How do accredited investors decide where to invest?
Table of Contents
HOW ACCREDITED INVESTORS DETERMINE WHERE TO INVEST THEIR MONEY FOR MAXIMUM GROWTH AND SAFETY?
One of the first challenges people face when investing is finding investment opportunities that suit their budget and financial goals. This also applies to accredited investors.
Accredited investors are known for their financial sophistication and investing knowledge. This is why certain investment opportunities are exclusive to them. This exclusivity protects less experienced and financially capable individuals from high-risk ventures.
The accredited investor largely defines the potential investors for companies raising capital. [1]
Accredited investors, as outlined by the U.S. Securities and Exchange Commission (SEC), possess a high net worth or significant income and are deemed capable of bearing substantial financial losses. This gives them access to investments like private equity, hedge funds, venture capital, and certain real estate investments. [1]
But how do accredited investors, and or family offices find these opportunities? Here we will take a closer look at how accredited investors find where to invest their hard-earned money.
UNDERSTANDING THE ACCREDITED INVESTOR
Before we get into the details, let’s clarify what an accredited investor is. An accredited investor is an individual or entity that meets specific financial criteria established by the SEC, allowing them to invest in private capital markets.
Each criterion ensures that investors have the financial sophistication and capability to bear the risk of investment in unregistered securities.
An annual income of at least $200,000 (or $300,000 together with a spouse) in the past two years with the expectation of maintaining the same income level in the current year is a must for an individual to qualify as an accredited investor. An individual is also an accredited investor if they have a net worth exceeding $1 million, (individually or with a spouse) excluding the value of their primary residence. [1]
Entities can also qualify as accredited investors if they meet certain criteria. For example, a bank, insurance company, registered investment company, business development company, or small business investment company automatically qualifies. [1]
Additionally, any entity in which all the equity owners are accredited investors can also be deemed an accredited investor.
Accredited investors are assumed to have the financial knowledge and stability to evaluate and withstand the potential losses from these riskier investment opportunities.
Source: Sec.gov
HOW DO ACCREDITED INVESTORS FIND WHERE TO INVEST?
Accredited investors have the financial safety net needed to protect themselves if a deal does not work out. Some examples of investments typically exclusive to accredited investors are private equity, hedge funds, venture capital, and private placements. Most real estate syndication deals are also exclusive to accredited investors.
Private equity involves investing directly in private companies or in buyouts of public companies that result in their delisting from stock exchanges. Hedge funds are pooled investment funds that employ diverse strategies to achieve high returns, often using leverage, derivatives, and short selling.
Venture capital funds invest in early-stage companies with high risk but high growth potential. Private placements refer to the sale of securities to select investors to raise capital, which is less regulated than public offerings.
Real estate syndication involves pooling resources with multiple investors to acquire a single real estate property. We will discuss more of this later.
These investments typically require significant capital and have complex structures and high risks; hence they are restricted to accredited investors. Below are some ways accredited investors find these investment opportunities.
NETWORKING AND PERSONAL CONNECTIONS
Most accredited investors have extensive networks of like-minded individuals with substantial financial knowledge and resources. They can leverage their connections to uncover promising opportunities. [2]
Their networks typically include friends, family, business associates, and other investors, all of whom can provide valuable insights and investment leads. These leads are important because most exclusive investment opportunities are publicly unavailable. Most people may not even hear about these opportunities.
PRIVATE EQUITY FIRMS AND VENTURE CAPITALISTS
Private equity (PE) and venture capital (VC) firms are major players in accredited investing. These firms typically manage large pools of money and invest in private companies, startups, and other high-growth opportunities. Accredited investors can either invest directly with these firms or through funds that these firms manage. [2]
These firms often source deals through industry connections, referrals, and targeted outreach. Accredited investors may receive invitations to exclusive events, pitch meetings, and conferences where emerging companies and funds present their investment opportunities.
Due to regulatory requirements and the need for substantial capital, these opportunities are usually not widely advertised and are instead circulated within a network of trusted contacts and established financial institutions.
Venture capitalists view accredited investors as valuable because of their ability to participate in high-risk, high-reward funding rounds. [2]
ANGEL INVESTING NETWORKS
Many accredited investors join angel investing groups to pool their resources and knowledge. Angel investing networks bring together high-net-worth individuals (HNWIs) to invest in early-stage companies and promising startups. [2]
Angel investing networks provide a structured environment for investors to access a curated selection of investment opportunities, often facilitated by experienced professionals who conduct preliminary due diligence.
By participating in these networks, accredited investors can benefit from collective knowledge to evaluate potential investments more thoroughly. Angel investing networks frequently host pitch events, workshops, and networking sessions, allowing investors direct interaction with entrepreneurs. There they can ask questions and gain deeper insights into the companies they are considering.
Source: Fastercapital.com
FINANCIAL ADVISORS AND WEALTH MANAGERS
Accredited investors can also work with financial advisors and wealth managers to identify investment opportunities. These professionals conduct thorough market research and due diligence to recommend investments that align with an investor’s financial goals, risk tolerance, and investment horizon.
A financial advisor is an expert who offers wide-ranging financial services, such as financial planning and investment management. On the other hand, wealth managers are a subset of financial advisors who primarily serve HNWIs and ultra-high-net-worth individuals (UHNWIs). Wealth managers offer investment management, financial planning, retirement planning, legal planning, tax services, etc. [3]
Both financial advisors and wealth managers provide personalized financial planning and portfolio management, ensuring that investments are diversified and optimized for maximum returns while minimizing risks.
Leveraging expertise and resources from financial advisors and wealth managers gives accredited investors access to a broader range of high-potential investment opportunities.
Source: Smartasset.com
REAL ESTATE INVESTMENT FOR ACCREDITED INVESTORS: MULTIFAMILY SYNDICATION
There are several ways for accredited investors to find the best investment opportunities that match their preferences and risk tolerance. Whether through personal connections or professional advice, accredited investors know how to recognize the best investments and properly assess each opportunity.
While private equity and hedge funds are among the most common choices for accredited investors, there is another type of investment typically limited to those with financial sophistication and investing experience: real estate syndication.
Real estate syndication deals allow investors to enjoy the benefits of owning a real estate property without the hassles that usually come with it. Due to the nature of syndication, accredited investors do not have to take on the responsibilities of a landlord. It solves some of the biggest challenges associated with real estate investing.
Normally, real estate investing requires substantial capital upfront. This is even more apparent if investing in a multifamily property such as a condominium or apartment community. These properties tend to be very expensive, especially for a lone investor. This serves as a significant barrier to entry. Not to mention these larger properties also tend to be riskier compared to smaller real estate.
However, real estate syndication involves multiple investors pooling their financial resources to purchase a single real estate property. When this is done with a multifamily property, it is called multifamily syndication. It’s unnecessary to take on all the risk alone with multiple investors. [4]
Multifamily syndication is popular among accredited investors because of the steady cash flow generated by these larger properties. Apartment communities and condominiums have multiple residents paying rent. At the same time, having units (plural) means investors do not have to worry as much about vacancies affecting their income.
Another common challenge associated with real estate investing is property management. However, in a syndication deal, this is handled by the syndicator or sponsor who puts the deal together learn more about the structure of a syndication deal. As the general partner (GP), the syndicator oversees everything from locating the investment property to finding investors who will participate. They are the ones who make all the decisions, creating and executing the business plan from start to finish. [4]
The syndicator keeps the investors updated on the property’s performance. However, investors have limited responsibilities in the syndication deal. They only need to provide most of the capital required to acquire the property and pay certain fees to get the syndication deal going. As limited partners (LPs), investors can sit back, relax, and enjoy their investment.
Accredited investors earn a share of the property’s monthly rental income, which may be distributed monthly or quarterly. Depending on the deal structure, they may draw a share of the property’s equity upon resale. Every deal is different so due diligence is still necessary. [4]
Investors can add passive real estate investments to their portfolios with multifamily syndication. But even syndication has its risks. This is why most investment opportunities are exclusive to accredited investors.
Source: Multifamilyrefinance.com
WORK WITH BAM CAPITAL FOR THE BEST MULTIFAMILY REAL ESTATE SYNDICATION DEALS
Accredited investors can access investment opportunities unavailable to the public due to their net worth, annual income, and investing knowledge and can properly choose a syndicator based on track record.
If you are an accredited investor looking for a trustworthy syndicator to work with, choose BAM Capital.
BAM Capital is an Indianapolis-based syndicator with proven excellence and reliability. They now have over $700 million AUM and 5,000+ units thanks to their award-winning investment strategy that mitigates investor risk while creating forced appreciation. [5]
BAM Capital prioritizes high-quality real estate properties with in-place cash flow and proven upside potential, particularly Class A, A-, and B++. [5]
This vertically integrated company can guide you through every step of the syndication process, from acquiring the properties to renovating and managing them. This is why they are considered a leader in their industry. BAM Capital can handle everything: from acquiring the properties to renovating and managing them.
Disclaimer: All investments carry risk. Before making financial decisions, consult an independent investment advisor for personalized advice based on your individual circumstances and speak to a member of the BAM Capital investment team for additional information regarding its current offerings. The content of this article is solely for informational purposes and is not an offer to sell, a solicitation to buy, or a recommendation of any security or investment product. It should not be considered investment advice or an endorsement of any particular investment strategy or product. BAM Capital and its representatives do not serve as fiduciaries or investment advisors. The information provided is general and does not consider the specific investment goals, financial situation, or needs of individual readers. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy, completeness, or reliability of the information in this article. Schedule a call with BAM Capital and invest today if you’re an accredited investor who wants to enjoy passive income and all the other benefits of being in multifamily syndication.
Source: Capital.thebamcompanies.com
Sources:
[1]: https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/accredited-investor
[3]: https://smartasset.com/financial-advisor/wealth-manager-vs-financial-advisor
[4]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
[5]: https://capital.thebamcompanies.com/
