I answer questions on Bigger Pockets to help people looking to purchase property as a way to invest in their future. There often are new investors who have no experience or money to purchase real estate. They want to know shortcuts to leverage with a mortgage or get 100% financing. There is no low risk magic. Many of these new small syndications of real estate go belly up within a year. The investors don't control anything about the non owner occupied rentals and have no control what the general partner does. They lose all their investment and don't learn anything about the details of buying and owning a home, then finding a great tenant. It takes good income in the past two years, great credit, liquid assets and smarts to find property that can cash flow. Then there is applying for a home loan, checking the title, getting insurance, repairing any structural flaws or improving to get the property rent ready. Then the long term haul of managing the rental.
Here is a summary of the new SEC accredited investor exam. It's an exciting development that has the potential to open up investment opportunities to a wider range of people. I'm curious to see how the exam is designed and what level of financial sophistication it will require.
It's important to note that the exam is not a guarantee of investment success. Even if you pass the exam, you'll still need to do your own research and due diligence before investing in any security. But the exam can guide you to develop the skills and knowledge you need to make informed investment decisions.
SEC is creating an accredited investor exam. Here’s everything you need to know:
The current requirements: To be an individual accredited investor you must either: Have an income exceeding $200,000 for the past two years with the same expectation for the next year, OR have a net worth exceeding $1 million, excluding the value of your primary residence. Often these small syndicators do not check if an investor properly qualifies and the small individual loses.
A new option: As of May 2023, the House voted to pass legislation, administering the SEC to introduce an exam program that would qualify investors as accredited. The accredited investor exam requires potential investors to demonstrate a certain level of financial sophistication and understanding of investment concepts. The exam will measure an individual's ability to assess risks and make informed investment decisions.
The passage of the bill to establish an SEC accredited investor exam is a step towards strengthening investor protection and opening the door for new investors, even if they don't meet the wealth-based requirements. For commercial real estate investors, this change may add access to the sector. Hopefully it won't create loss of everything a small investor owns and cripple them.
Sometimes failure is the best teacher. So get on that bull and start riding? What do you think about this as a new law?
