How to Become an Accredited Investor
So you can unlock the best commercial real estate deals as a passive LP investor
Welcome back to Unfollow the Herd! If you’re new here, join 4,000+ subscribers learning actionable ways to build their wealth with real estate.
Becoming an accredited investor allows you to access passive real estate deals and other investment opportunities that are reserved for high-earners and millionaires.
Today, we’re diving into how to become an accredited investor, a critical step if you're serious about unlocking access to the best investment opportunities.
What is an Accredited Investor?
An accredited investor is an individual or entity that meets certain financial criteria, qualifying them to invest in securities that aren’t registered with financial authorities (like the SEC in the U.S.). These investments often include private real estate syndications, hedge funds, venture capital, and private equity deals.
The government limits these opportunities to accredited investors because they assume that such individuals have the financial sophistication to handle the risks involved.
Benefits of Becoming an Accredited Investor in Real Estate
Access to Exclusive Deals: You can invest in private real estate syndications and funds that aren't available to the general public. These deals typically offer higher returns compared to public investment opportunities.
Potential for Higher Returns: Private investments, especially in real estate, often yield higher returns than traditional stocks or mutual funds.
Tax Benefits: Many real estate investments offer significant tax advantages, like depreciation and 1031 exchanges, which aren’t available in most public investments.
Diversification: Being an accredited investor allows you to diversify your portfolio into real estate, hedge funds, and other alternative assets, reducing dependence on public markets.
Accredited vs. Sophisticated Investors: What’s the Difference?
Accredited Investors are defined by specific financial criteria (more on that later). They have access to private investment deals not registered with the SEC, meaning fewer disclosures but also the potential for higher returns.
Sophisticated Investors are individuals who don't meet the accredited investor criteria but have enough knowledge, experience, and financial understanding to evaluate the risks and rewards of certain investments. In some cases, these individuals can still invest in private deals if the issuer deems them sufficiently experienced.
However, many of the most lucrative real estate syndications are reserved exclusively for accredited investors. Becoming accredited opens the door to these opportunities.
4 Ways to Qualify and Become an Accredited Investor
There’s no official application process to become an accredited investor, but you need to meet specific criteria.
Here are a few ways you can qualify:
1. Income Requirement
Individuals: You must have an annual income of at least $200,000 (or $300,000 for joint income with a spouse) for the last two years, with the expectation of earning the same or more in the current year.
Why it matters: Consistent high income demonstrates your ability to absorb the risks associated with higher-reward investments.
2. Net Worth Requirement
Individuals or couples: You need a net worth of over $1 million, either individually or combined with a spouse, excluding the value of your primary residence.
Why it matters: Having a significant net worth indicates you can handle potential losses without jeopardizing your financial future.
3. Certification by Financial Professionals
Recently, the SEC expanded the definition to include individuals holding certain certifications (like Series 7, 65, or 82 licenses). If you hold one of these licenses, you automatically qualify as an accredited investor.
Why it matters: Financial knowledge and experience are key to understanding the risks in private markets.
4. Entity Accreditation
If you are a part of an entity (LLC, trust, or fund) where all beneficial owners are accredited investors, or the entity has $5 million in assets, the entity can invest as an accredited investor.
Why it matters: You don’t have to qualify as an individual if you're part of an investment entity.
Steps to Becoming a Passive Investor in Real Estate Deals as an LP (Limited Partner)
Evaluate Your Financial Position:
Make sure you meet one of the accreditation requirements outlined above. It’s essential to understand that real estate investments often require longer lock-up periods and less liquidity than stocks or bonds.
Seek Accreditation Confirmation:
You might not need formal documentation to become accredited for all investments, but many real estate syndicators and platforms will require proof, like tax returns, pay stubs, or verification from a CPA or attorney.
Find Real Estate Syndications:
Once accredited, you can explore investment opportunities through private real estate syndicators, crowdfunding platforms, or private equity funds that target real estate. Look for deals that align with your financial goals—whether it's cash flow, appreciation, or tax benefits.
Perform Due Diligence:
Review the track record of the sponsors or operators managing the deal. Make sure the investment aligns with your risk tolerance and long-term financial objectives.
Commit Capital and Become a Limited Partner (LP):
As an LP, you’ll invest capital but won’t have active management responsibilities in the real estate deal. Your role is purely passive, but you’ll benefit from cash flow, appreciation, and tax advantages if the deal performs well.
You might also like:
Already accredited and want access to MAK’s luxury storage investment opportunities?
Click here to join 450+ accredited investors getting real estate opportunities in their inboxes by joining my exclusive investor list.
See you next week!