What it Means to be an Accredited Passive Investor & the Requirements to Become One
Being an accredited passive investor gives you the ability to make and participate in a wide variety of real estate investments. These may include single-family homes, commercial spaces geared towards businesses, and even apartment syndications.
According to federal securities laws and the Securities and Exchange Commission (SEC), an accredited passive investor is defined as a person or entity that is able to invest in securities, such as apartment deals, and non-registered investments. Both securities and apartment syndications are an extremely lucrative way to build sustainable passive income. Whether you’re looking to build your investment portfolio or simply want an additional stream of income, becoming an accredited investor is the first step to making that a reality. So what are the accredited investor requirements and how can you ensure that you become one?
Your Income and Net Worth
In order to qualify as an accredited investor, you must meet at least one of the following requirements: have an annual income of $200,000 or more ($300,000 if you have a joint income with your spouse) for the last two years or have a net worth that exceeds $1 million, either individually or joint. Basically, this ensures you can manage the risk inherent in investing.
When determining your net worth, be sure to exclude the value of your primary residence. Add the value of all your other assets (investments, bank accounts, vehicles, vacation homes, etc.) and subtract any liabilities (various loans, home equity line balance, etc).
Verifying Your Claims
Once you have met the accredited investor requirements, then you are considered an accredited passive investor. There isn’t a certificate, form to fill out or formal process to recognize you. You’re either accredited or you’re not. However, the SEC may require that individuals or entities selling to accredited investors verify that these requirements are met, depending on the investment offering type.
For apartment syndications, if the deal is a 506(b) offering (which is what we do), you can self-certify your accredited investor status. If the deal is a 506(c) offering, you must submit your financials, including W-2 forms, tax returns, and any additional documentation that further confirms your financial standing, to a 3rd party to verify your accredited investor status prior to investing.
Benefits of Accreditation
There are many benefits to becoming an accredited investor, particularly when it comes to real estate investing and building sustainable wealth through real estate. If you are able to meet the accredited investor requirements, then you will be able to meet with apartment syndicators, venture capitalists, hedge fund managers and more to further discuss your investment opportunities.
As a passive investor, it is possible to eventually live on cash flow brought in by your investments. When buying into an apartment deal, for example, you will get a portion of the rent from the residents, as well as the eventual sale of the property. This means bringing in money for bills and leisure while making time for the activities and people you love.
For more detailed information on becoming an accredited investor and to learn more about investment opportunities for accredited investors, check out my comprehensive Passive Investor Resources guide.