Best Ever CRE Blog

Welcome to the Accredited Investor Club

Written by Best Ever CRE Team | Apr 19, 2021 4:00:00 AM

Picture a dimly lit room, full of some of the world’s wealthiest individuals, privately gathering to discuss the future of the world. Rockefeller. Morgan. Carnegie. All of the world’s biggest players are there, deciding which markets will succeed, which assets will thrive, and who will end up footing the bill.

For ages, many of the world’s “best deals” were available only to insiders or those “in the know” with special connections. If you did not have those special connections, you were not given an opportunity to learn about the best deals, even if you did happen to have large amounts of wealth. As a result, connections became even more important than capital, establishing a system that was inherently asymmetrical.

Essentially, this created a dichotomy of investors. One group of people who could access everything, including the best opportunities on Main Street, and another group who could not, who were instead relegated with the rest of the herd to the thralls of Wall Street and told that this is as good as it gets. Various regulations prevented everyday people from discovering these private, alternative investment opportunities, even if the sponsor of these particular deals wanted to tell everyone about them, as these sorts of communications were all categorized as illegal solicitations.

The combination of legal restrictions, deliberate exclusivity, and concentrated wealth created a world in which it became extremely difficult for many people, even wealthy people, to authentically have a seat at the table. To truly succeed and gain access to the world’s best deals, you would need to have a direct link to the smoky rooms themselves — otherwise, you wouldn’t have any way to learn about these deals until they appeared in the next day’s paper.

Recently, however, things began to change, and the tables finally began to turn.

The passage of the Jumpstart Our Businesses Act (the “JOBS Act”) in 2012 marked a major departure from the previous way of doing things. With the passage of the JOBS Act, many previously illegal actions became legitimized, including soliciting deals to the general public and crowdfunding certain ventures.

In a very short amount of time, the smoky backrooms of years past opened themselves to qualified investors. As long as an individual can qualify under certain income or net worth parameters, they can now learn about, explore, and invest in a once inaccessible, wide range of financial opportunities.

What is a Qualified Investor?

Today, the “qualified investor” is the J.P. Morgan or John D. Rockefeller of years past. To become a qualified investor, you do not need to be a billionaire, though in most cases you will still need to have a considerable amount of wealth or income. However, access to information is no longer limited, which has helped extend membership to the secret, exclusive club to several new members.

To be a qualified investor, the Securities and Exchange Commission (SEC) requires you to meet the definition of an accredited investor, meaning someone who:

  1. has a net worth of at least $1 million (excluding your primary residence) or
  2. an annual income of at least $200,000 ($300,000 if combined with a spouse) in each of the last two years, with a reasonable expectation that such income will continue for the current year.

With the passage of the JOBS Act, individuals who meet the criteria mentioned above can now legitimately participate in a range of new investment opportunities, such as crowdfunding, venture capital funds, private equity funds, real estate syndications, hedge funds, and more.

The modern accredited investor’s club is still exclusive, but it is one that is actively calling for qualified individuals to join. No longer do you need a special invite, instead, you just need enough income or net worth to finally play in the great game of wealth-building that others have been enjoying for years.

Wealthy individuals across the United States have been flocking to these new opportunities because, frankly, they are much better than traditional options. The S&P 500 Index has yielded an average historic return of about 10% per year. This is a standard benchmark against which many other investments are tested. If an investment opportunity can yield a greater rate of return — without exposure to more risk — then it will certainly be an investment worth considering.

In markets that are less saturated than the stock market, the possibility for strong returns remains much higher. For example, it is not unusual for real estate syndications to yield an average annualized return of 15-25% per year, which does not even take into account the tax benefits not afforded to stock investors.

Today's Accredited Investors

Today, there are about 12 million accredited investors in the United States. In 1983, there were just above a million. The number of people who can participate in this exclusive club is indeed increasing, and while participation still requires wealth, it is clear that more people can legitimately shape their own economy than ever before.

For some investments, you may need to verify your accredited investor status by a third party, such as a CPA or an attorney, and in other investments, you may just need to self-certify. Furthermore, there are some private, alternative investment opportunities that you may participate in even if you aren’t accredited, but you will need to be “in the know” like in years past.

Seth Bradley is real estate entrepreneur and an expert at creating passive income while still working as a highly paid professional. He’s closed billions of dollars in real estate transactions as a real estate attorney, investor, and broker. He’s the managing partner of Law Capital Partners, a private equity firm focused on multifamily and opportunistic acquisitions. He’s a former big law attorney and is now the managing partner of his own firm, Bradley Law Limited, helping his clients with their real estate and asset protection needs. He’s also the host of the Passive Income Attorney Podcast, educating attorneys and other professionals on how to stop trading their time for money so that they can practice when they want to, not because they have to. Get started building a future full of freedom at Invest – Law Capital Partners