If you are discussing investment opportunities with a multifamily syndicator one of the inevitable questions that will arise is whether you are an accredited or sophisticated investor. For many newer investors there is confusion as to what the requirements are to be an accredited investor and why it is important for a deal sponsor to know if they are accredited. In next week's article, we will discuss the implications of being or not being an accredited investor, but now we will focus on the three ways the Securities and Exchange Commission (SEC) allows investors to be considered accredited.
By Net Worth
The first way in which an investor can be accredited is by having a net worth individually or combined with your spouse of greater than a million dollars. Net worth is normally calculated as what you own (assets, cash, other valuables) minus what you owe (debt). When calculating net worth for the purposes of accreditation though there is one nuance. That is that the value and debt of your personal residence do not apply towards or count against your net worth number.
By Earned Income
The second way you can be considered as an accredited investor is based on earned income. An individual with an income for the past two years in excess of $200,000 or a couple with a combined income for the past two years in excess of $300,000 are considered accredited investors. Additionally, it has to be reasonably plausible that you will continue to achieve this income level so if the individual leaves their high paying job they would no longer qualify as an accredited investor.
By Holding Financial Professional Licenses
In the world of financial securities there are a number of licenses that one can obtain in order to perform their financial services. Specifically, holders of a series 7, 65 or 82 license are considered accredited investors based on the level of sophistication required in obtaining these licenses.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please check out our free ebook "Achieving Financial Freedom Through Multifamily Investing."