What Is an Accredited Investor? Everything You Need to Know!
Do you think you've got what it takes to sit at the big table and make investments with the heavy hitters? Or perhaps you've got an appetite for investments with a little more potential bang for your buck.
There's a whole different world of investment opportunities for those willing to look. However, not just anyone can inject a huge capital investment into one of these opportunities. This whole new world is only accessible to a class of investors known as accredited investors.
You might be asking, what does it mean to be an accredited investor, and can anyone become one? In this blog, expect to learn what it means to be one of these investors, the threshold for becoming one, and how Viking Capital could be the investment opportunity you've been looking for!
What Does It Mean to Be an Accredited Investor?
An accredited investor is a particular class of investor, either an individual or a business institution, permitted to make trades and investments not registered or regulated by the Securities and Exchange Commission (SEC).
While everyday traders and investors have access to the markets and property through the regular channels (such as stock exchanges), there's an entirely different level of securities. For example, hedge funds or structured products are only accessible to investors once specific professional, income, or net worth requirements have been fulfilled. We'll cover more on this below!
The reasoning behind the concept is quite simple. These forms of investments typically carry a higher level of risk and a lower level of governmental protection. As the old market sentiment goes, the higher the risk, the higher reward.
What Does the SEC Say?
The SEC exists as a regulatory body tasked with protecting investors and regulating the market. Therefore, the SEC justification for allowing an accredited investor to make one of these investments stems from two critical understandings or assumptions about accredited investors themselves.
- They are financially experienced individuals or institutions that can bear the potential future risk of capital losses (i.e., they are highly risk-tolerant).
- They are financially experienced individuals or institutions and can analyze these unregistered opportunities without SEC guidance regardless of their complexity.
Therefore, the SEC provides no regulatory action that would otherwise protect an investor from a potentially risky investment, such as disclosures or auditing requirements. In many cases, businesses offering investment opportunities to accredited investors need only disclose basic information about the company.
Who Can Become an Accredited Investor?
As previously mentioned, not just anyone can become an accredited investor. Although the SEC may not regulate the investment opportunities open to accredited investors, it does provide clear guidelines on who can become accredited.
For a natural person (not an institution), there are particular guidelines outlined by the SEC. Specifically, these definitions can be found in rule 501 regulation D.
A natural person must:
- Have a net worth of $1 million either individually or with a partner. This $1 million value must not include a primary residence.
- A $200,000 yearly income as an individual or $300,000 with a partner for at least two years prior (and a reasonable expectation that this income level will continue into the future).
A natural person may also qualify as an accredited investor if they are an executive officer, general partner, or director of the company offering the investment opportunity. In addition, a "knowledgeable employee" of a private equity fund or a family client of an accredited entity may also be eligible.
Finally, investment professionals holding a general securities representative license, investment adviser representative license, or private securities offerings representative license may also be granted accredited status. Please note that these individuals must be of "good standing" as defined by the SEC.
The SEC 2020 Amendment
While that might seem pretty specific, the scope was expanded by a 2020 SEC amendment to the accredited investor definition. Entities granted accredited investor status include:
- Family Offices
However, these entities must hold assets over $5 million in value.
Who Provides the Accredited Investor Status?
While the SEC has outlined the guidelines, accredited investor status is not provided by the SEC or any governmental agency. Therefore, the onus is placed on the business or institution offering the investment opportunity to perform due diligence to determine if an investor meets the SEC's criteria.
When investing as an accredited investor, as discussed, you will generally be expected to provide one or more of the following:
- proof of income (or incomes if you're investing with a partner)
- statements or tax returns indicating that you meet the criteria above
- a credit report which clearly shows the required criteria as being met
So while you don't receive an "official SEC Badge of Accreditation" or anything similar, for specific investments, the institution will verify if you qualify as "accredited" or not.
What Are the Benefits and Drawbacks of Becoming an Accredited Investor?
While becoming an accredited investor is not for everyone, there are clear benefits associated with this investor status classification.
Most notably, these include:
- access to additional investment opportunities beyond the regular scope
- an ability to add further diversification to your portfolio
- potential to earn higher returns
Conversely, some negatives include the need to take on higher risk and often outlay higher minimum investment amounts. Plus, you may also experience lock-up periods in which you may not be able to access your funds for a set amount of time. Note that the financial entity offering the investment opportunity imposes these caps and limitations, not the SEC.
I Qualify as an Accredited Investor: What Now?
Accredited investor status in no way indicates a guarantee of high future earnings or passive income. It simply opens some extra (possibly highly lucrative) doors previously shut. We recommend that investors conduct due diligence and research to find investment opportunities and wealth funds with guaranteed track records of providing value to shareholders.
One of those doors is the Viking Capital Wealth Fund!
Viking Capital is a real estate fund offering multifamily real estate opportunities to accredited investors. The Viking Capital Wealth Fund focuses on investments in high-value and high-growth multifamily properties. It's designed for investors looking to build wealth over a long-term (5-7 years on average) time frame.
For accredited investors, this means you have access to the best way to build generational wealth! We offer a low-risk investment strategy with high returns ideal for physicians and other professionals looking for ways to build significant wealth.
Accredited Investors Are Ideal for the Viking Wealth Fund
Becoming an accredited investor means simply passing a specific financial threshold that opens more investment opportunities for you to build generational wealth. What you do with the opportunity will make all the difference to your financial circumstance and future!
If you're ready to learn more about the Viking Wealth Fund and how it works, reach out to our team. Investing in one of our multifamily real estate opportunities is a reliable way to experience more wealth to support the lifestyle you want for yourself and your family.
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