Why Being An Accredited Investor Matters

“As an investor my job is to figure out what will happen rather than what should happen.” — David Einhorn

You may have heard about accredited investors before.

Back in 1982, the SEC defined what it means to be an accredited investor.

At the time, only 2% of Americans qualified.

Now, it’s 11.

That’s a fivefold increase in the number of qualified people, which equates to around 10 million people in the US.

There are some great benefits when you’re an accredited investor.

Today, I’m talking about why it’s important to be accredited and what the classification can do for you.

We’re gonna go over it in three easy steps.

Let’s jump into it!

1. What Does It Mean to Be Accredited?

A lot of people think being accredited is like some kind of gold star or badge.

That’s not exactly right.

I’ve had over 1,500 one-on-one phone calls with high-net-worth investors.

There’s always some confusion around accreditation.

There are actually two ways to become accredited.

You may even be accredited now and not even know!

That’s the interesting thing about it.

The first way to become accredited is through income.

If you have an income over $200,000 (or $300,000 if you’re married) for a few years and you are expected to maintain that amount, you are accredited.

Congratulations!

You can also be accredited if you have a net worth of over $1 million dollars outside of your primary residence.

Be careful with this one because sometimes people have a lot of money in their home.

I recently had a call with someone who had a $2 million net worth.

He wasn’t accredited because he had around $1.5 million in his house.

Those are the two main ways: income or net worth.

The third way you can become accredited is by becoming an investment advisor.

If you take a Series 65 test, become a broker dealer, or have a license card, you can become an investment advisor fairly easily.

When you earn that title, you also become an accredited investor.

I wouldn’t necessarily recommend that way.

If you are actively looking to syndicate deals, compliance is a mess.

In many instances, you can’t be an investment advisor and syndicate deals.

However, if you’re a passive investor and looking to grow, becoming an investment advisor is one consideration.

2. Accredited Only Access to Deals

What does it mean to be accredited only and have access to these deals?

We here at Bronson Equity do alternative deals outside of real estate.

Some of those deals include oil and gas, ATM machines, and car washes.

These deals are for accredited only.

We do something called a 506(c) deal.

These deals are only for credit investors.

You have to be verified by a third party in order to gain access.

Why would we go through all of that for this type of deal?

Generally, the SEC looks at accredited deals that have a greater level of sophistication.

If somebody has a high net worth, they should have more financial sophistication.

Someone with a $2 million net worth losing $100,000 in a deal is very different from someone with a $200,000 net worth losing $100,000.

Having a “sophisticated investor” title just means you don’t have the accredited net worth or income, but you have some sophistication.

A good part of this title is that it tries to protect people who don’t have a lot of money.

If you have more money, you’re able to recoup your losses.

On the other hand, being accredited opens up doors to more non-traditional investments.

From an operator standpoint, there’s more risk to take non-accredited investors.

We do have multifamily investments that allow for sophisticated, non-accredited investors, but there’s always a little more risk.

Instead, we use a minimum net worth requirement.

506(c) deals can be advertised anywhere without any issues of compliance.

People can share the deals by word of mouth.

However, there is a catch:

A third party has to verify someone accredited is involved in the deal.

One example is a CPA (Certified Public Accountant) signing a letter confirming you are an accredited investor.

There’s also a group called Parallel Markets who do a free verification letter for accredited investors.

Looking at things like tax statements and bank statements can verify someone is accredited.

Whichever route you choose, becoming an accredited investor opens up access to a bunch of new deals.

3. How to Expand Your Deal Flow as an Accredited Investor

I’m always looking for great deals with unique return profiles.

A lot of these deals are only open to accredited investors.

To find them, I go to a lot of meetups and conferences.

I listen to podcasts.

I get on people’s deal lists.

There are also a couple of passive investor-only groups out there.

One is called the 506 Investor Group.

I can’t join the club because I’m an operator and they only want passive investors.

If you’re a passive investor, you can join that club and find out about deals.

There are forums on Bigger Pockets where people give feedback about different investments.

Deals can also be very private endeavors.

I recently heard about a deal through a relationship with a smaller deal.

The deal has a 50% return in six months.

Because of a unique situation, I was able to get into this amazing deal.

Being in the middle of deal flow is a great place to be!

As you’re in the deal flow, you might find that people will keep sending you new deals.

If you’re involved in a deal that isn’t a great fit for you, you can refer the deal to somebody else.

Oftentimes the best deals out there are the deals you’ve never heard of.

Build your own network to find options that work best for you.

Now I want to hear from you!

Are you taking steps to become accredited?

Let us know in the comments.

Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.