What is an Accredited Investor and How To Become One? - 135

The Option Genius Podcast: Options Trading For Income and Growth

What is an accredited investor? How do I become one? And why do I want to become one? It's a great question. So let's talk about the why before we get into what it is and how you become one. So as you know, you know, we talk a lot about trading, we talk a lot about passive trading, investing in the stock market selling options. But the goal, the long term goal is to not be a trader.

It doesn't make sense, right? Like, what are you talking about, the goal is not for you to be a trader for the rest of your life, unless you want to, right? Now, if you look at the passive trading manifesto, and the goals of passive trading, there are three freedoms that we're trying to accomplish. Financial freedom, time, freedom, and choice, freedom. And choice freedom gives you the choice of doing what you want, when you want. And if that means that you don't want to trade, then you don't have to trade. Right? Now, if you do decide to continue to trade because you want to, then that is perfectly fine. That's your choice and more power to you. But if you don't want to, then you shouldn't have to. So that's where this accredited investor comes in. Because the point is, for us to increase not only our monthly income, basically, you know, the more income you have coming in, when you have money coming in, that pays for all your bills, you can essentially retire and you have financial freedom. But we need to also increase our net worth, so that we can have other opportunities to investing, where we don't have to be active or you don't have to be trading, even though it's called passive trading, you're still doing it. Right?

Now, it's a lot less active than day trading, or stock trading or any of that stuff. But you still have to still do something. There's nothing totally, totally passive, even, you know, regular passive investing is still takes time and energy and learning and all that other stuff, stress, a lot of it. But that comes with the territory. So the goal as the way I see it, and the way I'm trying to live it and I try to teach it to my students, is that we want to use trading as a very safe, but very quick way to get us to first financial independence, where we have enough money coming in from our assets that pay for all of our expenses. Once you get there, then you are not beholden to a job, then you're not both beholden to the economy, your recession doesn't matter, right? Because you have enough money coming in, you have a skill, you can go into the market, and you can extract money, at will. And that's what we teach. That's what passive trading is all about. But once you get to that point, you want to keep going further, and you want to become what's called accredited investor. So what is that? Well, an accredited investor, according the SEC, is someone who has either $1 million in net worth, not including their house. So if you're a millionaire, and you don't count your house, you're an accredited investor officially. Or the other thing is, the other criteria is that you've made if you're by yourself, you've made $200,000 In the last two years, and you're going to keep doing that. So your income is over $200,000 a year by yourself, or if you're married, it has to be 300,000 for the both of you over the last two years, and going into the future.

Now, look at the numbers. If you're making $300,000 a year, and you're not worth a million dollars, that's a problem, you should probably work on that first before talking about whatever we're doing here, right, your your expenses are way too high, you need to worry about that, first get your debt down or get your build on or whatever it is. And then you know, get to that million dollar net worth requirement. Now again, we're not counting our primary residence. So if you have a business, if you have other properties, if you have cars, you've shoved jewelry, if you have notes or anything that you have anything valuable antiques, all that stuff counts in this million dollar net worth criteria, and it's basically up to you, you know, so if you think something is worth $100,000, even if you can't sell it, but it's still worth 100,000 You can't be crazy about it. You can't say well, you know this pen, I want a million dollars for this pen. No, that's not real, right. Not realistic. But if you have something that's illiquid, something that is valuable but illiquid, maybe it's like a baseball card collection or antiques or something like that, that you know, is worth money but only to the right buyer.

You can still qualify that as an asset. Now why do we want to do this because there are certain investments that are only open to you if you are an accredited or above investor. So there's that accredited investor list and I are the criteria that I told you about. And then there's also a couple other criteria above that one is called qualified. The both of them are called qualified. They're called different things. But the step above accredited is 2.1 million in net worth. And then after that, it's 5 million in net worth. So first, go for the accredited, that's the goal, then 2.1, and then 5. Okay, once you get there, a lot more things open up to you. So if you want to invest in private placements, or in real estate deals, or in syndications, you have to be, in most cases, at least an accredited investor. Now, the reason you want to do that is because these investments, while they don't make as much money as we can, trading passively, it still is a passive investment. So you're not having to do any work. Right? So, for example, I was looking at a investment recently, that is a real estate development, basically, this guy wants to create or build 200 apartments, and he needs the money for the down payment, the rest he is going to get from the loan. But he's got a construction company that plans to get the land, he's got everything ready to go. But he needs investors to come in and bring in a certain amount of money for those investors, he's going to pay them a piece of the whole deal based on his projections of what it's going to cost. And by the time it's built, what's his going to be able to sell for what is going to be worth then if they refinance, it should be about a 20 - 25% yearly return on the money. So you'll make sure if it's like a three year deal, you make 25% 25% 25%. If it's a four year deal, you'll make your money back. So whatever your money you put in, you get it back now, if you're not accredited, you can't get in the deal. Right? So that's why we want to get to be accredited. And for me, yes, I could put more money into my trading more money into the stock market. But at a certain point, when you already have seven figure plus accounts, you kind of feel like you know what, maybe I don't want to put more money in the stock market right now. Right? If all if the market is going crazy, and everything's going up, then yeah, you can go put it all in there. But in a time, like we have going on right now, you know, in mid 2022, markets are down, Fed is raising rates recession here, not here coming, who knows. But things are more up to down Z for the stock market.

So yeah, I'd like to be in diversify into something else where I don't have to worry about it, it's not up to me, and I have to do any work, that money should be coming in. And of course, I have to stay on top of it, do my research, and all that stuff. So it's not completely passive. But it's more passive than me trading. So that's why I encourage all of you to become accredited investors. Now, in order to do that, sometimes, depending on the fund or the investment that you're going into, you know, there's no one place where you go and they give you a certificate or anything, it's not like that. But depending on the investment, you might have to bring a letter from your CPA, or your financial advisor or whatever, yeah, this guy's got over a million in assets. In some cases, you might be able to sell, verify. So they just ask you a question like, Hey, are you accredited? Yes or no, you click the box, and you're good. And they don't ask any more questions. So depending on type of fund regulations, and all that, we'll be able to tell if you need to self verify, or if you need an outside person to do it, because it's more painful. A lot of CPAs don't want to do it. Financial Planners don't want to do it. So more and more people are going to the self verification route, or, you know, if you have just one large account or whatever that has the money in it, you show the money, like there's my statement, boom, done. So that is what an accredited investor is. That is why you want to be one. Now, how do you become one? Well, if you're not one already, you know, it's very simple. Cut down on your debt and make as much as you can.

And if you're having, like, if you can invest in yourself, you can get into you know, get a better certificate or something of learning some some specific skill that you can specialize in, you'll make more money at your job. If you can't do that, then passive trading will get you there eventually, depending on how much you have to start with and what strategies you use. So that's you know, the passive trading is the vehicle to get you to financial independence that's the first stop and then after that, it's like "Okay, now let's keep building a nest egg let's keep making more and more Grow, grow grow the pie", so that we can get to accredited investor, which is 1 million in net worth. And then that's when you can think about okay, let me diversify. Let me put some money in a crypto fund if you want to, even though you can't do it without being accredited, even though you because it's me more risky, right? So that's why they have these restrictions, these things are for sophisticated investors, and you could lose all your money. But you could do that even in the stock market, but whatever the government does, and so, you know, maybe you want to be in a fund that, like I said, builds apartments, or owns a commercial shopping center, or owns a mobile home park, or anything like that, where you know, you have other incomes coming in. So remember back to, I think it's like episode number two of the podcast, which is the five finger income theory where you got to have five sources of income. So this could be, you know, once you get to that accredited status, you could set up your investments in different funds in different parts of the country where that money is coming in. So it's a little bit spread out a little bit diversified. So I don't think you need to do it right away. Because most of these funds, they do require, you know, maybe 50,000 100,000 is average, but 100,000 requirement, you know, to invest in the Fund, some are more I've seen, some that are like 250,000, for an investment.

So depending on the fund, depending on the risk, all that has worked to play, but you got to put in a substantial amount in to invest in it, sometimes you start getting money back, within six months, sometimes like the development deal. If I invest in it, I won't see any money until the thing is built three years later, or they'll probably build it out slowly and start renting them out as fast as they can. But we're still looking at about a year and a half, without any return any money coming back. Right. So you have to be in it for a little bit longer term. So that's it, that's an accredited investor, again, just to be sure, you got to have a net worth of a million dollars, not counting your house, that's for married people, as well as individual people. And then if you are going for the income route, you gotta be making separately individually at least 200,000 For the last two years, and got to be able to know that you're going to do it forward. Or if it's with a spouse, it's 300,000 for the last two years income and the same this year and going forward. So that is an accredited investor qualified, you know, it's 2.1. Basically, that's it, you just have to have a net worth of 2.1, not counting your house, that would be the next step. And then that will allow you to even more broader categories, certain funds that you can't get into as accredited, you have to be qualified. So that's a higher bar. And then there's another one after that, which is even higher bar 5 million. At that point, you can basically invest in anything you want. But that's what that is. And hopefully we can help you get there.

If you have any questions, please always email us [e-mail]. And whatever we can do to help you get to that accredited investor status, some of you are already there, if you are there, and you are looking to diversify, and if you do want to say, hey, what other things can I invest in, I am always looking at stuff. And so I've put together a list of people that are also interested, and we'll share the deals with them. So when I find something that I like, you know, like, Hey, this is a really good deal.

This is a good return, the fee structure is great. And there's not a lot of risk here. The operator is good, you know, is vetted. I do all that research for myself anyway. So I can just share that information with you. If you're interested, you know, email us [e-mail] and and we will get you some information. Just tell us what you want to invest in and then we'll we'll be able to separate it out and let you know or you can go to I believe it's optiongenius.com/passiveincome. And there's a form there, you can just fill it out, tell us what you want to invest in, and we can send you the right information. So again, that's optiongenius.com/passiveincome or just email us or just reach out to us and we'll get you on the list. But we need to find out a little bit more of what you want to invest in. Okay, so there we go. That is accredited investor and we will see you later. Take care and trade with the odds in your favor.

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