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What Does It Mean to be an Accredited Investor?

10/8/2019

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​Once you decide to dive into the real estate investing world, it won’t be long before you hear the term “Accredited Investor.” Once you notice how many passive commercial real estate or crowdfunded investment opportunities are publicly advertised and therefore limited to accredited investors only, you may get curious.

Even if you’re a total newbie, it’s important to know the difference between a sophisticated investor and an accredited investor and if you’re one of them.
 
Neither of these titles requires an application or an approval process. You can find out whether you’re an accredited investor based on a few simple criteria.

What to Look For

To be an accredited investor, you must:
1. Have had an annual income of $200,000 (or $300,000 for joint income) for the past two years, and expect to earn the same or higher income this year.
OR
​2. Have a net worth of over $1 million, not counting your primary home.

Let's Look at Some Examples

Meet Vicki
Vicki has had a corporate career for 10 years and is single. She just got a raise 2 months ago and now makes $200,000 per year. Vicki’s primary home is worth $1.5 million. She has $700,000 in her 401K and $350,000 between her savings and a few brokerage accounts. She owes $100,000 to student loans.

Is Vicki an Accredited Investor?
Even though Vicki currently makes $200,000 and has reason to believe she will continue making that amount or more in the coming year, her annual income over the past two years has been below the $200,000 criteria.

Vicki’s net worth is: $700,000 (401K) + $350,000 (savings and brokerage accounts) – $100,000 (student loans) = $950,000.

Since her net worth is just under the $1 million requirement, Vicki is a non-accredited investor.
Meet Zoey & Evan
Zoey is a physician and earns $285,000 per year. Evan is a stay-at-home dad, so he earns no income. Their primary home is valued at $800,000. They bought a single-family rental home for $500,000 and have a $200,000 balance on it. They have $250,000 in savings, plus $600,000 in retirement. Evan recently received $250,000 in inheritance.

Are Zoey & Evan Accredited Investors?
Based on income alone, they do not qualify, since their joint income is below $300,000. However, excluding their primary residence, their net worth is… $500,000 (single family rental) – $200,000 (balance owed on single family rental) + $250,000 (savings) + $600,000 (retirement) + $250,000 (inheritance) = $1.4 million, which is above the $1 million threshold.
 
Because they meet one of the two criteria, Zoey and Evan are accredited investors. Woohoo!

​What Are the Perks?

The main perk of being an accredited investor is access to more deals. Why is this? Well, in the eyes of the SEC, being an accredited investor means that you are savvy enough to have figured out how to accumulate some wealth. Thus, more investment opportunities are open to you, since you are in a better position to take on risk.

If you’re a non-accredited investor who happens to love real estate, there are still plenty of investment opportunities available, including passive investments through real estate syndications. However, since SEC regulations do not allow investments for non-accredited investors to be publicly advertised, you may just have to search harder to find them.

​OR let me help you by joining the Generational Wealth Club.
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    Justin Grimes

    Ally in generational wealth creation & protection.
    Proud husband & father.

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Timbermoss Capital does not make investment recommendations, and no communication through this website or in any other medium should be construed as such. Investment opportunities posted on this website are "private placements" of securities that are not publicly traded, are subject to holding period requirements, and are intended for investors who do not need a liquid investment. Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Timbermoss Capital and may lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment. Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. Any investment information contained herein has been secured from sources that Timbermoss Capital believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor. Offers to sell, or the solicitations of offers to buy, any security can only be made through official offering documents that contain important information about risks, fees and expenses. Investors should conduct their own due diligence, not rely on the financial assumptions or estimates displayed on this website, and are encouraged to consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.
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