What’s an Accredited Investor? (And Why You Should Want to Be One)

What’s an Accredited Investor? (And Why You Should Want to Be One)

4 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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Instagram @beardybrandon
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Being an accredited investor can mean a lot of different things both in the legal sense and in the financial opportunities available to you. Before diving fully into what legally defines an accredited investor, let’s begin quickly with a tangible, real world example of the superpowers an accredited investor has.

What Accredited Investors Can Do That Non-Accredited Investors Cannot

Let’s say a real estate investor like myself wanted to raise money from a bunch of people for a real estate deal (something I’m actually doing right now), they are what’s called a “syndicator” and the deal is called a “syndication.” But when you start raising money, at least here in the U.S., the government gets pretty involved. They don’t want you losing poor Grandma’s savings—so the government requires syndicators to follow certain rules when raising money. 

Now, there are a couple options for syndicators, and the specific way you set up your syndication or fund will determine what kinds of investors you can bring in. For example, I just opened up what’s called a “506(c) fund,” which means I can talk publicly about my real estate fund like I’m doing right now. However, I literally cannot accept any money from non-accredited investors—not even from my own mom. 

See what I mean by “superpowers”? As an accredited investor, you can get into some pretty awesome deals that the rest of the population can’t. 

Now, if you’re not accredited, don’t fret. There are other ways for syndicators to raise money, like a 506(b), which allows for up to 35 non-accredited investors to join the syndication—as long as they are “sophisticated” and they have some kind of personal relationship with the syndicator.  

What does “sophisticated” mean? Well, an investor is basically considered sophisticated if they know their way around a real estate deal. [1] But it’s realistically something that is kind of subjective. And because it’s the government, there are other avenues, as well. But for now, I hope this provides a clear example of the perks that accredited investors are entitled to.

Special Offerings to Which an Accredited Investor Has Access

Besides just sounding impressive, “accredited” investors find themselves in a financial class above the average investor. While the average investor only has access to opportunities limited within regulated public markets, accredited investors are eligible to invest in private offerings like syndications or early-stage business startups with the potential for both huge risk and huge reward.

Since these small private offerings are not regulated by the SEC (Securities and Exchange Commission), the investor assumes total responsibility and a higher potential for losing their total investment. With this risk, though, comes potential for astronomical financial gain if the business succeeds. They will be one of the first people in the door and will have all the perks that come with it.

Now that I’ve piqued your interest, let’s talk about what it takes to be an accredited investor.

Related: How to Structure Syndicated Investor Deals: What Investors Are Looking For

Who Is an Accredited Investor?

Good question! Because even if you are one, nobody would have told you. Although this designation of “Accredited Investor” carries huge implications for your financial life and the opportunities you can participate in, there is no formal process, exam, or document that says whether or not you are accredited. (Boo, nothing to hang on your wall.) 

Accredited investors are considered to be such only if they meet certain legal definitions spelled out by the SEC. [2] It is the duty of the businesses accepting investors, or selling the shares in exchange for capital, to confirm that their investing partners meet the legal requirements.

Although there are regulations that dictate how an organization or corporation can be considered an accredited investor, for our purposes, we will focus specifically on how individuals and couples become accredited. The SEC deems an individual or married couple to be accredited if they meet ONE of the following criteria:

  • Has had a minimum annual income for the past two years of $200,000 for an individual or a combined income of $300,000 for married couples. These annual incomes must also be reasonably expected to continue in the future.
  • Has either an individual or a combined net worth of at least$1 million. This total cannot include your primary residence.

Close up of businessman or accountant hand holding pen working on calculator to calculate business data, accountancy document and laptop computer at office, business concept

The reason the SEC has these rules listed in Regulation D goes back to the very purpose of the SEC’s creation, which was to protect investors. The above requirements are to ensure that anyone assuming these substantial risks has the financial backing to weather and withstand the worst case scenarios. This is the governmental equivalent of saying, “You’re a big boy now. Figure it out.” 

The kid gloves are coming off!

Related: How to Become an Accredited Investor

So you’re deemed to be an accredited investor. You are now held responsible to make your own informed and calculated decisions. I know that just because you are labeled “accredited” doesn’t mean that you will necessarily feel any more proficient than before. But it is now more important than ever to educate yourself and thoroughly analyze every deal you participate in. Proficiency will come only through education and experience. 

Diligently do your due diligence. You now have entry into the world of real estate syndication, venture capital, angel investing, and other opportunities that are not accessible to the average investor. Make sure to not take this responsibility lightly. It’s quite something that you’ve made it far enough to earn the title. Take a moment to be thankful for where you are. Now go make the most of it!

Sources:

[1] https://www.investopedia.com/terms/s/sophisticatedinvestor.asp

[2] https://www.investopedia.com/terms/a/accreditedinvestor.asp

Do you have any other questions for me about this designation and/or its benefits?

Ask me in a comment below.