Accredited Investor Basics, Requirements and Benefits, Part 1

The common goal of all investors is increasing their profits and portfolio, and there are several strategies to help accomplish this. Included in these are attempted attainment of certain forms of status that actually hold major practical value in the investment world, and one of these is known as becoming an “accredited investor.”

At Fox Financial, we’re here to provide several real estate investment avenues for our clients, from property investment to forms of passive real estate investing, IRA investing and more. We’ve assisted many clients with reaching accredited investor status through our solutions, which generate fantastic returns for investors without major risk. This multi-part blog will go over precisely what an accredited investor is, the requirements to achieve this status, and how it benefits investors in both real estate and other fields.

accredited investor requirements benefits

Accredited Investor Basics

The term “accredited investor” actually comes from the rules and regulations of the Securities and Exchange Commission, or SEC. Specifically, Rule 501 of Regulation D is the section covering accredited investors.

Simply put, this refers to wealthier investors who have crossed a certain threshold. Accredited investors can legal buy securities and investments that are not registered by the SEC, unlike non-accredited investors – this wedges the door open for several other avenues of investment that others don’t get access to.

This year, the SEC added some language to their accredited investor sections allowing for certain investors to qualify simply based on knowledge, expertise or certifications rather than their income or net worth. However, these tend to only apply to those who work for private equity funds or investment banks, rather than outside investors.

Terminology

Before 2010, the term “qualified investor” would mean something different than accredited investor. It referred to situations where investors were allowed to include home equity in their net worth to meet requirements, with qualified investors not being allowed to do so.

In 2010, however, the Dodd-Frank Wall Street Reform and Protection Act was passed. This, among other things, eliminated home equity from the picture for investors claiming their net worth. This means that these terms now mean the same thing.

Requirements for Accreditation

There are two primary tests used to determine if an investor qualifies for accreditation. An investor must only pass one of these tests, not both. They are as follows:

  • A current net worth over $1 million, either on your own or jointly with a spouse – as we noted above, this cannot include your primary residence equity.
  • An annual income of at least $200,000 for each of the last two years, plus an expectation of similar income for the current year (in cases of joint income with a spouse, this number is $300,000 instead).

For more on becoming an accredited investor, or to learn about any of our real estate investment services, speak to the staff at Fox Financial today.

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