There is a budding need to update the current definition of accredited investors considering the disruptions taking place in real estate investing. According to the SEC, an accredited investor is someone who earns an annual income of at least $200,000 (or $300,000 for couples) or whose net worth is at least $1 million, excluding a primary residence. In addition, these investors should have adequate knowledge and experience to assess the rewards and risks of investment options, such as private equity and real estate investments. As the SEC looks to implement crowdfunding regulations, it is worthy of consideration to revise, or supplement with additional requirements the definition of who an accredited investor is, so as to minimise the numbers of non-accredited investors unable to invest. This would foster greater participation in equity crowdfunding offerings and private placements.
There are several traders, attorneys, brokers and advisors who are involved in private investment deals but are not allowed to invest in them because they do not meet the net worth or income requirements of accredited investors. There are also other real estate investors with sizeable incomes but who have to go through tedious processes to validate themselves as accredited investors before being allowed to participate in private placement offerings.
The primary objective of real estate crowdfunding is to create a neutral platform where individuals can participate in property investments regardless of their financial muscles.
It would be prudent for the SEC to supplement the current net worth and income qualification for accredited investors with investor’s education, credentials and experience. In this regard, professionals such as realtors, certified financial analysts and licensed attorneys would be permitted to partake in private placement deals irrespective of their income or net worth. Once they are able to make the required investment in a deal, they should be allowed to participate. This would expand the current non-accredited investors’ participation because it is not apparent that high-income persons have better real estate investment knowledge than low-income earners. Individuals within the higher income bracket should also have to demonstrate their sophistication in investment deals alongside their income qualification to be eligible for participation.
The primary objective of real estate crowdfunding is to create a neutral platform where individuals can participate in property investments regardless of their financial muscles. Inasmuch as money is very crucial in real estate offerings, crowdfunding advocates for this money to be raised through small contributions from ordinary people who are non-accredited investors. Maintaining the current definition of accredited investors will not give everyone open doors and a fair shake to private investments. Emphasizing only on wealth and income qualifications will in effect bar many potential investors who have excellent knowledge and experience about property investing.
Crowdfunding has greatly democratized real estate investing industry and this can also be sustained by re-defining “accredited investors”. Knowledge and experience are very essential for any profitable real estate offering.
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