The securities and exchange commission recently changed the rules for accredited investors.
Will this change affect real estate investors in the Atlanta area? Learn more in this article.
Previously, to get the accredited investor designation, you needed to have $1 million in net worth (not including your primary residence) or an annual income of $200,000 ($300,000 if filing jointly) for the last two years, with a reasonable expectation for the same or higher income in the current year. The SEC's new amendments now allow educated and/or experienced investors to bypass the income/net worth requirements and instead test into accreditation. These amendments also broaden the types of entities that can qualify as an accredited investor.
“Today’s amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition,” said Chairman Jay Clayton. “For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication. I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations, that may qualify to participate in certain private offerings.”
Do You Qualify as an Accredited Investor?
Until this change, you had to have money in order to invest as an accredited investor, leaving many educated and experienced people who were a bit short on funds out of the running. But now, if you can prove you understand what you’re doing, you can get in on those bigger deals.
BUT should you? That is the million-dollar question.
How experienced are you? How much education do you really have?
The original requirements were in place so people didn’t lose their shirt on a fast-talking, snake-oil salesman’s garbage product or deal. In light of the eased requirements, investors should proceed with (even more) caution.
Should You Take Advantage of the Changes?
My friend Jake is not an accredited investor by the old requirements. He’s close—but not there yet. So he’s missed out on a few pretty amazing deals.
But his experience level and education (and risk tolerance) is far greater than someone who has lucked into a great investment and passively grown his or her net worth to qualifying status. If Jake were asking me if he should take advantage of this new amendment, I’d say “YES” as fast as I could.
Jake is precisely the person who should be taking advantage of this amendment. I’d even go so far as to say he’s precisely the person this amendment was written for.
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