Am I an Accredited Investor?

When communicating with brokers, property managers, and other investors, a specific vocabulary is used in commercial multifamily real estate. An investor must be well-versed in real estate jargon to seem professional and avoid coming off as a newbie. To clarify one of those concepts, let’s take a moment.

An average person is considered an accredited investor if they meet the following criteria:

• Income more than $200,000 or $300,000 with a spouse in each of the two years prior and can reasonably anticipate making the same amount or greater for the current year.
• Excluding the worth of the person’s primary home, has a net worth of over $1 million, either alone or with a spouse.
• Mainly on an income test, the individual must consistently meet the thresholds over the course of three years, either alone or with a spouse. They cannot, for instance, meet the benchmarks once based on individual income and twice based on joint income with a partner. If the person is married at the time, that is the only situation in which this rule does not apply, in which case they may meet the threshold based on their joint income for the years they have married and their income for the remaining years.

Additionally, organizations like trusts, partnerships, corporations, and banks may qualify as accredited investors. Depending on your circumstances, the following may apply to you amongst some of the organizations that would be regarded as accredited investors:

• Any trust is not explicitly formed to buy the subject securities, with total assets over $5 million, whose purchase is overseen by a knowledgeable person.
• Any organization whose equity owners are all accredited investors.

An individual must be knowledgeable and experienced in financial and business matters to assess the benefits and risks of the potential investment, or the company or private fund offering the securities must reasonably believe that they do.

In a real estate investing syndication, this investor must also have a solid, fundamental relationship with the investment sponsor, often known as the general partner. The sponsor will already know the person’s financial situation, investment history, financial objectives, and risk tolerance.

Whereas accredited investors provide more money to a real estate investment group, smart investors contribute expertise and unique but relevant experience in addition to a smaller quantity of money.

This Investor Bulletin is being distributed by the SEC’s Office of Investor Education & Advocacy to inform shareholders and investors about the true meaning of being an “accredited investor.”

What does the term “accredited investor” mean?

Only accredited investors can participate in some securities offerings under federal security laws. These offerings are restricted to accredited investors only to ensure that all participating investors are financially secure and capable of handling their affairs or bearing the risk of loss. As a result, the protections offered by a registered offering are not necessary.

Companies and private funds, like a hedge fund or venture capital fund, participating in these exempt offerings are not required to provide accredited investors with the prescribed disclosures, in contrast to offerings registered with the SEC, in which specific information is required to be disclosed. You should be aware that these offerings carry particular risks and that it’s possible for you to lose everything you invested.

See the SEC’s website for individual investors for additional investor educational information at Investor.gov.

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