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Becoming an accredited investor comes with a number of benefits. Basically, investors who want to bring in larger sums of revenue aim to achieve this status. But before you can become one, you must first understand what it means and what kind of doors it could open.
Accredited investors are able to invest in hedge funds, mutual funds, private equity funds, and other unregistered investments. These unregistered securities are not available to the public, particularly non-accredited investors. This alone gives them an edge thanks to their access to exclusive investment opportunities.
Here we will be discussing the accredited investor definition and how to achieve this status.
What is an Accredited Investor?
An accredited investor is someone who meets the special requirements set by the US Securities and Exchange Commission (SEC). These are investors who have reached a certain level of annual income or net worth. They are considered accredited by the SEC due to their advanced knowledge and experience when it comes to investing.
According to the SEC, individuals may qualify as accredited if they meet certain income thresholds—particularly their annual income and net worth. Natural persons with a net worth over $1 million are considered accredited, but the value of their primary residence must be excluded from this calculation. The $1 million net worth can be achieved either individually or with a spouse or partner. [1]
Alternatively, the person may have an annual income over $200,000 individually or $300,000 with their spouse or partner, in each of the prior two years. There also needs to be a reasonable expectation that they will earn the same amount in the current year. [1]
These are meant to serve as measures of financial sophistication. There is an understanding that accredited investors have the investment knowledge and experience to make informed decisions regarding these unregistered investments.
Some investors may also qualify based on certain professional criteria. If they have professional certifications, they may be considered accredited investors.
For example, if an investment professional in good standing is holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82), they are considered accredited. This is based on the assumption that they have a lot of existing knowledge regarding investing, which means they can assess the risks and rewards of potential investments better than the general public. [1]
Also accredited are directors, general partners (GP), and executive officers of the company selling unregistered investments.
There are also knowledgeable employees of private funds and certain family offices, which are also considered accredited investors.
To become an accredited investor, you simply have to meet any of these requirements listed above.
Why Would You Want to Become an Accredited Investor?
There are plenty of benefits to becoming an accredited investor. Generally speaking, accredited investors tend to enjoy greater returns. Unregistered securities tend to carry a greater risk, which means they also tend to generate greater returns. The reason these investment opportunities are limited to accredited investors in the first place is because they have enough knowledge and experience to assess them and make smart investment decisions.
Investments may vary greatly in terms of potential rate of return, but some development deals that are only accessible to accredited investors have a rate of return of 15 to 25%. Meanwhile, the average return in the stock market is around 8%. [3]
Accredited investors who exercise due diligence should have no problem getting excellent returns.
But the main benefit of getting this status is having access to unregistered securities and investment opportunities that are only available to accredited investors. Real estate syndication is an example of this. Syndication deals are only available to accredited investors as they are not listed publicly. Accredited investors often network with other investors to find these investments.
This opens up new ways to diversify your portfolio. While stocks tend to be volatile, accredited investors have the ability to diversify their portfolio through real estate investing. Even if stocks are tanking, real estate investments can help with the losses. [3]
The easiest way to enjoy all of these benefits as an accredited investor is to work with a trustworthy company like BAM Capital.
Multifamily Syndication: Why BAM Capital is the #1 Choice for Accredited Investors
BAM Capital is widely-known in the world of multifamily real estate syndication for its solid track record. But some investors may not be familiar with the concept of syndication yet.
Real estate syndication is a deal in which multiple investors pool their funds together to buy a property. A sponsor puts the deal together by locating the real estate property and coordinating the transaction and funding. They then look for investors who will provide most of the capital needed to purchase the property. [4]
Real estate syndication can be done with any real estate property, but multifamily syndication is the most popular due to its strong and consistent cash flow. Multifamily properties like apartment complexes and condominiums are also regarded as some of the safest forms of real estate investments. Depending on the deal structure, investors may get a share of the cash flow as well as a percentage of the equity upon resale.
The sponsor, also known as the syndicator, is also in charge of taking care of the property and making sure it is profitable. Some syndicators hire a third party property management company while others like BAM Capital handle it themselves. This makes it an attractive investment opportunity for accredited investors because it is a completely passive investment.
BAM Capital is perfect for accredited investors who want a “done for you” model. The company handles everything from start to finish. BAM Capital will negotiate the purchasing and financing of high quality multifamily properties on your behalf.
A limited liability company (LLC) or limited partnership (LP) is created for syndication deals.
Multifamily syndication allows investors to participate in large real estate deals that they normally wouldn’t be able to. Not everyone is willing to buy a large apartment building all by themselves. This is where syndication comes in. Participating in a syndication deal also mitigates risk for everyone involved because they wouldn’t have to spend as much capital as they would have if they bought it alone.
Multifamily properties are known for generating stronger cash flow, especially compared to single family properties, since they have more units and more tenants. They are also unaffected by vacancies because the remaining units can still generate a profit even if one or two tenants leave.
Syndication deals are a great source of passive returns for accredited investors. It does not require a significant time investment, unlike other real estate opportunities, because investors do not have to take on the role of landlord. They don’t have to deal with tenants, handle emergencies, worry about repairs, etc. The syndicator takes care of property management.
Plus, syndication deals also enjoy tax benefits. By owning a piece of the real estate, investors get tax benefits through their K-1 tax filings.
Syndication properties also appreciate over time, just like any piece of real estate. The property value will increase over time.
If you work with a reliable syndicator with a consistent track record, you can reap all these benefits and more. BAM Capital is the best syndicator in the Midwest. This Indianapolis-based real estate syndicator covers all steps of the investment life cycle. Thanks to its vertical integration, BAM Capital can handle everything from purchasing to remodeling to management. It even prioritizes Class B++, A-, and A+ multifamily assets with in-place cash flow and proven upside potential. [5]
With an investment strategy that mitigates investor risk, BAM Capital can target a consistent monthly cash flow. Accredited investors will surely appreciate BAM Capital’s award-winning multifamily investment strategy that creates forced appreciation.
This syndicator’s track record speaks for itself: with over $700 million AUM and 5,000+ units, BAM Capital is the most reliable syndicator for accredited investors looking for a passive investment.
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.
What is an Accredited Investor?
The most interesting thing about all this is that there is no specific accreditation process that people follow in order to “become accredited”. It is up to the firms selling unregistered securities to assess prospective investors to see if they actually qualify based on the various requirements.If an investor meets the requirements, they are automatically considered an accredited investor. Firms may ask them for certain financial documents to prove that they qualify to invest in the securities being offered.
As soon as you can provide these documentations, you are free to enjoy the benefits that come with this title. The caveat is that you have to go through this process for each unregistered investment that you wish to participate in. If you are planning to invest in multiple unregistered investments, you will have to go through this screening process repeatedly.
The companies selling unregistered securities follow guidelines set by the SEC in order to confirm an individual’s status as an accredited investor. In 2020, these guidelines were expanded to include more individuals. Before a firm can legally allow you to participate in the investment, they need to see your qualifications.
They may ask for your tax returns, your credit report, financial statements, W-2 forms, and other documents that will help confirm your earnings or net worth. [2]
The fastest way to determine if you qualify for these exclusive investment vehicles is to calculate your net worth. Net worth is calculated by taking all of your assets and subtracting all your liabilities. If you want to become an accredited investor, you will have to reach the required net worth and maintain it for at least two years.
The fastest way to become an accredited investor is to earn professional certifications, credentials, or designations that are administered by the Financial Industry Regulatory Authority (FINRA). Knowledgeable employees of a private fund may also qualify. For this, the firm offering the unregistered security will look for the applicable requirements such as a Series 7, 65, or 82 license. [2]
Sources:
[1]:https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor
[2]: https://smartasset.com/investing/how-to-become-an-accredited-investor#
[3]:https://www.bestevercre.com/blog/the-benefits-of-becoming-an-accredited-investor-in-real-estate
[4]:https://www.qccapitalgroup.com/post/ultimate-guide-to-multifamily-real-estate-syndication#
