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  • Writer's pictureTomond Jack

Know Your Investor Status!

Updated: Mar 30, 2023


Are you an accredited or sophisticated investor? Knowing your investor status is important in the real estate syndication world. Based on your status, you may have access to certain investment opportunities that others do not. Let’s look at the two main types of investors.


Type 1: The Accredited Investor

The Securities and Exchange Commission (SEC) sets the criteria for accredited investors and outlines who can legally invest in certain investments. To be an accredited investor, you must meet one of the following:


· Have a net worth (all assets minus liabilities) of at least $1 million, excluding your primary residence, or

· Have income of at least $200,000 per year as an individual or $300,000 per year with a spouse or domestic partner in each of the previous two years, and expect to make the same or higher income in the current year, or

· Be a director, executive, or general partner of the firm selling the investment security, or

· Be a registered investment adviser who is in good standing*


Accredited investors are viewed as being more knowledgeable about investing than non-accredited investors. The idea is that they have enough wealth and knowledge to make informed decisions on investments without needing any extra protection from regulators like non-accredited investors do. Ultimately, this gives accredited investors access to “higher risk” investments that may not normally be available to everyone else. As a result, they can potentially see much higher returns on their investments than regular investors.


How To Verify Your Accredited Investor Status

Most investment offerings use a third-party verification company to confirm your investor status. There are few ways to verify your status with these companies and the issuer of the investment:


1. If status is based on income, you can submit tax returns, pay stubs or IRS forms confirming your income.

2. If status is based on net worth, you can submit your financial statements, tax assessments, brokerage statements, retirement account statements, and credit report.

3. An attorney, CPA, or licensed investment advisor or broker dealer can provide a letter verifying your accredited status.


Type 2: The Sophisticated Investor

Sophisticated investors are non-accredited investors who have sufficient knowledge and experience in financial and business matters that they can adequately evaluate the merits and risks of a particular investment opportunity. Although sophisticated investors are non-accredited, not all non-accredited investors are sophisticated investors. A sophisticated investor often has access to resources that other non-accredited investors may not such as specialized advisors or research materials, which allows them to make more informed decisions when investing in high-risk securities.


The key to being a sophisticated investor is educating yourself on the investments you wish to pursue. If you want to invest in apartment syndications, learn as much as possible about how they work and the risks involved. Unlike accredited investors, sophisticated investors do not necessarily need to demonstrate a certain level of wealth; rather, they just need enough financial acumen to understand their investments. Although sophisticated investors may not have access to all the same investments as accredited investor, in the real estate syndication realm, most opportunities are available to sophisticated investors.


Final Take

It is important to understand what being an accredited investor means if you want to invest in certain types of securities and investments. However, there is still plenty of opportunity for sophisticated investors. At SHH Equity Group, we work with both accredited and sophisticated investors on our multifamily opportunities. It is important to remember to do your due diligence before investing in any deal.


*See the following link to the SEC to get more detail on how investment professionals and entities qualify as an accredited investor. SEC Accredited Investor

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