Rich Dad Education – Real Estate Blog

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Accredited Investors

According to Rich Dad, 90% of the wealth is controlled by 10% of the people. Because of the wealth they have accumulated, it allows the 10% to invest in other opportunities that the general public is not allowed to invest in. As a result, the rich get richer by being more selective in their investment choices by choosing the best investments and passing on the rest of them.

What is an accredited investor? The Securities and Exchange Commission (SEC) defines it as the following:

  1. Someone that has an annual income of at least $200,000 and will likely have it for the next two years, or
  2. A couple with an annual income of $300,000 and will likely have it for the next two years, or
  3. Someone with a net worth of $1,000,000 dollars (excluding their personal residence).

There are other entities that qualify as accredited investors (banks, insurance companies, etc.) but for the purpose of this article, we will stick with the three definitions above.

Why does the SEC care about defining an accredited investor and their involvement with investments?

They are the “watchdog” of the investing world. They are responsible for fraud prevention and protecting the uneducated and inexperienced investors from abuse. The Securities Act of 1933 and the Securities and Exchange Act of 1934 created the SEC and gave them these responsibilities. The definition of an accredited investor was the direct result of these new Acts.

There are two primary reasons that these definitions were put in place. First of all, it makes the assumption that if people have that level of income and/or net worth, they are more financially prepared to take on risk if the investment does not go as expected. The second reason is that there is a belief that those with higher net worth are more financially educated based on the level of financial success they have achieved and would be better positioned to evaluate investment opportunities.

Accredited investors can participate in certain types of investments that the general public cannot access. These include joint ventures, angel investing (funding businesses), pre-public offerings, private investment funds, and more. These types of investments are considered to be more sophisticated and require investors be accredited to better understand the investment as well as be financially poised against the potential risk.

How does this information apply to you? You have heard the expression that “the rich get richer.” At the very least, it should give you the urge to become an accredited investor if you are not already. Accredited investors have access to investment vehicles that accelerate their returns that cannot be accessed by everyone else.

Accredited investors could also help fund your investments, so in time, you can join the ranks of the accredited investors. Becoming an accredited investor does not require a certain degree from a college, or a trust fund from mom and dad. It is based on your financial statement, which is something that you can completely control.

Becoming an Accredited Investor

Since the requirement is to make at least $200,000 a year as an individual, it is unrealistic to achieve this goal as an employee. Less than 3% of the population makes this amount each year at their job. With the rare exception of athletes, professionals (doctors, attorneys, etc.), exceptional salespeople, and executives, most people will not make this level of income from their job.

In order to have a true shot at higher wealth, you have to go down an alternate path. Although there is more than one path to this goal, there are several different options. The most common paths for someone to become an accredited investor are:

  1. Starting a business
  2. Real estate investing
  3. Stock market investing

If you are trying to achieve this goal and you have very little capital to begin with, you are better off starting your own business or investing in real estate. Both of these can be done with very little capital and can be accomplished while you work your day job. It is possible to start a business with very little money, but as opportunities increase, so will your need for funding.

In real estate, you do not need to have the entire sum of money to buy a piece of property. Because of financing, you can leverage yourself into a position of controlling the asset without paying 100% of the money up front. This is also a viable strategy for those that have limited financial resources.

Even though you can make significant returns in the stock market, the downside is that it requires capital to invest. If you have some financial resources available and a solid education combined with a heath dose of risk acceptance, this is a great investment opportunity that can be harnessed to provide great returns.

Regardless of the path you select, it all comes down to having the right financial education. Devote yourself to your path. Learn everything you can. The more you know, the more you reduce your risk as it becomes less of a “guess” when selecting investments. Learn to evaluate the numbers and understand the investment. If you do not understand the investment, do not invest your money. If you invest and do not understand it, all you are doing is gambling. You are praying that everything goes well, and that isn’t the best investment strategy.

Using Accredited Investors

How can accredited investors help you become an accredited investor like them? This is where investing can open up to a whole new level.

You can tap into their capital to help you achieve your own investing goals. You have the ability to assemble one of the types of investments that would attract accredited investors.

If you had a great idea for a business but needed some funding to get it off the ground, you could use these accredited investors to fund the business. Or, if you had a great real estate deal that required a lot of capital (like an apartment building or a mobile home park), you could offer it to these accredited investors for their review.

The powerful concept is that you are not limited by your own resources. All it takes is an idea, an opportunity, some motivation, and determination. When you couple those skills with the capital of accredited investors, you can achieve anything.

Obviously you are dealing with investments that are highly regulated and it is critical to do them correctly. If you go this route, we strongly encourage you to seek competent legal advice about investment offerings. It is worth the time to do this properly.

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19 responses to “Accredited Investors

  1. De June 27, 2012 at 8:51 pm

    Thank you rich dad for another great advice on investing. My journey to financial prosperity would have been a total disaster without your guidance.

    Best Wishes,

    De

  2. aimanzul June 28, 2012 at 10:11 pm

    Not bad…..and to think that most still will confuse reading for doing.

  3. Michael Ross June 28, 2012 at 11:31 pm

    This is awesome. This info will keep me aware of what to do as I go into business.

  4. Tami in Louisiana June 29, 2012 at 10:23 am

    Goal: Become an accredited investor!

  5. DoD June 29, 2012 at 11:55 am

    The problem with this discussion is that the “accredited investors” and SEC are both partly responsible for the financial crisis culminating in TARP. The “watchdogs” were not watching and the general public got screwed. All of this is happened post Glass-Steagall.

  6. David Lawson June 29, 2012 at 10:45 pm

    THANK YOU!

  7. Tommy June 30, 2012 at 9:10 am

    Professional athletes who qualify as “accredited investors” should be required to undergo a pre-qualifying test prior to being saddled with the accredited investor moniker. You know, like, what’s 10 divided by 2? Talk to former accredited investors like Terrell Owens to get some pointers. They think that “real estate investing” means buying their mother a new house (and themselves a mansion)!

  8. Michelle Grow July 1, 2012 at 1:17 am

    I am always amazed by how little most know about financial education. Thanks Robert!

  9. YCCSCB July 1, 2012 at 12:29 pm

    How can I contact an Accredited Investor?

  10. Gregory July 1, 2012 at 1:03 pm

    Thank you Rich Dad for the knowledge!! Great read

  11. Terry July 2, 2012 at 12:54 am

    Taking stock market profits and investing in real estate was my path to becoming an accredited investor between 2000 and 2005. Still an accredited investor.

    • Charles Seaman July 7, 2012 at 11:06 am

      Hey Terry – what type of deals do you usually invest in? I’m not an accredited investor, but am looking to build a list of investors in the event that I come up with a good deal.

  12. Agosto July 4, 2012 at 6:22 pm

    Very helpfull info.

  13. Catherine July 10, 2012 at 6:07 pm

    I missed your conference in Chicago, IL. I have no funds but deperately need your course, what should I DO? CATHERINE

  14. Cornelius powell July 31, 2012 at 10:49 pm

    A very smart Idea and helpful.

  15. david wilson August 18, 2012 at 6:06 am

    What age do you think children should be when they first start looking into becoming an accredited investor?

    • Lord Anthony August 20, 2012 at 1:53 pm

      Have you read Rich Kid, Smart Kid?
      That book really gives you a GREAT run through on how to get your very youngest kids started on understanding money and investing.
      Cashflow for Kids also is really good for any kid who is old enough to play a board game.
      Rich Dad Poor Dad FOR TEENS is good for teenagers. They’re usually ready for Cash Flow 101 and 202 as well.
      If you’re trying to get important messages through to upperclassmen in High School or college kids, you might want to try Robert’s original book “If you want to be Rich and Happy, don’t go to school?”
      It’s always better to get them asking questions than to try to give them answers when they may or may not be listening.
      I started being interested in money at probably 5 or 6. I was fascinated by business and wanted wealth when I was 13. Now I’m 31 and I’m mad Accounting and Economics weren’t high school requirements.

  16. thecollege123 December 19, 2012 at 2:51 am

    Hello 🙂 Indeed, a good business investor needs to be savvy as well as a certain bit cautious. The investor needs to assume some risk in financing new ideas and new concepts. But on the other hand, the investor should not decide to finance a start up that is not properly researched and does not have a solid business plan.

    How to become an investor also needs to formalize the investment like a business transaction with legally binding documentation. Formal documentation and a repayment plan are critical ingredients for reducing the emotional risks of transactions between relatives and friends. Thank you for sharing this post 🙂

  17. kriskrohnreic May 22, 2013 at 7:00 am

    I agreed with you just price offer doesn’t matter to sell your property, there ought to be differ facilities that can convince the mind of client.

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