Are you an Accredited Investor? Listen to this episode to learn about how the SEC regulates accredited investors and what you need to know before investing whether you’re accredited or not. If you are accredited, this episode will help you understand the different investment options that wealthy investors tend to partake in. If you are not yet accredited, Aaron will explain options for “Sophisticated Investors” so one day they may be able to call themselves accredited investors.
00:00 Accredited investors and sophisticated investors
01:45 Investor amounts
03:23 Security exchange commission
04:42 Real estate syndication
07:30 Venture Capital
09:38 Private equity funds
Aaron Fragnito: All right ladies and gentlemen, welcome back to another episode of The Passive Cash Flow Podcast. I’m your host Aaron Fragnito and today we’re going to talk about accredited investor opportunities.
An accredited investor is someone that meets the following qualification, has an income of $200,000 individually or $300,000 including their spouse, or has a net worth of $1 million not including their primary residence. Another category could be he has a private business development company or organizations with assets exceeding $5 million. Now, if you don’t quite meet that category, there is a category for sophisticated investors.
Here in Peoples Capital Group we actually accept both accredited and sophisticated investors which is a nice advantage for the general public because a sophisticated investor is someone who’s maybe not yet an accredited investor. They are working at becoming an accredited investor. They have some real estate investment experience. They have ample savings to live on. They have ample income coming in as well and expect to make the same or greater amount next year and they don’t need to live on the returns of the investment. They also have other investments in excess savings to cover all types of living costs.
A non-accredited investor could also be a sophisticated investor. You may fall into the category of an accredited investor, you may fall into the category of a sophisticated investor. Either one would allow you to invest in Peoples Capital Group but this podcast episode is focusing on accredited investor opportunities, we’ll touch a little bit on both. Ideally, accredited investor opportunities tend to have larger minimum investment amounts. I know many other real estate syndicates that only accept accredited investors and their minimum investment amount is $100,000.
Ideally, you’re a millionaire or a wealthy individual as an accredited investor. Therefore, the minimum investments are larger. Here at Peoples Capital Group, our minimum investment is $30,000. But we find with a lot of our accredited investors they start more around $100,000. Just quite frankly because they have more capital to invest and a smaller investment may not be worth their time. If they’re going to do the– Take the time, do the due diligence, get to know Peoples Capital Group. Go to our website, check out our podcast, read our articles, maybe attend a webinar, or come to one of our in-office events and ask around at other real estate networking events. You think you take all that time to figure out if we’re a good investment opportunity, then you’d better bet they’re going to want to make a larger investment to make it worth their time.
Often accredited investment opportunities are having a larger minimum investments, that’s going to stop smaller investors from getting started there. Now, if you are looking for lower minimum investments, say you’re a sophisticated investor, there’s tons of opportunities to invest in real estate. Many real estate syndications do accept sophisticated investors. There’s also websites and different technologies these days that allow sophisticated investors to get invested in real estate without a large minimal investment. I know something like Fundrise or something you could invest like $500 so that’s pretty interesting if you’re looking to kind of dip your toe in the water and get started there, especially if you’re non-accredited investor, that might be a good option for you.
I do want to touch on the Security Exchange Commission here very quickly because they are the entity overseeing all this and making all these rules. What’s an accredited investor? What’s a non-accredited? What’s a sophisticated investor? What can I say on a podcast? What can I not say on a podcast? I can’t say the G-word, the guarantee. That’s a dangerous word for an individual like me to say. I’m not a bank, I can’t guarantee anything. I can target things. I can project returns, I can put on reasons why we may get those returns, market statistics, renovation plans, rental comps, sale comps but I can’t guarantee anything. I’m not a bank, the SEC doesn’t allow me to guarantee anything, so you’ll see in our disclosures that of course, their targets and projections, and that’s really all real estate operators and syndicators can do.
If someone’s telling you, I guarantee you the project will work out, I guarantee the real estate market won’t drop, I guarantee– Run the other way. You can’t guarantee anything if you’re not God as far as I’m concerned. We don’t guarantee anything here at Peoples Capital Group, we work hard to hit our targets. Historically, we have and that’s why 9 out of 10 of our investors repeat investments with us.
But let’s talk about what a real estate syndication really is. It’s just a pooling of capital to buy a larger building. It allows someone with 30,000, 50,000 or $100,000 to get invested in a 5, 10 or $100 million building. It’s really a very cool thing that has developed more and more over the last five years or so. It’s gotten quite popular. A lot of competitors out there and that’s a good sign, right? If you’re in a space where there’s competitors popping up all the time, that means you’re in a good space. Hopefully you got there first.
But there’s different ways for accredited investors to find opportunities, real estate crowdfunding is essentially what we do. There’s different ways to describe it. But that’s generally putting together a number of investors to invest in one person or one entity or one group that’s going to buy and manage one or many properties and you want to look into different websites that offer that if you’re looking for smaller investment. If you’re looking for a larger investment as an accredited investor you want to look for real estate syndicates that know what they’re doing, have a good track record, and whose current investors reinvest over time. That’s a very important question to ask your operator before making an investment decision.
There’s also REITs, real estate investment trusts. Now in this case, I’m going to talk about publicly traded REITs. A publicly traded REIT is a stock that’s backed by real estate. Now, I’ve done podcasts on a real estate syndication versus REITs and the bottom line is a REIT is a stock backed by real estate. It’s very volatile, you can go in and out of it very quickly. It’s a liquid investment and that’s great, maybe you want to just invest for 30 days, you don’t have that option with a real estate syndicate.
A real estate syndicate’s going to ask for an investment minimum, generally of three to five years but the benefit of that means it’s less volatile. It’s based more on a specific property or a collection of properties, generally one or two marketplaces and generally it’s just long term, less volatile investments. A REIT is really the stock market, it’s going to go up and down, like when the COVID hit, REITs, especially REITs owning office space dropped by 80% some of them in a matter of five or seven days. That’s scary if you own the REIT now.
Those stocks did go back up and REITs can pay nice dividends so you may want to have some REITs in your portfolio. But really, it’s a stock backed by real estate. It’s not going to give you the tax benefits of real estate, either. That’s a publicly traded REIT. You can have privately traded REITs that are going to carry over those tax benefits and can have the benefits of investing in multiple markets. There’s also secondary markets for REITs, which can make your investment more liquid. Essentially, someone can buy out your investment, so there’s different options for accredited investors there as well. You want to explore all those different options, see what’s a fit for your investment goals.
Another option is venture capital. So this can go into existing businesses generally. Venture capital is different than angel investors, as angel investors tend to start in seed stage companies or more of an idea that’s trying to become a company and that’s a little bit of a higher risk stage in the business. There can be much greater payouts, of course, for an angel investor. But a venture capitalist is going to invest generally in a more established company that has some momentum and at least is selling a product or a service. It has something to show for.
Generally, venture capitalists can do very well as companies grow from their small stage to mid stage and beyond, so you want to look for good investment opportunities there like the sharks on Shark Tank.They’re venture capitalists, so that’s something that an accredited investor can do. Of course, if you’re the one reviewing business investment opportunities, those have a lot more moving pieces, than say an apartment building.
An apartment building is pretty straightforward, right? We’re going to buy it, it needs some renovation, physical renovation. Once we do that, we can rent the building out for more money and rent the apartments out for more money. We can increase the cash flow of the building, and ideally, maybe lower our expenses as well by cutting some of the pork there. That’s going to produce better cash flow. We all know that we need a roof over our head, we all know what an apartment is. We probably lived in one when we were younger and we all know that people need them. There’s actually a shortage of them in North Jersey and really throughout the nation,
Housing and apartment buildings are pretty tried and true way to build wealth. If you’re working with the right operators, quite frankly, doesn’t matter what market you’re in. If you’re in a good high demand market, you can make money in Florida, New Jersey or Texas, just working with the right operators is the most important thing and the right strategy there. That’s very different than of course, investing in a business with venture capital, right?
When you’re investing in a business, you have to make sure that product or service they’re selling is the right thing. It does what they said they’re going to do. There’s not a lot of debt, making the business bogged down or skeletons in the closet. You want to make sure you do your due diligence there for venture capital investment. That can inherit a lot more risk perhaps than just a real estate syndicate.
You have private equity funds, so that’s similar to venture capital. A private equity fund can own real estate, it can own businesses, it can own a combination of that. We have a private equity fund, you can call that your Peoples Capital Group. We start a new private equity fund for each one of real estate syndicates, and that’s going to own equity in the building and that’s going to allow our investors to be passive owners in the building.
There’s different ways for accredited investors to get invested in all different types of asset classes. Being an accredited investor the SEC says, “Hey, you’re more experienced.” There’s less rules and regulations protecting accredited investors, so we want you to be aware that if you’re an accredited investor that the SEC abuse you as a big boy essentially. You can make your own mistakes. You’ve made it to a million-dollar net worth, not including your primary residence. You should know what you’re doing.
Now, unfortunately, there are a lot of accredited investors out there, people that earn a great income. Maybe they’re a doctor, or maybe they’re in the entertainment industry, or they’re an athlete or just a successful business person. However, they don’t have a lot of experience investing, creating wealth, making more money with money, right. They’re great at what they do, pharmaceutical sales, whatever it is.
We work a lot with people in the healthcare industry, and they make a killing. They’re great at what they do. They have a great income, a high W-2 income. However, they get nailed in taxes, and they don’t have a whole lot of investment experience, especially in real estate. They’re looking to grow there, so just because you’re an accredited investor doesn’t mean that you’re necessarily experienced or savvy in that marketplace or in that industry.
You still want to team up with the right professionals, whether you’re investing in real estate or businesses in the stock market. You always want to be working with the right professionals and hire them to make sure you’re investing wisely in good assets that are going to achieve your investment goals, hopefully quickly than even desired. By working with professionals and diversifying over the stock market or private businesses, and real estate, you should be able to at least become an accredited investor and grow your wealth over time and become a large-scale investor. Ideally work less, earn more, pay less taxes if you own a lot of real estate as well.
If you want to learn more about those different topics, you can go to peoplescapitalgroup.com. We have all different types of podcasts and articles there where you can learn about the benefits of being a passive real estate investor, whether you’re accredited or sophisticated or you’re not sure what you are. If you’re a qualified investor, go to Peoples Capital Group and fill up a qualification form. We can tell you more about if you’re a qualified investor and if you qualify to start making returns with Peoples Capital Group.
I hope you enjoyed this podcast. Hope you enjoyed our message today. Subscribe for more podcasts every week here on the Passive Cash Flow Podcast. Thanks a lot.