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PODCAST EDUCATION

How To Become An Accredited Investor

Episode 040

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about accredited investors and what the requirements are to be one. Solicited private money lending requires investors to be accredited.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys. Don’t quit your daydream. 

Robert Helms: Hey everybody, it’s Robert Helms, host of the Real Estate Guys radio show, and you are listening to the Real Estate Cowboys. 

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John. 

John Larson: Hello everyone, this is John Larson back with another episode of the Real Estate Cowboys podcast. Thank you all for joining us again. This week we are going to be talking about accredited investors how to become an accredited investor. What is an accredited investor? We have a lot of investors that come to us from time to time and they just frankly say, I don’t know if I’m accredited. And so it takes a little bit of an education and a lot of times through the education we discover that the investor is in fact accredited and then they get a letter from their CPA or from their attorney stating that they’re accredited, and it opens you up to a lot of other investment options out there that aren’t available to people who are not accredited or not qualified for our debt syndication specifically like the raise that we just finished up here. The deal’s closing this week, this Wednesday was the office building that we were raising $3.5 million for up in North Dallas and in Carrollton, specifically. That deal is now fully funded and we’re moving on to our next raise.  

But these raises, these debt syndications, you must be accredited in order to be a part of these deals. And the main reason being is because we are using the 506c rule of the Regulation D filings. Basically, what that means is if we are publicly soliciting or generally advertising offerings, then you must be accredited to be a part of these opportunities. With 506b, you can have a certain amount of what you would call a sophisticated investor. So you could have up to 35 sophisticated investors in a deal like that. But since we are publicly soliciting our offerings, you must be accredited. So I wanted to put on a podcast that talked about the qualifications of an accredited investor, how to become accredited. Just educate our audience so we can get more and more people involved in our debt syndications which are becoming more and more popular. Actually, our next debt syndication that we’re going to be ready to unveil here will be in Denver, Colorado. Um, for those of you that may or may not know, I’m also very much involved in the CBD industry, which is basically cannabidiol. There’s a lot of research out there that’s showing that cannabidiol is helping with anxiety, pain relief, cancer, uh, seizures and many, many other things. People are giving into their pets. I actually give the CBD oil to my dog who has anxiety and allergies and it’s helping tremendously. I take it myself daily. It helps with pain. I’m in the gym a lot. I’ve had a couple of injuries in my life from playing sports at a young age and CBD’s actually even been helping me quite a bit. So I’m very passionate about the business. Um, it’s projected to be a $22 billion dollar industry by 2022. And with the passing of the Farm Bill just this past December, it has now taken hemp oil off the banned substances list. So it is now legal in all 50 states because of the passing of that Farm Bill. And so there’s no THC in cannabidiol; it’s a very, very low, low amount. It doesn’t get you high. People aren’t taking CBD oil to get high. People are taking CBD oil to cure ailments that CBD has been proven to help remedy. Right? I know people that give it to their kids that have epilepsy, have seizures. I know a ton of people that give it to their pets. I know people that give it to their kids. And so this is a business that I broke into about six months ago and what we’re going to be doing is raising for a CBD facility up in Denver, which is pretty much the capital of the CBD industry and basically marijuana industry people, you know, it was the first state to become legal for recreational use. But like I said, it’s not our goal to get into the THC business. 

It’s our goal to continue to grow in the CBD industry because with the passing of the Farm Bill and now having CBD be legal in all 50 states, you’re going to start to see some very, very large companies come in and try and take it over. That’s definitely going to happen, but there’s an opportunity for us as investors to make some money on the CBD industry before it’s completely shut down and regulated by the big boys. Uh, even Coca-Cola’s been looking at adding a CBD soft drink, so it’s Coca Cola. If a brand like Coca Cola is getting involved, that should be putting us all on alert that we need to get involved as well. And I have been involved and I plan on growing our business and so that is why on our next syndication I plan on raising funds for a CBD extraction facility, which is basically going to take the flower, the hemp, the raw hemp, and convert it into a CBD isolate, which is then sold to these retail companies out there that are putting it in gummy bears, pet treats, pet food, tons of things; lotions, bombs for pain relief. It can go into water. It can go into so many different things; soft drinks. It’s unbelievable. You can pretty much put in everything. So that’s what we’re going to start raising for next. Details will be out soon. We’re having the PPM and all that drafted as we speak. We’ve already identified a building in the Denver area that we’ll be looking to purchase and convert into basically a CBD laboratory and extraction facility. So very, very excited about that. This offering is going to pay 12 percent, our other offerings paid 10 and a half. This is going to pay 12 percent. This is the best deal from a return standpoint that we’ve put out there and it’s going to be an 18-month term. So if you are interested in finding more about finding out more about this opportunity, go to RealEstateCowboysDFW.com, or go to AREIUSA.com. Put in your information, schedule an appointment, and a member of our team will reach out with more details. 

Now, like I said, to get involved in these opportunities, you must be an accredited investor. So how do you become an accredited investor? How do you know if you’re an accredited investor? Let’s get into that. Accredited investors have access to investment opportunities that aren’t available to others. If you’re interested in certain passive real estate investments such as private lending or our debt syndications, you may have found out that you need to be an accredited investor. So how do you go about becoming accredited? That’s a big question that a lot of people ask me. Sometimes they ask me and come to find out they are accredited. So, what is an accredited investor? 

Basically, the term of an accredited investor is, it can be a little bit misleading. Usually, if you’re accredited, there is some type of certificate or badge that comes with it, but with accredited investors, there’s no certificate or anything like that. There is no governing agency with a list of accredited investors that you have to get on. The term accredited investor is basically; it means that you’re qualified. So you could say qualified investor and it would mean essentially the same thing. It means you’re qualified to participate in certain private investment opportunities that everybody else who is not accredited would not be able to enter into. 

Another question I get from my investors is why do I have to be accredited to invest? A lot of times investors will tell me, well, I’m sophisticated, I’ve done a lot of different deals. Why can’t I get involved in this? And um, you know, the simple answer is you do not have to be accredited to invest in everything. There’s a lot of ways to invest in real estate; buying single-family homes, so on and so forth that don’t require any type of accreditation. With stocks, bonds, mutual funds, you don’t have to be accredited as well. And in fact, most investment options out there, they don’t require that you’re accredited. There’s only certain types of investments like hedge funds, certain private placement deals like ours because of the fact that we publicly solicit these opportunities and there’s more than six lenders on the notes and money’s crossing state lines. That will be usually an indicator that you must be accredited to be a part of those deals. But the main reason why our opportunities are you must be accredited to get involved is because we publicly solicit them. And there is a rule from the SEC that if you are publicly soliciting and advertising these offerings and they must, all the investors that get a part of it must be accredited. On the surface it might seem unfair that the government discourages certain investors from the chance to profit from certain opportunities; the government being the SEC. But the reasoning behind it makes sense. The investment vehicles that require accreditation are much more complex than standard investments. You know, with our deals that we raise for here in the Dallas area and soon to be Denver. There’s a lot more moving parts with it. It’s not just a single family home where you’re placing a tenant and you hire a management company and make sure that they pay rent and things like that. With these types of opportunities, it’s usually building a new structure that needs to be leased out or it’s an existing structure like this past deal where you have tenants in already paying rent and the goal is to go in and purchase the building and do a renovation, bring rents up. There’s just a lot more moving parts in terms of the goal of the investment. So although it’s very, very passive to be a part of, because essentially all you’re doing is lending money and receiving a dividend each month and there’s not really much communication that needs to be involved with the whole process and then obviously we pay you back at the end of the term and we look for another investment opportunity at at that point. I can why the SEC wants people to be accredited to get involved in these deals because of the fact that there’s just more moving parts and so you need to be a little bit more sophisticated to get involved in these deals. These investments, they also require a deeper understanding of economics and finances that everyday people just don’t have, some everyday people don’t have. The SEC guidelines, they’re not intended to exclude people, but more so to protect ordinary citizens from investing their hard earned money and savings into something they don’t fully understand it. Right? There’s a lot of crooks out. There is a lot of people that will kind of fool people into lending money on a certain project that really does not have any stability or any way of really paying the investor back. Um, it looks great on paper, but there’s a lot of snakes out there that can pretty up a package and set these unrealistic expectations of how you’re going to get paid your money back when you’re going to get paid your money back, and it just ends up not working out. You know? And so the everyday person that doesn’t have a full understanding of the way these deals work, they’re placing their money hoping for the best and end up losing their money. Well, that’s where the SCC comes in. They’re not going to allow things like that. Guys like me that go on a podcast and talk about how great our opportunities are, how great the market analysis, you know, the everyday person might just say, Hey John, sounds like he knows what he’s talking about here. Let me give you 100k, John. The SEC wants to make sure that you’re accredited in order to do so. And we’re gonna get into what accredited means here shortly, but I just kinda wanted to lay the groundwork for this and talk about our opportunities and why you must be accredited to get in on our opportunities and what accredited investors. So what qualifies an accredited investor. We’re going to get into that shortly, but first, let’s take a quick commercial break. When we come back, we’re going to talk about the qualification. 

And welcome back to the Real Estate Cowboys podcast. I’m your host John Larson. This week we are talking about accredited investors, how to become accredited, what qualifies an accredited investor. So we’re going to get it right into that right now. So the SEC provides guidelines that determine who would be an accredited investor in Section 501 Regulation D. Those guidelines state that you have to meet the following criteria. So you must have a net worth exceeding one million either individually or with your spouse, not including your primary residence. If you hit that add line there, then you are considered accredited in the eyes of the SEC and can become a part of our private placement deals. Our debt syndications here at American Real Estate Investments. Another way is you have earned income exceeding $200,000 in both of the previous two years or earned income exceeding $300,000 in both of your previous two years as a married couple. The individual or couple must also demonstrate the likelihood of maintaining that income threshold for the current year. Also, you would need to have met this income in the same way for all three years either as an individual or as a couple. It cannot be calculated one year as an individual and then the next two years as a couple. The idea here is that an individual or a couple who has that kind of income have enough resources to recover from some losses and have the financial savvy to understand more complex investment transactions. 

So that’s what the SEC is trying to do here. Number one, they want to make sure that you have the wherewithal to understand these deals, these larger deals, and they want to also make sure that if you were to lose $100,000, it’s not going to completely, you know, just devastate you from a financial aspect. That’s, so that’s the main thing there and I can completely understand that. And uh, so that’s why we structure our deals as Securities Reg D filings and that’s why we are also using the 506c rule to where you know, you must be accredited in order to get a part of our deals because of the fact that we are publicly soliciting them and in the eyes of the SEC, guys like myself and others who are out there publicly soliciting opportunities, Grant Cardone’s, so on and so forth. You know, you see these websites, Crowd Street and a lot of other areas or avenues to where you can invest money as a private placement, become a debt syndicator become a lender. You must be accredited to do so if it’s a public solicitation. 

So totally understand that there. And that’s why we wanted to have this podcast this week, because we have had some investors come to us and say, no, I’m not accredited. What is accredited even mean? And then we find out they are accredited or investors that just say, I don’t know if I’m accredited, I think I am. And after having a conversation with them and then talking with the CPA, we find out that the investor is accredited. Okay. So how do you become an accredited investor? It’s pretty simple. You have to meet one of those qualifications that I just mentioned. You know the best way to do it is to make sure that you’re investing your money wisely, work hard, get yourself in a financial position where you’re making $200,000 a year or you know you have a net worth exceeding a million dollars outside of your primary residence. We cannot include your primary residence with this. 

And so that’s the best way to do it. Like I said, there’s no certificates or governing authority that’s going to issue a sealed document to your accredited investor status. You basically just need to be able to hit one of the qualifications that I just mentioned and you know, have an understanding of these larger deals and how they work and things of that nature. So that’s what’s going to get you to that accredited status that a lot of our investors are looking for to get into our debt syndications, which are just really, really solid offerings. 

You know, we’re in the right markets. I think, you know, even with the CBD industry, if anyone does any research on what’s going on in the CBD industry and the passing of the Farm Bill back in December, how that has changed the landscape of the U.S. When it comes to this CBD oil that can go into many different products and are going to continue to go in more and more products due to the fact that just more and more research is coming out that CBD helps with so many things; anxiety, pain, you know. And just think, just the general population that has anxiety and CBD is proven to help with that. That in itself is just a huge, huge, huge market share. So there’s a lot of opportunities with real estate and CBD as well. If you own land, farmable land, the passing of the Farm Bill has allowed farmers to grow hemp all over the U.S. Or anywhere that it makes sense to grow hemp. If you own industrial space or a building that can be zoned for one of these facilities to extract CBD oil from hemp or isolate CBD oil to then sell to these companies that are putting the isolate in different various products. There’s an opportunity to sell your buildings to these companies and I just expect more and more companies to dive into this industry now that it has been passed by the Farm Bill and has become legal in all 50 states. It’s not a banned substance and it is helping people. 

So you’re going to see some very large corporations get in and at that point that’s gonna be tough for us little guys to get in and make money on this growing trend. Like I said, it is becoming a, it is forecast is to become a $22,000,000,000 industry in the next three years. So that just goes to show how much opportunity there is with this business. And so for my accredited investors out there that want to get involved on our debt syndications moving forward and possibly this debt syndication at 12 percent for 18 months, just contact us RealEstateCowboysDFW.com, or go to our other website, American Real Estate investments website, AREIUSA.com. We’ll have the PPM available for you shortly. We just locked the building under contract up there. That’ll work perfect for our business and what we plan on doing in the CBD industry. 

Very, very excited about it and very, very excited about this opportunity for our investors because this is the greatest return that we’ve offered on a private placement deal thus far. All of our other previous opportunities have been 10 and a half percent. So this one’s going to be 12 percent. So really excited to get my investors involved in this deal. I think the total raise is going to end up being somewhere around 5 million. The first phase though, we’ll probably be about 3 to 3.5. So as long as you get in on that first deal and we just raised 3.5 million, we did that in less than 60 days and there were some investors that we had to turn away because you can’t over promote these deals. We’re trying to move them over into our new offering, just waiting for the PPM to be developed. 

But also another great thing that we’re doing on our private placement deals moving forward is we’re going to let your interest accrue while it sits in escrow. So a lot of times we have investors that say, oh well, I want to put my money in on the deal, but I’m one of the first guys to come in. And how long is it going to take you to raise the capital? Well, there’s no need to worry for that anymore because typically what we’ve found is we can raise for these deals within 60 days. And so you know, so if you’re the first guy that comes in, your money might be sitting idle, not working for you for 60 days. Well, I’m changing that for you. So if, let’s say you’re the first guy to put the first $100,000 in the deal at $100,000 is going to start accruing interest the second it hits our escrow account at our title company that holds the funds and so that’s great, right? Right when you place the funds, it’s going to start accruing at 12 percent. So when we go to close on the deal, you’re going to receive a lump sum payment at closing and then 30 days after close you’ll start receiving your monthly dividends just like everyone else. Right? That’s another really awesome, awesome feature that we’ve added for our private placement syndication opportunities. So like I said, if you’re interested in RealEstateCowboysDFW.com, or AREIUSA.com, put your information in and we will reach out to you. 

So last thing, what is included in the screening process? So to become an accredited investor and be eligible to review a private placement memorandum, you may be asked to provide the following things. Some groups may ask for financial records from banks or other financial institutions. They may ask for a credit report, tax returns, W-2s. You may also be asked to confirm verbally that you qualify as an accredited investor. No two companies have the same screening process, but these are just some things that you might want to have handy if you want to get involved in a private placement deal or a deal where you must be accredited. You may be asked to provide some documentation to prove that. What do you do if you don’t meet the minimum qualifications? Well, just remember that almost no one meets minimum qualifications from birth, right? You move into becoming an accredited investor by making profitable investments in growing your net worth or earning more. So, just because you’re not an accredited investor now does not mean that you can’t become one in the future. In the meantime, there are plenty of other ways to invest in real estate that don’t require you being accredited. Just like building a single family rental portfolio. You don’t have to be accredited to do that. And we also help investors with that. Here at American Real Estate Investments. On our Belize side, the investors on Belize. You must be accredited to invest in our Belize opportunities. So, but pretty much everybody who invests in those are an accredited investor. The minimum investment is $150,000 on those deals. So with Belize and with our debt syndications, you must be accredited. If you want to build a single family rental portfolio, you do not need to be accredited to do that. Um, but pretty much any type of debt syndication, you’re going to need to be an accredited investor. Unless it’s six or less people on the notes, um, if no money’s crossing state lines, you can get around it, things like that. 

But in most cases, for these big raises, everyone who’s involved, they are accredited, investors. So if you like what you heard on this podcast, if you are an accredited investor and you’re ready to move forward, get your money working for you passively at 12 percent for the next 18 months and are interested in our next private placement opportunity debt syndication up in Denver, Colorado. And you’ve done some research on CBD and you can see how it’s a booming business with the passing of the Farm Bill in December. Any sophisticated investor I think can do a little research on Google and discover that this is a huge, huge opportunity. Visit our websites, like I said, Real Estate Cowboys website AREIUSA website. Get in contact with our team and we can get you the information over that’s needed to get you into this next deal. 

Really looking forward to hearing from you all there. And I hope you found this podcast very insightful in terms of how to become an accredited investor. If you’d like to hear past episodes, you can find all those on RealEstateCowboysDFW.com. They’re all housed there. If you’d like to just get my book and basically process a lot of the information that we talk about on the podcast in a 50-page book, quick, easy to read book, you can buy my book Passive Income Guide: What Is Your Return on Life, on Amazon or from our websites. And so that’s all that we have for this week. We’ll see you again next week. Really excited about closing on our office building here this week. We’re closing this Wednesday on our office building up in Carrollton. And I’m excited for my investors to start earning 10 and a half percent on their money starting this Wednesday. So really, really excited with how our debt syndications have been taking off. We’ve raised over $8 million dollars since basically June of last year. So really excited on how this is taking off. That’s all I have for this week. So for all of you out there, always remember what’s your return on life? I’ll see you next week. Have a great week everyone. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.