As a new investor digging into your opportunities, you most likely have come across an interesting prospect, only to read the fine print: “Accredited investors only.”
Who is an accredited investor, and how do you reach this status? Contrary to popular belief, there’s no official process you must go through to become accredited.
Instead, those you choose to invest with will determine your status based on certain criteria.
Read on to learn what makes an investor accredited, who qualifies, and how to become accredited.
What is an Accredited Investor?
Accredited investors have access to certain investment types that other investors do not.
These investments are more unique, complex, and loosely regulated, allowing for higher returns and greater diversification opportunities.
These types of investments include:
- Hedge funds
- Venture capital
- Private equity funds
- Equity crowdfunding
While these types of investments are generally considered higher risk, the returns can be remarkable.
Not all types of investments available to qualified investors are high risk, though. For example, real estate secured notes can yield high returns with less risk from quality screening and underwriting.
However, whether an investor is accredited or not depends on the U.S. Securities and Exchange Commission (SEC) guidelines.
What is the SEC?
The SEC is an independent federal agency that exists to protect investors from fraudulent practices and regulate the securities markets.
Generally, companies that issue stocks or bonds to investors must first be registered with the SEC. Financial service firms, including asset managers, also must be registered.
The SEC was created mostly in response to the stock market crash of 1929, which led to the Great Depression.
Accredited investors are allowed to invest in securities that aren’t registered with the SEC. But in order to access these securities, the individual investor or entity has to meet certain income and net worth requirements in order to qualify.
Who Qualifies as an Accredited Investor?
The SEC doesn’t review investor qualifications or issue actual certifications to label someone as an accredited investor.
Instead, the companies or funding groups that issue these unregistered securities are the ones responsible for proving an investor’s qualification through due diligence.
The SEC considers an investor “accredited” based on the following:
- Annual income is greater than $200,000 for the last two years
- Joint household income is greater than $300,000 for the last two years
- Net worth is greater than $1 million, excluding your primary residence
The SEC expanded the qualifications in August, 2020, to include “defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth,” according to its press release.
But whether you qualify for a particular investment depends on the issuing funding group or company. It’s always best to reach out directly to the group to determine whether your qualifications match their requirements.
Remember that your liabilities, including student and car loans, affect your total net worth.
Prior to passage of the 2010 Dodd-Frank Act, primary residences weren’t excluded from net worth in the final bullet. However, anyone who was accredited prior to the passage was exempted.
What is Included in an Issuer’s ‘Due Diligence’?
The SEC requires issuers of securities to perform due diligence in determining whether an investor is accredited.
Each issuer may approach this differently, but they are required in some way to verify your assets, assess debts, and review financial statements.
How to Become an Accredited Investor
Once you meet the SEC definition in one or more of the three ways listed, you are an accredited investor.
What’s next is up to you: What types of investments will you add to your portfolio? How will you protect your investments? How will you expand your financial team to ensure you are making the most of your investments?
If you’ve reached accredited status, you most likely have diversified just enough to reach this level of success. But there are many other types of investments to consider to decrease risk and increase profits.
How to Diversify Your Portfolio as an Accredited Investor
Investing in real estate is an excellent way to diversify your portfolio. But you don’t have to invest in actual properties to benefit from this type of investment.
If you’ve never considered real estate investments because you have no interest in being a landlord or in flipping homes, you may want to try investing in real estate secured loans.
Real estate secured notes are a passive vehicle with high yields.
Marquee Capital Fund 1 has a preferred return of 8%. This type of investment is an alternative to traditional fixed-income investments due to the high yield but comparable level of protection.
Start Investing with Marquee Capital Fund 1
Accredited investors are welcome to start investing today with Marquee.
We offer private money loans in the consumer and commercial marketplace, which provides our investors with a diverse selection of well-underwritten mortgage products.
Loans are screened and underwritten by licensed professionals, with emphasis on the following:
- Principal and yield preservation
- Quality of the collateral
- Borrower’s financials and ability to repay
- Verification of title
These components help protect investors against market volatility, and contribute to a more diverse and balanced investment portfolio.
Reach out to the experts at Marquee to begin investing with Capital Fund 1.