SS93: What Is An Accredited Investor?

SS93: What Is An Accredited Investor?

There are certain securities offerings that are only available to accredited investors. In this episode, Charles explains what it means to be an accredited investor and who is an accredited investor.

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Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is in the credited investor.

Charles:
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Charles:
If you’ve done any research at all, online around real estate investing or investing in syndications, you most likely have come across a phase. Like we are only accepting a credit investors or open to a credit investors only, but what does it mean to be an accredited investor? According to investor.gov, which is the us securities exchange commission website, only persons who are accredited investors may participate in certain securities offerings. One reason these offerings are limited to accredit investors is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus renting unnecessary. The protections that come from a registered offering, continuing on unlike offerings, registered with the S E C in which certain information is required to be disclosed companies and private funds such as hedge fund or venture capital funds or real estate syndication funds engaging in these exempt offerings do not have to make prescribed disclosures to accredited investors. These offerings involve unique risks, and you should be aware that you can lose your entire investment.

Charles:
So what is an actual accredit investor? So an accredit investor in the context of a natural person includes anyone who has earned income back succeeded $200,000 or $300,000 together with a spouse in each of the prior two years and expects the same for the current year, or has a net worth over $1 million, either alone or together with a spouse or holds in good standing, a series 7 65 or 82 license. There are other categories of accredit investors, including the following, which may be relevant to you. Any trust with total assets and excess of 5 million that is directed by a sophisticated person or certain entity with total investments in excess of $5 million, that is directed by a sophisticated person or any entity in which all of the equity owners are accredited investors. So in this context, a sophisticated person means the person must have, or the company or private fund offering.

Charles:
The security has reasonably believes that this person has sufficient knowledge and experience in financial and business manner to evaluate the merits and risks of the perspective investment. So how do you calculate if you are an accredit investor, the income approach is really straightforward. You know, have you earned $200,000 plus per year in the last two years or $300,000. Plus if you’re married, the net worth approach involves adding up all of your assets, excluding your primary residents and subtracting your liabilities. If that net amount exceeds $1 million, you are an accredited investor. The value of your primary resident is not included in your net worth calculation. When calculating as see if you’re a credit investor, in addition, any mortgage or other loan on the primary resident does not count as a liability up to the fair market value of the residents. If the loan is more than the fair market value of the primary residents, I E if your mortgage is underwater, then the loan amount that is over the fair market value counts as a liability against your net worth test.

Charles:
So in other words, if you, your house, any, any equity in your property cannot be used when you’re doing the net worth calculation. And if you’re underwater, you have to subtract what you’re underwater from your actual assets. What is the process when investing as an in credit investor? So first, if you’re investing into a security, a syndication that has a 5 0 6 B, you do not need to be accredited. You need to have a relationship with the sponsor them. This is the main reason here at Harborside partners. When you join our investor club, we ask you to set up a call with one of our partners, and this call begins the relationship. Even though you do not need to be accredited to invest in a 5 0 6 B investment, you need to be sophisticated. This is also determined by the sponsor. When they speak with you, do you own a business?

Charles:
Have you had a job around investing? Have you done coaching or taken a course or been to a conference? Have you owned a rental property? Have you invested before in anything answering any of these? Yes. And you are most likely a sophisticated investor. When you’re investing as an accredit investor, you can invest into 5 0 6 B and 5 0 6 C deals in 5 0 6 B deals. You still need to have a relationship with a sponsor prior to investing you then will just, as I say, check the box when completing the paperwork 4 0 5 0 6 B, that you are accredited when you’re investing into a 5 0 6 deal, 5 0 6 C deal, you need to be verified by a third party. And this is where it gets a little tricky. The sponsor will, or shouldn’t not verify you themself. You will do this through a verification service, or have an attorney financial advisor or CPA sign, a short accredit investor letter.

Charles:
You get templates of this whenever you’re ready to invest. They’ll send you one. I have one of these when I passively invest from an attorney of mine that I, I present to the sponsor when I invest in 5 0 6 C deals. A couple closing thoughts though, with accredit investors is that I’ve spoken to accredit investors who have had less knowledge than some sophisticated investors. However, sophisticated investors cannot invest in five oh succeed deals. The accredited investor rules make it harder for sophisticated investors to access potentially higher return investments. Many experienced sponsors will do 5 0 6 C deals for a number of reasons. You know, the majority of these private placements in all different walks of life, whether they’re hedge funds, whether they’re real estate syndications an attorney told me years back, 85% are 5 0 6 B deals cause it’s easier for the sponsor when doing it.

Charles:
Now, many experienced sponsors will only do 5 0 6 C deals for a number of reasons. First they’re able to advertise the deal openly online, social media, you know, they, they can do a billboard radio, whatever they wanna do TV. You cannot advertise a 5 0 6 B deal. I personally feel the main reason for sponsors just doing 5 0 6 C deals. Is that investors that you interact when you’re looking just for a credit investors and with 5 0 6 C deals, you know, credit investors have more money and usually have more experienced knowledge. They are easier to manage. And most of them have invested many times in private security offerings, 5 0 6 B investors usually are more time intensive. They write smaller checks and are really the ones ask, you know, lower minimums, which creates more work for the sponsors. Now, if you want to invest in a real estate syndication, but you’re not accredited find sponsors that do 5 0 6 B deals 5 0 6, B deals are actually easier to handle as a sponsor since they do not need to request investor verification. It streamlines the capital raising process for those sponsors. Also go to invest with harborside.com, fill out the form and schedule a call with our team. If you’re a sophisticated or an accredited investor that is invest with harborside.com. So I hope you enjoyed. Please remember to rate review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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