Quick note: Anthony requested this episode be titled “Would An Investor, By Any Other Name, Smell As Sweet?”… Dan requested that not be the title…
We’ve talked about accredited vs non-accredited before, but we have some new context in this episode. There’s been some recent grumbling over at the SEC that could seriously change the game.
In today’s episode, Anthony and Dan will discuss Gary Gensler, Chair of the SEC, and his new idea for the definition of an accredited investor.
We’re not sure the likelihood of this passing, but this new definition would have the net-worth requirement increase by 10x. That’s right… the new net-worth requirement would then be $10 million.
So listen in as we break this news down, and put it into context when it comes to being accredited vs non-accredited.
All of this, and more, on another episode of Multifamily Investing Made Simple.
“I’m your host, Anthony Bubba Gump Vicino joined as always by Dan.” – Anthony Vicino
“I can’t point to any issues that would be solved, only reduced opportunities for people, which seems completely counterintuitive.” – Dan Krueger
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Anthony Vicino: [00:00:13] Hello. Oh, to the family and Best Made Simple podcast, it’s all about taking the complexity out of real estate investing so you can take action today. I’m your host, Anthony Bubba Gump Vicino joined as always by Dan. Who am I? Partnered with?
Dan Krueger: [00:00:27] Krueger frustrated because just jumbled like eight. Really bad.
Anthony Vicino: [00:00:32] Where am I coming from? Where am I from? I don’t know. Nobody does.
Dan Krueger: [00:00:36] We have fun. I don’t know where to go from here.
Anthony Vicino: [00:00:38] And you know, I appreciate everybody that’s listening to this. That has not tuned out already after 30 seconds. So thank you for being here. We’re going to we’re definitely going to make this worth your time as we are bringing some breaking news for warning nothing has happened, but this is breaking news. The title of this episode, I don’t know what we named it, but I would like to name it something to the effect of would an investor by any other name smell as sweet?
Dan Krueger: [00:01:09] That is not going to help people understand what they does about.
Anthony Vicino: [00:01:12] Ok, so maybe you want to explain? Sure. Ok. Break it down.
Dan Krueger: [00:01:16] Accredited versus non-accredited. What does that mean?
Anthony Vicino: [00:01:18] Good question.
Dan Krueger: [00:01:19] Yeah, yeah. Well, I think the impetus for this was, I mean, we talked about accredited and non accredited before in other content. So this isn’t really new. But I guess the context here is there’s there’s some rumblings of some potential changes to the accredited investor definition.
Anthony Vicino: [00:01:34] Our boy, Gary Gensler over at the FCC, put open some, some new, some new ideas he’s like positive for not good. Good. So before we tell you the news, before we tell you what’s happening there and this is probably going to affect you just so you know, so keep listening, don’t you, now? Let’s just break down real quick. What is an accredited investor versus non-accredited? Let’s not presume that everybody knows the difference. Yeah, because in fairness, I didn’t know for like 30 years of my life.
Dan Krueger: [00:02:02] Yeah, it didn’t matter for 30 years of your life, I don’t think. I mean, but yeah, accredited investors now somebody might notice, is if you’re out there looking to invest in real estate passively, you’re looking at different syndicators. You might notice that some deals take accredited investors only and some will take non accredited and accredited. So the first question I have is what the heck is an accredited investor? Am I one of those? There’s a few key boxes that you’ll need to check to be an accredited investor. Or I should say you just need to check one of a few potential key boxes. One is the net worth requirement. So if you have a net worth of a million dollars or more, not including your primary residence, that’s a big one. Because most people in America equate most of their net worth to their home they live in doesn’t count. Yeah, it doesn’t count. So back that house out, so you’ve got to
Anthony Vicino: [00:02:50] Have a good style of it. Okay, that’s great. You got that. I’m a child, I can tell.
Dan Krueger: [00:02:57] So it’s Friday. We’re not focused. So if you’ve got a net worth of a million dollars or more, not including your primary residence or you’ve got an annual income for the last two years of two hundred thousand dollars or more. If you’re single and if you’re married, I’ll screw this up as a two five three three three three. And if you’re married three hundred thousand for the last two years, so you can check one of those boxes or all of them. But if you’ve got to have at least one of those, check to be an accredited investor, and that’s the entry ticket. Now, in most deals that only allow current investors, they do require a third party firm to verify that. So you can’t just check the box and hope no one actually checks because we’ll be verified.
Anthony Vicino: [00:03:35] So yeah, and here’s OK. So here’s the thing let’s understand. We know what the difference is now, and there’s not a test that you have to take and you don’t qualify. Why? Why is there this difference between accredited and non-accredited like this is really important to understand, like the SEC, at its core, the goal is to protect investors from themselves, I guess, or from nefarious operators, allegedly? Allegedly, I’m going to break this down because I call B.S. and I don’t often call B.S. on things, but this one just really annoys me. So the idea is that if you’re worth a certain amount of money or you’re making a certain amount of money you’re financially savvy enough to be able to make decisions about what to do with your money, and you can go invest it in whatever you can, invest it in startups or in real estate private placements. And nobody cares, right? Because you’re making good money. So good for you, right? But if you somehow don’t have a high net worth or you’re not making $200000 a year, if you’re not in the top 10 percent of earners, that’s effectively what that puts you in, then you need to be protected from yourself because you can’t be trusted to invest your money so you can put it in stocks and bonds and all that stuff.
Anthony Vicino: [00:04:40] Cool. Don’t worry about that. But yeah, we don’t want you to put it into private placements unless they’re registered in a very particular way. And no, you can’t. Angel invest like so they’re trying to protect you from yourself. That’s the idea here. And I call BS on this because it falls apart. The argument falls apart because you are allowed to go to Vegas and invest all of your money in this. You get to invest it in the roulette wheel, but you cannot go and take that same life earnings and invest it into a solid cash generating asset or into Uber. Like, I guess maybe could do it with you right now, but like you couldn’t back 10 years ago, right? And that just annoys me. I’m like, OK, so if we’re really protecting ourselves, if we’re really protecting non-accredited investors, why are we not protecting them against all different avenues of themselves?
Dan Krueger: [00:05:27] Yeah, yeah. I mean, you look at the public markets, especially since twenty-twenty and the mad rush into the whole like, you know, meme stock thing with Robinhood. And like all these things and these, I don’t know if people really appreciate how much leverage is being used with some of these products. If you’re looking at options and futures and forex too, there’s so much leverage used in these things where somebody can go and throw a couple of thousand dollars into account and minuscule price move. That money’s gone immediately. That’s perfectly fine. You can go bungee jumping. That’s perfectly fine. You can do all sorts of things, but you can’t invest in the best investments out there because that’s dangerous. Yeah.
Anthony Vicino: [00:06:02] And that is the takeaway here is that generally, like accredited investors have access to the absolute best investment. It’s just how it is, yeah. Ok, so let’s put that aside now, like, I hate the distinction. I think it’s stupid. It doesn’t make sense. The argument for it falls apart, falls on its face, and now it’s going to get it’s not necessarily going to get worse. But Gary Gensler, what is I don’t think the likelihood of this passing is high. But then again, I also don’t have Gary Gensler on my speed dial, so I don’t know. He has proposed, I don’t know if it’s him or if just SEC. In general, the proposal is that the net worth requirement should 10x. So now, instead of having a $1 million net worth to qualify as an accredited investor, which is, I would think, the primary way most people end up actually qualifying, because if you live long enough and you accumulate enough assets like it’s not too hard to get over a million, all things told, he wants to increase that to 10 million, which is a big that’s a bigger hurdle to everybody.
Dan Krueger: [00:06:56] It is. My first question is, is there a problem? Yeah. Is this being abused? Like, is there? I mean, usually when things like this get changed, it’s because there’s some sort of fraud. There’s some sort of issue that needs to be addressed by regulation. So in this instance, I can’t point to any issues that would be solved. Yeah, only reduced opportunities for people, which seems completely counterintuitive. I think as a politician, you want your your the people who live in your country to do as well as possible.
Anthony Vicino: [00:07:27] But anything that takes those takes us away from like free market just kind of rubs me wrong or not even free market, but like lopsided market where it’s like more free for some people and not the others, just because of this arbitrary thing called wealth. Like it’s it gets me, guys, it gets me. So we’re going to keep you guys, we’ll keep you all posted as this kind of develops, who knows if it actually goes through or not? If you’re not accredited investor right now, maybe it doesn’t matter to you. If you’re accredited, you might lose. That status might matter to you.
Dan Krueger: [00:07:52] Good news is on our deals. We take non-accredited.
Anthony Vicino: [00:07:54] Yeah, we take non-credit so you can still come into our deals. It just means more hoops for us and limits how many people we can bring in. But hey, we love you, and I’ll be like full disclosure. It’s because we want our family members to participate, not just you like. So we’re kind of doing for selfish reasons. Yeah, so but here’s something else. This is all doom and gloom, and we kind of like, I was kind of pooh poohing a little bit on Gary. But Gensler has a free MIT course on bitcoin and cryptocurrencies from back in like twenty nineteen. It’s actually I. I’ve taken it. Let’s check that out. It’s it is a lot of great content. It’s about the history of money, hip, the history of crypto. It’s actually really fantastic.
Dan Krueger: [00:08:33] It’s free education who don’t know. You can sit in on virtual MIT classes, like for forces for free. It’s amazing, like you can see a full MIT course load without the piece of paper in the degree you get all the knowledge for
Anthony Vicino: [00:08:49] Free and you could do it. I think Stanford has a really robust one as well. And Harvard now. Yeah, so there’s there’s no there’s no obstacle to education anymore, so that’s not an excuse. So just if you’re trying to, you know, learn more stuff like. So it’s there, it’s free and it’s amazing.
Dan Krueger: [00:09:05] And if you want to be a sponsor, it might just hit us up
Anthony Vicino: [00:09:08] And we’re here for you guys. If you guys are hurting on money, we’ll, you know, I don’t even know what we do.
Dan Krueger: [00:09:12] Honestly, I would just pitch them every. I don’t have a problem pitching.
Anthony Vicino: [00:09:16] Yeah. So yeah, we get nothing out of this now. But Mitt, if you want to change, that will take you a stock and we’ll send more people to your free programs. So the weird business model got a very good value anyway. Eddie? Yeah. Anyhoo, hopefully you guys got some value out of this. If you did do us a favor, go leave a review. Share this with somebody that you love and somebody that you hate just to really stick it to them. I don’t. I love you guys. We’ll see in the next episode.