Recent proposed congressional changes to investor accreditation laws promise to leave a long-term mark on the commercial real estate landscape.
Previously, only achievable by having a net income of over $1 million or more than $200,000 in annual net earned income during the last two years, the new proposal from the House of Representatives will allow investors to achieve accreditation status by passing a test that proves their “financial savvy.”
The test, which would be administered by FINRA, would be provided free of charge and would assess the individual's competency and knowledge of the private market. It would also address topics like various securities both public and private, corporate governance and risks associated with private assets, like limited liquidity and different disclosure rules.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
At the heart of these changes is the aim to democratize investment opportunities to the mainstream by lowering barriers to entry for individuals to invest their capital, thereby potentially altering the dynamics of real estate funding. But what are the realities behind these alterations? Ultimately, this should positively influence the securities space so long as new investors are prudent as they assess real estate offerings if they become more mainstream.
Expanding the investor pool
Currently, accredited investors are qualified with more than $200,000 in earned income per year individually, $300,000 per couple or $1 million in net worth. This approach primarily limits real estate investment opportunities to institutional investors or high-net-worth individuals.
With the relaxation of these criteria, a broader spectrum of investors would be eligible to participate in various real estate ventures, significantly expanding the capital pool available for developers and real estate companies and, in turn, providing investors with an additional source of diversification for their assets.
Boosting crowdfunding platforms
The rise of real estate crowdfunding platforms has been remarkable in the past decade. However, their growth was somewhat stifled by stringent accreditation laws. With eased regulations, these platforms could witness an influx of investors. This would not only provide more investment opportunities but also support smaller, innovative real estate projects that might have been overlooked by larger institutional investors.
More investors means more development in the long term, because it means more capital is making its way into the real estate industry. This would offer investors more project diversification and opportunities to participate in the real estate space.
Enhanced project diversification
With more investors in the mix, developers and real estate entrepreneurs will have the flexibility to explore a variety of projects. They won't be pigeonholed into catering exclusively to the whims and risk appetites of a select few. This means the market and investors may see a broader range of projects, from affordable housing and green buildings to tech-integrated commercial spaces.
For example, at 1031 Crowdfunding, we offer a diverse group of projects in spaces like senior housing, multifamily and medical facilities that provide investors with real estate stratification of investments.
The potential relaxation of investor accreditation laws represents a pivotal moment for the real estate industry. By democratizing access, enhancing the robustness of the investment environment and encouraging a broader range of projects, these changes would herald a new era for real estate development and investment.
As with all reforms, careful oversight and ongoing evaluation will be necessary, but the initial indicators point toward a promising future for the industry.
If you’re interested in learning more about this and other potential legislation affecting real estate securities, check out our website.
Related Content
-
Baby Boomers vs Gen X: Who Spends More?Baby Boomers and Gen X are guilty of spending a lot of money. Here's a look at where their money goes.
-
Retire in Finland and Live the Nordic DreamHere's how to retire in Finland as a US retiree. It's ideal for those who value natural beauty, low crime and good healthcare.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or RelocateHomeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and FriendsWhat starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
-
What the HECM? Combine It With a QLAC and See What HappensCombining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
721 UPREIT DSTs: Real Estate Investing Expert Explores the Hidden RisksPotential investors need to understand the crucial distinction between a REIT's option to buy a Delaware statutory trust's property and its obligation.
-
I'm an Insurance Expert: Yes, You Need Life Insurance Even if the Kids Are Grown and the House Is Paid OffLife insurance isn't about you. It's about providing for loved ones and covering expenses after you're gone. Here are five key reasons to have it.
-
My Professional Advice: When It Comes to Money, You Do YouThis is how embracing the 'letting others be' and 'learning to surrender' mindsets can improve your relationship with money.
-
Direct Indexing Expert Explains How It Can Be a Smarter Way to InvestDirect indexing provides a more efficient approach to investing that can boost after-tax returns, but is it right for you?
