When you decide you want to start investing in commercial real estate syndications, you will frequently hear and see the term “accredited investor”. You will soon realize that most of the passive income opportunities in commercial real estate syndications or a crowdfunded investment opportunity can be advertised publicly and are then bound by Securities and Commission (SEC) regulations to be offered only to accredited investors.
Even if you have never invested in real estate before, it is beneficial to understand the difference between the definition of an “accredited investor” and a “sophisticated investor“, and which category you would be in.
The reason why it’s important to know whether you are an accredited investor or a sophisticated investor is because it can determine which investments you may be allowed to partake in.
What Are the Requirements:
To be an accredited investor, you must:
- Have had an annual income of $200,000 or more (or $300,000 including your spouse) for the previous two years, and you would expect to earn the same amount or more income this year OR
- Have a net worth of over $1 million, excluding any equity in your primary residence.
Sarah is single and has been working in corporate America for the last 10 years. She received a raise and is now making over $200,000 a year. Sarah’s home is estimated to be worth $1.2 million. She has a 401K worth $600,000 and she has investment accounts worth over $400,000. She has student loans in excess of $100,000. loans.
Is Sarah an Accredited Investor?
Yes, Sarah makes $200,000 a year and will likely continue making $200,000 a year going forward, however she has not been making $200,000 a year for the past 2 years, so she does not qualify based on her earnings requirement.
Sarah’s net worth is: $600,000 in a 401K + $400,000 in various investment accounts – $100,000 her student loan debt = $900,000,
Sarah’s net worth of $900,000 also does not meet the required $1 million, so Sarah would not qualify to be an accredited investor.
Meet John & Amy
Amy is a doctor who earns $285,000 per year. John is working on a start-up and has no income. John and Amy’s primary residence is worth approximately $800,000. The couple has a rental condo valued at $500,000 with a mortgage of $300,000. They also have $850,000 in retirement accounts and savings.
Are John & Amy Accredited Investors?
Their income does not qualify them to be accredited as it would have to be $300,000 as a couple, and they fall short of that base income level.
Their net worth, however, does qualify them to be accredited investors:
The rental condo has $200,000 in equity, plus their $850,000 in retirement and savings – $1,050,000, which puts them just above the threshold of $1 million net worth.
High five, Amy & John!
What Are the Advantages?
The advantage of qualifying as an accredited investor is that you are able to invest in many more real estate investment opportunities. This is because the SEC has strict guidelines as to who they believe has the knowledge and perhaps enough experience with capital that they have deemed them savvy enough to understand investment risk and reward. By their own guidelines, the SEC has essentially granted accredited investors more opportunities to invest in more deals.
Don’t worry if you are not accredited…yet. There are so many ways to invest in real estate that don’t need accredited qualifications. We help people all of the time find ways that they can get involved in real estate investing. Just know you don’t have to be an accredited investor to invest in real estate syndications, but because these deals to non-accredited investors cannot be advertised, you will have to work a bit harder to find them.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!