What is an Accredited Investor?
When you Invest with Upright you are required to be an accredited investor. An accredited investor is a person (or entity) who is allowed to participate in private investments not available to the general public and/or investments not registered with the U.S. Securities and Exchange Commission (SEC). Accredited investors are typically high-net-worth individuals and companies with the means and experience to trade in private investments.
The criteria for accreditation are defined as:
- A net worth of at least $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person's primary residence), or
- Earned an income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year, or
- An investment professional in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
Additionally, some entities, such as corporations, partnerships, or trusts can qualify as an accredited investor if they have assets exceeding $5 million. SEC-registered investment advisors and broker-dealers, as well as banks, savings and loan associations, insurance companies, registered investment companies, business development companies, or small business investment companies or rural business investment companies also qualify.
Why does the SEC differentiate between accredited and non-accredited investors?
Regulators need to protect less-knowledgeable, individual investors who may not understand the risks associated with their investments or who may not have the wealth to absorb financial losses. Accredited investors are either financially secure or more knowledgeable in financial investments and the associated risks. Because of this, they are allowed to participate in private investments, such as hedge funds, private equity, private real estate, and venture capital, as well as unregistered securities — all of which could be considered more volatile and higher risk.
In contrast, non-accredited investors are generally only able to invest in more traditional options such as stocks, bonds, and mutual funds. While this may seem that certain opportunities are being gate-kept, remember that accredited investors take on more risk when they invest in these potentially more volatile options. Essentially, the SEC’s requirements and definitions are designed to protect non-accredited investors from taking on risk they may not understand or be able to afford, as well as promote fair and transparent markets.
How do I verify my accreditation status?
When you sign up to Invest with Upright you may select the option stating you are an accredited investor. Even though you made this selection, Upright still requires verification of your status via a third-party portable investor identity solution that will confirm your accredited investor status. It takes less than five minutes to complete your accreditation check, and you'll hear back within one business day. You begin the process with an email confirmation.
How do I become an accredited real estate investor?
Unfortunately, as outlined above, you can’t just become an accredited investor, you must meet certain net worth, income, or licensing requirements. However, you can work to eventually get access to these types of investments (and increase your net worth). Here are some ideas:
- First, talk to a financial advisor or planner to help you outline your goals and develop a plan for how you’ll get there.
- Get educated on investing in real estate! Sites and forums such as BiggerPockets and YieldTalk provide great investment information and networking opportunities. You might even find some deals!
- Learn different investment strategies — there are many ways to passively and actively invest in real estate.
- Network locally. You may find someone looking for private investors or other investing opportunities.
- Make sure you get a contract for any investment agreement. We believe in the power of relationships and handshake agreements, but we still get a term sheet at the end of the day. It protects everyone involved.
The more you know, the more you can grow (your net worth).
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