Private Lending - What is a "Accredited Investor" and Do I Need One For a Private Lender Program

Many of my students ask if they "must use" an accredited investor when borrowing money to purchase real estate investments through a Private Lender. The answer involves two issues. First, what is an "Accredited Investor"? Second, am I required to use an accredited investor for my Private Lending Program? This article is Part 1 of 2.

Under the Securities Act of 1933 (the Act"), a company or person that sells securities must register those securities with the SEC or find an exemption from the registration requirements. The Act provides companies or persons with a number of exemptions including rules 505 and 506 of Regulation D where a company or person may sell securities to what are know as "Accredited Investor".

The federal securities laws define the term "Accredited Investor" in Rule 501 of Regulation D as follows:

  1. A person with a net worth, or joint net worth with the person's spouse, that is over one million dollars ($1,000,000 ) at the time of the purchase; or
  2. A person with annual income over $200,000 in each of the two most recent years or joint income with a spouse over $300,000 for those years and a reasonable expectation of the same income level in the current year.

For most people doing private lending with individuals, and not companies, need to determine if the person they are talking with is an "accredited investor" as defined above. If the person is an accredited investor and a resident of the same state as the investor, it may qualify as an exempt transaction and the investor will NOT have to register with the federal or state SEC.

At an open meeting on December 13, 2006, the SEC voted to propose a change to the definition of "accredited investor" to a natural person who owns not less than $2.5 million in investments. I am not certain if or when this might be adopted but as today it is not approved.

I invite you to learn more about Private Lending and get my new FREE 20-page ebook titled "Discover the Secrets of How to Fund Your Real Estate Deals with Private Lenders!" by clicking here http://realestatewealthtoday.com/FREE-eBook.html

Mike Lautensack is a full-time real estate entrepreneur in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE Real Estate Wealth Newsletter go to Private Lending Presentation Kit.

Download your FREE eBook titled "Discover the Secrets of How to Fund Your Real Estate Deals with Private Lenders"  and learn how to fund your real estate deals with Private Lenders!

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