What Investments Can Accredited Investors Make?
Table of Contents
1. What Investments Can Accredited Investors Make?
2. Investments Only Accredited Investors Qualify for
3. Hedge Funds
4. Venture Capital
5. REITs
6. Private Equity Real Estate
7. Multifamily Real Estate Syndication
8. Work with BAM Capital for Multifamily Syndication
9. BAM Multifamily Growth & Income Fund IV
Because of their financial situation and investment knowledge, accredited investors have access to investment opportunities that others do not. Hedge funds, venture capital, private equity funds, and real estate syndications are some of the investments that are available to accredited investors.
The Securities and Exchange Commission (SEC) recognizes that accredited investors have the level of sophistication and experience needed to invest in somewhat riskier alternative investments. Because they understand the financial risks, and they have a larger financial safety net through their larger annual income, they can build their investment portfolios as they please.
Accredited investments don’t have to be registered with authorities in the financial sector. Accredited investors are able to shoulder more risk should their investments unexpectedly fall in value.
Accredited investors should explore different investment opportunities and asset classes to diversify their investment portfolio, generate passive income, and effectively build their wealth. Looking into venture capital firms, the stock market, and the real estate market is a good idea if you want to achieve these goals.
Here we will take a look at some of the investment opportunities available to accredited investors. But before we do so, we have to take a quick look at who qualifies as an accredited investor according to the SEC.
What is an Accredited Investor According to the Securities and Exchange Commission?
The US Securities and Exchange Commission defines an accredited investor as someone with an income over $200,000 in each of the two most recent years. For spouses, they must have a joint income that exceeds $300,000. Either way, in order to qualify as an accredited investor, there needs to be a reasonable expectation that they will earn the same level of income in the current year. This definition is dictated in Rule 501 of Regulation D of the Securities Act of 1933 (Reg. D). [1]
A net worth test may also be used to determine if a person qualifies as an accredited investor. Accredited investors have a net worth that exceeds $1 million, either alone, with a spouse, or with a spousal equivalent.
A person’s net worth is calculated by adding up all your assets and subtracting all liabilities. The value of the person’s primary residence is excluded from this calculation.
Also included in the definition are limited liability companies (LLC) with $5 million in assets.
There is no official accreditation process that identifies qualified investors. It is up to the investment vehicle to prove that an investor is qualified for such an investment. They would typically hand out a questionnaire and ask potential investors to provide certain documents like tax returns, credit reports, and financial statements.
Investments Only Accredited Investors Qualify for
Because the accredited investor definition has changed in recent years, more people qualify for these alternative investments. Now we can talk about accredited investor opportunities.
Some investment opportunities are only available for accredited investors because of their high net worth and annual income. Because they have a larger safety net and more investment knowledge, they can go for risky investments with much less fear. These investments may be high risk, but they also offer a higher potential reward.
The goal for high net worth individuals (HNWIs) is usually to secure, maintain, and protect wealth. Growing their wealth is also a top priority, and this usually happens when you put some money into the right investment opportunities.
While anyone can grow their wealth by choosing an asset class that works for them, accredited investors have a few more options, including venture capital funds, private equity funds, and multifamily real estate syndication.
These investments reward investors who have an aggressive investment approach and enjoy a little bit more risk in exchange for higher returns.
Hedge Funds
Here we will talk about investments for accredited investors, starting with hedge funds. Hedge funds are actively managed investment pools that typically use non-traditional investment strategies or asset classes. The manager of an investment fund will usually set aside a portion of their available assets for a hedged bet. This is typically a bet against the fund’s primary focus. The goal is to offset any losses. [2]
An example of this is when a fund manager for a cyclical sector devotes a portion of the assets to stocks in a non-cyclical sector. This way, the losses are offset in case the economy tanks. Accredited investors can invest in a hedge fund.
This alternative investing strategy has a unique way of operating. Some hedge fund managers even spend borrowed money and trade esoteric assets. And since hedge funds require a high minimum investment, they are only accessible to accredited investors and HNWIs. [2]
Hedge funds are slightly controversial because of their risky nature. But even so, the number of hedge funds has continued to grow over the past five years.
Hedge funds are somewhat similar to mutual funds because they are professionally managed by career investors. The difference is that hedge funds are not strictly regulated by the SEC. As such, they are subject to less scrutiny. These hedge funds can apply to different investments such as shorts, options, and derivatives. [3]
If an accredited investor wants to try out hedge funds, they simply have to select a hedge fund manager based on their preferred investment approach. Usually, accredited investors go for hedge fund managers who have a similar investment philosophy. Keep in mind that some hedge fund managers will use riskier strategies like using borrowed money just to purchase more of an asset and multiply their potential returns. Of course, this goes without saying that it also multiplies their potential losses.
Choose a hedge fund manager whose investment philosophy aligns with yours. Hedge fund money managers do not come cheap. They will often charge a fee of 1% to 2% of the assets, plus 20% of the profits as their “performance fee”.
Venture Capital
Venture capital is a form of equity financing wherein venture capitalists and angel investors provide funding for promising startups and small businesses, in exchange for a share of company ownership. The startup or small business can use these funds to expand their business or try new product ideas. [3]
This is a risky venture that is available only to accredited investors because there is no guarantee that the business will actually take off. The benefit is that small businesses have the opportunity to take their company to the next level. If it does prove to be successful, accredited investors can enjoy much larger returns based on the percentage of the company that they own.
REITs
The real estate market can be very lucrative, and the best part is there are many different ways to participate in it. Some investors go for commercial real estate investments, others purchase residential real estate investments, etc. Once you have a real estate property, you can rent it out, or flip it and resell at a higher price.
Some real estate investments are more suitable for accredited investors, however.
One good example is real estate investment trusts or REITs. REITs are companies that pool together funds and invest in different real estate investments. The purpose is, of course, to generate profit. [3]
Accredited investors do not invest in real estate directly, but rather in the REIT itself. REITs may own many different properties in the real estate market. Investors don’t get to choose what property to invest in. But generally, REITs will invest in condominiums, apartment buildings, warehouses, hospitals, and commercial real estate.
This is one way to get into real estate investing without having to deal with the responsibilities of owning a property. You do not have to be a landlord or manage the property yourself. This is a great way to improve your financial portfolio. [3]
Private Equity Real Estate
Private equity real estate is different from REITs, despite their similarities. REITs give accredited investors access to publicly-traded shares in real estate. On the other hand, private equity real estate involves investing in professionally-managed funds that may invest in speculative property offerings, including undeveloped land and high-rise properties. [3]
Private equity real estate is a good way for HNWIs to get into real estate investing. But there is one other type of real estate investing that is exclusive to accredited investors and that is real estate syndication.
Multifamily Real Estate Syndication
If you are an accredited investor and want to get into real estate investing without having to deal with all the hassles of actually owning and managing a property, real estate syndication may be the right investment type for you. Real estate syndications help you avoid the stress of being a landlord. [4]
Real estate syndication is when multiple investors pool their resources together and use it to buy a single property from the real estate market. A syndicator puts the deal together, handles the financing, and looks for investors who will participate. These passive investors will provide most of the capital needed to acquire the property. The syndicator scouts and secures the property and handles the investment contracts. [3]
Real estate syndication can be done with almost any type of real estate, but multifamily properties work best for this type of investment. With multiple units, these large apartment complexes can bring in a stronger and more consistent cash flow. Investors don’t have to worry about vacancies because the remaining units can still produce monthly rental income even if one or two tenants leave.
In a syndication deal, investors don’t have to worry about the property at all. It is a true source of passive income because property management is handled by the syndicator, also known as the general sponsor. With this setup, you don’t have to play the role of landlord. No need to deal with tenants, handle emergencies, or worry about repairs and maintenance.
The syndicator will either take care of the property themselves or hire a third party property management company. [3]
Unlike with a REIT, accredited investors can choose the syndication deal they want to participate in, based on the real estate investment property chosen by the syndicator.
Thanks to multifamily syndication, investors can purchase large properties that are normally too expensive for a lone investor to obtain. Investors in a syndication deal get a share of the equity upon resale as well as a portion of the cash flow. This makes multifamily syndication a good long term investment for passive investors.
Work with BAM Capital for Multifamily Syndication
If you want to invest in multifamily apartment complexes without the headache of running them yourself, you should work with BAM Capital.
This Indianapolis-based syndicator has a strong Midwest focus, prioritizing multifamily real estate properties that are Class A, A-, and B++. BAM Capital uses an award-winning multifamily investment strategy that allows investors to grow their wealth through syndication. [5]
BAM Capital mitigates investor risk and uses a vertical integration strategy to create forced appreciation. They have a consistent track record of providing a safe and passive investment for their investors.
BAM Capital negotiates the purchasing and financing of high quality multifamily properties on behalf of passive investors. Their vertical integration strategy has worked wonders for the company so far. In fact, BAM Capital currently has over $700 million AUM and 5,000+ units. [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.
