Having accredited investor status gives you access to a greater number of investment opportunities that offer the possibility of greater returns. However, these are also riskier investments than other types of safer investment opportunities. There are advantages and challenges to consider if you become an accredited investor.
Accredited Investor Benefits
The most prominent benefit provided to accredited investors is having access to more investment opportunities. These investors have access to private placements, crowdfunding, and other alternative investments.
Some of the investment opportunities accessible to accredited investors:
- Commercial real estate
- Venture capital (or angel investing)
- Real estate crowdfunding
- Hedge funds
- Real estate syndications
After you become an accredited investor, these options can help you diversify your portfolio more efficiently.
As an example, some may choose to participate in real estate crowdfunding. Even though these investments are riskier than other stock market investments, they can also reduce the volatility of different types of investments. With these investments, the potential for higher returns is a factor to consider when evaluating risk.
Accredited Investor Challenges
It is essential to do your research when you are not under specific SEC disclosure requirements and other protections. As a result, you may need to review financial statements and other documents to verify important information. These tasks can be made easier and safer in a business and legal sense with help from an attorney.
You also have the drawback of accepting more risk when you become an accredited investor.
Proof of Accredited Investor Status
No formal certification is required to gain accredited investor status. Each company that offers unregistered securities to potential investors is responsible for taking the “reasonable steps” to prove each investor is an accredited investor.
If you want to purchase an investment that does not require SEC registration, you can communicate directly with the business or entity offering the securities investment. The company or entity may need you to fill out an application. The issuer of securities will ask you to present proof that you meet the accredited investor requirements.
You may need to provide the necessary proof of the multiple types of documents, including tax returns, W-2s, and retirement or investment account statements. The issuer may also ask for letters from financial or tax professionals with whom you work or check your credit history.
