There are many benefits to investing in commercial real estate. So it makes sense that accredited investors would look to it to help diversify their investment portfolio.
There are many types of commercial real estate investments to choose from in 2022, but what are the best ones available for accredited investors?
We’ll look at what is required to be an accredited investor in 2022 and the five best real estate investment options for them.
Related: The State of Multi-Family Real Estate Investments in 2022
Who is an Accredited Investor?
An accredited investor is a person or business entity permitted to participate in investments not registered with the U.S Securities and Exchange Commission.
Accredited Investor Requirements
An investor must meet several requirements to qualify as an accredited investor.
Accredited Investor Minimum Income and Net Worth
- Income greater than $200,000 for each of the past two years
- Net worth greater than $1,000,000
- Primary residence does not count toward an individual’s net worth
Marriage/Spousal Equivalent Accredited Investor Minimum Income and Net Worth
- Income greater than $300,000 for each of the past two years
- Net worth greater than $1,000,000
- Primary residence does not count toward a couple’s net worth
Holding a Series 7, Series 65, or Series 82 License
Since August 2020, the SEC has amended the rules so that you can be considered an accredited investor if you hold a Series 7, Series 65, or Series 82 investment license.
Being a “Knowledgeable Employee” of a Private Fund
Executives, directors, board members, and general partners of private funds can also be eligible for consideration as accredited investors.
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Why Invest in Real Estate?
Real estate investment is a fantastic way for accredited investors to diversify their portfolios and frequently earn higher-than-average returns.
Benefits of Investing in Real Estate
- Ability to earn passive income
- Safer investment as it is secured by the real estate property, the asset itself
- Multiple tax breaks for real estate investors
- Diversification of your financial investment portfolio
- Access to loans to make investments
5 Best Real Estate Investment Options in 2022 for Accredited Investors
Let’s look at some of the best real estate investment options that are available to accredited investors in 2022.
Real Estate Crowdfunding
Real estate crowdfunding allows accredited investors to pool their money online with others to purchase properties or shares of properties. The opportunities can arise in both commercial or residential projects.
Benefits of Real Estate Crowdfunding
- Access to new or exclusive real estate projects
- Chance to diversify investment portfolio holdings and assets
- Access to commercial real estate without having to provide maintenance and upkeep
- Easy way to start investing real estate online.
Real Estate Syndication
Real estate syndication is when many investors pool their capital together to purchase a large, typically commercial, real estate property.
There are two principal players in real estate syndication investments: syndicators and passive investors (limited partners or LPs).
Real Estate Syndicators
Real estate syndicators, sometimes called general partners (GPs) or sponsors, are responsible for everything from discovering the property to structuring and organizing the transaction. In addition, they manage the operation of the property after the deal closes.
Passive Real Estate Investor
The role of the passive real estate investor in a real estate syndication deal – usually called an investor, limited partner or LP – is to provide a share of the equity capital needed to acquire the property. In return, the passive investor receives ownership shares of the property or investment vehicle.
Benefits of Investing in Real Estate Syndication
- Monthly or quarterly passive income distributions
- Investing in real estate without dealing with managing properties
- Tax benefits passed down through K-1 tax filings
- Real Estate Appreciation
Related: As Stock Markets Devalue, Real Estate Stands as a Safer Investment Track
REITs
Real estate investment trusts (REITs) are companies that own or finance income-producing real estate holdings across a wide array of property sectors. These sectors include residential, retail, and office properties.
REITs are modeled after mutual funds and have historically provided accredited investors with diversification, long-term capital appreciation, and regular income streams.
While most REITs are traded on major stock exchanges (and thus available to both accredited investors and the general public), private and public non-listed REITs exist. The two main types of REITs are mortgage and equity REITs.
Different Types of REITs
- Mortgage REITs (mREITs) help provide financing for income-producing real estate by originating or purchasing mortgages and mortgage-backed securities and then earning income from the interest of these investments.
- Equity REITs are companies that operate or own income-producing real estate.
Benefits of Investing in REITs
- Competitive long-term capital appreciation
- Shares of publicly traded REITs on major stock exchanges provide liquidity
- Stable, substantial dividend yields in varying market conditions
- REITs offer an effective hedge against inflation as many can raise rents in tandem with rises in inflation
Private Equity Real Estate
Private equity real estate involves a firm pooling capital from outside investors and then using that capital to buy and develop properties for a short time before selling them.
Private equity real estate is typically only available to accredited or institutional investors. Some firms require a minimum investment from each investor to participate.
Differences Between Private Equity Funds and REITs
While private equity funds sound similar to REITs, there are some critical differences an accredited investor should be aware of between the two vehicles.
Publicly traded REITs are highly liquid, while private equity funds often have holding periods that can tie up capital for several years before being released. REITs are also highly regulated and monitored, and private equity funds don’t face the same strict requirements and level of oversight.
Benefits of Private Equity Funds
- Leverage the tools of a private equity commercial real estate firm to find the most profitable investment opportunities.
- Private equity real estate provides diversification to investors due to its low correlation with publicly traded securities.
- Working with private equity commercial real estate firms still saves time from having to identify, acquire, and manage investment properties.
Secondary Trading in Real Estate Investments – SecondRE
Many primary real estate investments might even be out of their financial reach for accredited investors. The SecondRE marketplace provides accredited investors access to secondary opportunities to buy fractions of cash-generating commercial and residential real estate properties at affordable prices.
In addition, accredited investors looking for liquidity can sell fractions of shares they currently own in properties at an agreed to price, with the sponsor’s blessing.
The SecondRE marketplace allows accredited investors to buy and sell holdings to provide them with liquidity and the opportunity to invest in secondary real estate markets.
Are you ready to gain access to the SecondRE Marketplace? Click Here to Create an Account and Get Started Today!
Accredited Investors Are Turning to Secondary Trading in Real Estate Investments in 2022
Accredited investors have to meet strict criteria to be eligible to access investments not available to the general public.
Year after year, real estate investing has some of the highest returns. It is one of the best-performing asset classes available to accredited investors.
The five best real estate options in 2022 for accredited investors crowdfunding, syndication, REITs, private equity, and secondary trading all offer tremendous upside.
However, only publicly-traded REITs and secondary trading in real estate investment, like the SecondRE Marketplace, can give accredited investors liquidity in their current holdings. If liquidity is an important factor for you, take this under consideration.
Related: What is “Liquidity” in Real Estate and When is it Needed?
