What Type of Investor Are You? Accredited vs Sophisticated Investors
Are you curious about how to invest in real estate? What are all the things you need to know to get started? This article is a great place to start learning about the two primary types of passive investors in real estate deals: accredited and sophisticated investors. If you are not 100% sure what that means and how it can benefit you, read on.
Not All Investors Are Created Equal
The reality is that not all investors are created equal. The law has created different categories of investors that qualify people to get into certain deals.
Imagine this. You find out about an amazing real estate deal: a multifamily syndication where a group of people pool their resources to purchase a big and profitable apartment building. This is just the type of investment you’re looking for to diversify your portfolio and provide streams of passive income to help you achieve financial freedom.
But when going through the document that explains the opportunity, you see a disclaimer “This investment is for accredited investors only”.
Why would that requirement exist? Because the government needs to protect the average person from risking their money and getting into deals for which they are not prepared. We are talking about investments like pre-IPO sales, mergers and acquisitions and real estate syndications. Each provides a lot of potential profit, but also the risk of losing big sums of money.
Am I an Accredited Investor?
Take this short quiz to find out if you are an accredited investor in the US:
Do you have an annual income of $200,000 or more?
Has your income been maintained for at least two years, with the expectation of earning the same or a higher income in the current year?
Do you have a net worth of at least $1 million dollars?
Answer yes to all of these questions and you should qualify as an accredited investor. These requirements are defined by the Securities and Exchange Commission (SEC) under Regulation D and will determine whether you have the capital to invest in higher risk and high-profit investments.
Who Is a Sophisticated Investor?
While the definition of accredited investor is focused on financial criteria, a sophisticated investor implies the person has enough knowledge and experience to make informed decisions in real estate investing. A sophisticated person may or may not be accredited, but their expertise allows them to engage in more advanced types of investment opportunities than the average investor.
The law clearly defines who is an accredited investor, but there is not one definition for a sophisticated investor. What is clear is that it is a person who understands cash flow, wealth creation, taxes, business and securities laws to put his or her money to work 24/7.
In August 2020, the SEC amended the definition of an Accredited investor to include “defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth”.
This means that the law is bringing together the concept of an Accredited and a Sophisticated investor, because recent times have shown that having a lot of money is not sufficient to guarantee that you will make wise decisions with it.
Make Wise Decisions With Your Money, Contact Us Today
No matter your level of experience and net worth, we all need the help of experts to guide us to make the best decisions with our hard-earned money. Here at Titanium Investments, we have a team of dedicated professionals that can help you determine your investment goals and match your dreams with one of our projects.
We make investing in apartment communities easy and stress-free for our investors while providing passive income to enjoy the life you've always dreamed of.
Schedule a call today with one of our trusted advisors here.