When looking into various investment opportunities, particularly those involving real estate crowdfunding, you may have encountered the term “accredited investor”. Some platforms prevent individuals from participating in particular projects unless they have achieved accredited investor status.
Below is some important information to know regarding how one qualifies as an accredited investor.
Accredited Investor Status Defined
Accredited investors are assumed to have specific knowledge and expertise, as well as the financial capability, to responsibly bear the potential risks of certain investments and absorb any potential losses. These investors are permitted to place their money into offerings that are offered under one of the registration exemptions allowed bythe SEC.
It is necessary to meet one of the following criteria in order to qualify as an accredited investor:
High Enough Income
You may qualify for accredited investor status if your yearly income exceeded $200,000 USD per year as an individual (or $300,000 USD per year with your spouse) for the previous two years, and if you have the expectation you will earn at least as much in the current year.
Sufficient Net Worth
You may also qualify as an accredited investor if your net worth exceeds $1 million USD (either alone or with your spouse), not including the monetary value of your primary residence and discounting all other liabilities.
Registered Investment Advisor or Broker
Individuals who can prove they have sufficient financial knowledge or job experience handling unregistered securities may be considered accredited investors.
A business entity with assets greater than $5 USD million may also be considered an accredited investor.
There are additional ways to obtain the designation and privileges of an accredited investor, but the three mentioned above cover the ways in which most qualify.
Becoming an Accredited Investor
If you want to become accredited, there is no official paperwork to complete and send to the SEC. Those who are selling the securities are the ones responsible for making sure you qualify for accredited investor status. Even though a government entity will not provide you with a certificate, you still need to establish your financial capability with the issuer of the securities.
Issuers may require you to answer some questions and provide documentation regarding your financial situation. You may have to provide the seller of securities with a letter verifying your net worth from a CPA or other financial statements. Many issuers use a third-party service to verify investors as accredited, which can provide them and their investors additional peace of mind.
