An accredited investor is a person or entity that has special financial status that enables them to invest in opportunities that are not available to ordinary investors. These investment opportunties could be private placements in companies, invest venture capital into startups, angel investing, or real estate deals.
There are many ways to be considered accredited outside of these four ways, but mostly individuals who are accredited fall under one of these categories.
1 – Your net income before taxes was more than $200,000 in each of the 2 most recent calendar years, and you expect it to be more than $200,000 in the current calendar year.
2 – Your net income before taxes combined with your spouse’s was more than $300,000 in each of the 2 most recent calendar years, and you expect your combined net income before taxes to be more than $300,000 in the current calendar year.
3 – Either alone or with your spouse, you own more than $1 million in cash and securities, after subtracting any debt related to the cash and securities.
4 – Either alone or with your spouse, you have net assets worth more than $5 million. (Your net assets are your total assets (including real estate) minus your total debt.)
Again, if you meet 1 of the above 4 categories above you would be considered an “accredited investor”.
So What is the Big Deal?
My personal opinion is that the government’s role here is to protect consumers not make them wealthy. By allowing people that are accreditted to invest in these opportunities there is an expectation that because they have created more wealth that they would have a higher level of investment knowledge, than an ordinary investor. Thus they have access to the most lucrative opportunties that can make them more wealthy, and increase the wealth gap in Caanada. There are even brokers that specialize in investments for accredited investors.
There is more and more pressure to change this approach with crowd-funding and other group-funding web site technology and make real estate investments more accessible. You can see this in the United States (Fundrise, CrowdStreet, PeerStreet, RealtyMogul, EquityMultiple ,DiversyFund and Yieldstreet) a lot more than you see in Canada (AddyInvest – which is more of a membership with a maximum investment).
So Are You an Accredited Investor?
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.