offering the security.

Who Can Write an Accredited Investor Letter?

Because investors have to prove their accredited status every time they want to invest in a new opportunity, a lot of valuable time is wasted. This affects issuers and investors alike.

Companies have to go through the credentials of each prospective investor just to make sure they qualify as an accredited investor. Meanwhile investors have to gather these requirements and go through this process over and over again.

This process is both time-consuming and inconvenient for both parties, which is why the alternative is often preferred. Thanks to Rule 506(c), accredited investors have the option to submit an accredited investor verification letter from a certified public accountant, a tax attorney, a registered broker dealer, or a registered investment advisor. [3]

There is no specific format for this verification letter. It only needs to indicate that the investor meets the requirements for accreditation. It should also specify which test the investor meets.

Through the third-party verification process, an investor can skip the traditional approach of having the investment vehicle verify their status manually. The issuer can receive a third party letter from someone who is professionally qualified to make their assessment of the investor. [3]

They can start participating in their desired investment venture once their status has been confirmed.

Investment for Accredited Investors: Why Invest in Multifamily Syndication

Accredited investors have plenty of options when it comes to investment opportunities. But when people think of accredited investors, they usually think venture capitals, hedge funds, and private placements. Accredited investors should know that there is one more exclusive investment opportunity that is available to them, and it can be one of the most lucrative of them all: real estate syndication.

Even outside of the world of accredited investors, real estate is already known to be a lucrative investment vehicle. There are many ways to enter the real estate industry, and countless investment opportunities to look into. But real estate syndication could be perfect for accredited investors who want a passive investment that will let their money work for them.

Real estate syndication lets you enjoy all the benefits of owning real estate without the hassles and headaches that typically come with it. If you want to own real estate but are not interested in becoming a landlord, syndication is the right investment vehicle for you.

In a syndication deal, multiple investors pool their money together to purchase a single real estate property. A syndicator puts the deal together and acts as the general partner, while accredited investors serve as limited partners. Usually an LLC or limited partnership is formed for the purpose of purchasing the real estate property. The syndicator locates the property, coordinates the funding, and looks for investors who will participate in the syndication deal. [4]

The investors provide most of the capital needed to secure the property in exchange for equity in real estate upon resale. They also get a share of the monthly cash flow generated through rental income, depending on the deal structure.

This type of deal can be done with any type of real estate property, but multifamily syndication is the most popular version among accredited investors. Unlike single family properties, multifamily real estate properties like duplexes, triplexes, condominiums, and apartment complexes do not have to worry about vacancies. There are multiple units that can generate a consistent and strong cash flow. [4]

On top of this, multifamily properties are often too expensive to obtain for a lone investor. These properties often cost millions. A syndication deal makes them a lot more accessible because multiple investors get to participate. This allows investors to purchase a property that they normally wouldn’t be able to.

Multifamily syndication deals are only offered to accredited investors. One of its greatest benefits is the fact that the syndicator manages the property once it has been bought. They will either take care of it themselves or hire a third party property management company. In any case, investors do not have to worry about managing the real estate property. They don’t have to worry about collecting rent, handling tenants, or dealing with emergencies. Real estate syndication is a truly passive investment opportunity. [4]

If you are interested in multifamily syndication, work with BAM Capital.

Why Invest with BAM Capital for Multifamily Real Estate Investing

BAM Capital is an Indianapolis-based syndicator with a strong Midwest focus that allows accredited investors to invest in high quality multifamily apartment complexes. BAM Capital prioritizes Class A, A-, and B++ multifamily real estate properties, making sure that their investors do not have to worry about running the apartment complexes themselves.

Known for its award-winning multifamily investment strategy, BAM Capital helps accredited investors grow their wealth through multifamily real estate syndication. [5]

BAM Capital negotiates the purchasing and financing of high quality real estate in the Midwest on behalf of their investors. Their goal is to provide safe and passive investment opportunities for their investors.

BAM Capital uses a vertical integration strategy that creates forced appreciation and mitigates investor risk. In fact, it now has over $700 million AUM and 5,931units. [5]

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://parallelmarkets.com/blog/a-guide-to-the-accredited-investor-verification-process/

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

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