How Long Does an Accredited Investor Letter Last?

by | Sep 30, 2022 | Accredited Investor, BAM Blog, Multifamily Syndication, Real Estate Investing | 0 comments

Investors who wish to participate in exclusive investment opportunities have to go through the process of verifying their status as an accredited investor. Securities that are not registered with the US Securities and Exchange Commission (SEC) are not available to non-accredited investors. Only accredited investors have access to unregistered securities.

Being an accredited investor has significant advantages. With access to more investment options, including unregistered securities, accredited investors are able to make smarter financial decisions.

Compared to the securities that are available in the public markets, some unregistered securities are considered riskier. But accredited investors have their status because of their financial sophistication and net worth. They are able to assess these risks and identify potentially lucrative investments.

One of the thought processes for allowing accredited investors to invest in potentially riskier investment vehicles is that,  if an investment does not work out, accredited investors have a financial safety net thanks to their large annual income and net worth. This allows them to recover much faster than regular investors.

Access to unregistered securities is limited by the SEC in order to protect investors who do not have this kind of safety net. Accredited investors are able to bounce back in case an investment does not work out. This is also why they have access to highly lucrative investments such as hedge funds, private equity funds, private placements, venture capital funds, and syndication deals.

There is also an expectation that accredited investors have a certain level of experience and knowledge when it comes to investing.

Companies who are raising capital need to identify accredited investors in order to determine their pool of potential investors. At the same time investors need to know if they qualify as accredited investors before they can invest in early-stage companies. Many investments limit participation to accredited investors due to federal securities laws. [1]

Here we will discuss the definition of accredited investor, as well as the various verification methods that exist for it.

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

In order to qualify as accredited investors, individuals need to meet certain financial or professional criteria. They may be considered accredited investors if they meet specific wealth and income thresholds.

An individual needs a net worth of over $1 million in order to have the accredited investor status. This net worth calculation has to exclude the person’s primary residence. This net worth test can be accomplished individually or with a spouse or partner. [1]

People with an annual income over $200,000 (individually) or a joint income of $300,000 with their spouse or partner in each of the prior two years, with a reasonable expectation of having the same income level for the current year, also qualify as accredited investors.

While an income test and a net worth test are the two primary ways to determine accredited investor status, there are also certain professional criteria that can be used instead. All in all, the accredited investor status is not just based on wealth but actually based on financial sophistication. This is why investment professionals who are in good standing and holding specific licenses are considered accredited as well.

Specifically, investment professionals holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82) are all considered accredited investors. [1]

This also extends to executive officers, directors, or general partners of the company selling the securities. Knowledgeable employees of a private fund also qualify as accredited investors.

Entities may also be accredited investors based on certain criteria. Entities that own investments in excess of $5 million are considered accredited. This includes corporations, limited liability companies (LLCs), partnerships, trusts, etc. Even family offices may be considered accredited investors.

Another example are entities wherein all equity owners qualify as accredited investors. By extension, these entities are also accredited.

How is Accredited Investor Status Verified?

One of the first steps investors can take to determine whether or not they fit the accredited investor definition is to calculate their net worth. The net worth test is the simplest and quickest way to know if you qualify as an accredited investor.

Your net worth is calculated by adding all your assets and then subtracting all your debts and liabilities. The resulting sum is your net worth. Do keep in mind that your primary residence has to be excluded from your net worth calculation when determining accredited investor status. This also means that mortgages and other loans on the primary residence are not counted as liabilities.[2]

However, if the loan is for more than the fair market value of the primary residence, the loan amount that goes over the fair market value counts as a liability for the purposes of this net worth test.

To be an accredited investor, you need to have a net worth that exceeds $1 million, either on your own or with a spouse or spousal equivalent. Accredited investors need to reach or exceed this $1 million net worth threshold at the time of the sale of the securities. [2]

For those who are calculating their net worth with a spouse or spousal equivalent, the properties do not need to be held jointly. The securities being purchased also do not need to be acquired jointly.

The term spousal equivalent refers to a cohabitant who occupies the same role as a spouse. This was mentioned in the SEC’s expanded definition of accredited investors, which allowed more people to participate in exclusive investments.

If you meet the requirements set by the SEC, then you automatically qualify as an accredited investor. But contrary to popular belief, there is no official accreditation process for accredited investors.

After checking your net worth or other qualifications, you may start working with registered investment companies that are offering unregistered securities. The burden of proving that you are an accredited investor actually falls on their shoulders. Before you can begin investing, these companies that are offering the unregistered securities will be the ones to check your accredited investor status.

These companies are required by the SEC to check if prospective investors meet the qualifications of an accredited investor.

The investment manager will require prospective investors to fill in a questionnaire and submit requirements such as tax returns, credit report, brokerage statements, W-2 forms, and other requirements that can help prove your accredited investor status. Once they have confirmed it, you may begin investing.

However, this process has to be done over and over again every time you want to participate in exclusive investment opportunities such as unregistered securities. This can be time-consuming, tedious, and repetitive. Using the alternative verification method is preferable because it saves time for everyone involved.

Instead of going through the entire process every single time, you may just submit an accredited investor verification letter from a qualified financial professional.

How Long Does an Accredited Investor Letter Last?

Proving that you are an accredited investor every single time you want to participate in an exclusive investment opportunity wastes a lot of valuable time. Both issuers and investors are affected by this.

However, thanks to Rule 506(c), there is another option for accredited investors. They can submit an accredited investor verification letter from a tax attorney, a certified public accountant, a registered broker dealer, or a registered investment advisor. [3]

This verification letter does not have a specific format. It simply needs to indicate that the investor meets accreditation requirements, as well as which test the investor meets. This is called a third-party verification. It allows investors to cut the process a lot shorter by having a qualified financial professional make the necessary assessment.

This makes it easier for companies that are issuing these securities because instead of going through a prospective investor’s credentials, they can just receive the letter and confirm the investor’s status. Investors can save time because they no longer have to gather the necessary documents over and over.

Once their status has been confirmed, they can simply submit the document to the company issuing the investment vehicle.

Accredited investor verification letters have an expiration date, however. The letter must be dated within the last 90 days or else it will be invalid. [4]

Why Accredited Investors Should Consider Multifamily Syndication

Venture capitals, hedge funds, and private placements are some of the most common investments for accredited investors. But you have even more options to know about, and one of them is real estate syndication.

Accredited investors who are looking for lucrative investment opportunities in real estate should look no further than multifamily syndication.

As you may already know, real estate is a lucrative investment vehicle. There are many ways to get into real estate investing. Some people flip houses, others purchase single family homes and rent them out. But real estate syndication is exclusive to accredited investors and it provides a passive investment with all the usual benefits of real estate investing.

With real estate syndication, you can let your money work for you–and without the usual headaches associated with becoming a landlord. You don’t have to take on that role at all.

Syndication may be the right investment vehicle for accredited investors who want to earn money from real estate but don’t want to go through the hassle of managing an entire property.

In a syndication deal, a syndicator locates a real estate property, coordinates the funding, and finds accredited investors who will participate and provide most of the capital needed to purchase the property. This deal involves multiple investors pooling their resources together to purchase a single real estate property. [4]

Because of the nature of real estate syndication, multifamily properties are the ideal target for these deals. These properties are large and expensive, meaning they are much harder for individual investors to purchase on their own. Apartment complexes and condominiums can cost millions. Multifamily syndication makes these properties a lot more accessible.

At the same time, the multiple units provide a strong and consistent cash flow. You don’t have to worry about vacancies because even if one or two units become vacant, the remaining units will still provide rental income.

Depending on the deal structure, investors may get equity upon resale of the property as well as a share of the cash flow. But remember, each syndication deal is different. The best part is that the syndicator also takes care of property management, which means you do not have to worry about the tenants or emergency repairs, etc. This can be a great source of passive income.

Multifamily syndication deals are exclusive to accredited investors. If you are interested in multifamily syndication, work with BAM Capital.

Why Invest with BAM Capital for Multifamily Real Estate Investing

If you want to enjoy all the benefits of owning multifamily real estate without the headaches of handling emergencies, collecting rent, dealing with tenants, and keeping up with emergencies, multifamily syndication is the right investment vehicle for you.

BAM Capital is a syndicator that prioritizes Class A, A-, and B++ multifamily real estate properties, with a strong Midwest focus. This Indianapolis-based syndicator ensures that investors can grow their wealth through a safe and passive real estate investment.

BAM Capital negotiates the purchasing and financing of high quality real estate on behalf of their investors. In fact, BAM Capital is known for its award-winning multifamily investment strategy that creates forced appreciation. [5]

BAM Capital works with accredited investors who want to invest in high quality multifamily apartment complexes. They are also known for their vertical integration strategy that helps mitigate investor risk. The company now has over $700 million AUM and 5,931units.

Remember that 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.