What Is an Accredited Investor?

An accredited investor is a person or entity that meets specific eligibility criteria under federal securities rules. For individuals, common routes include net worth exceeding $1 million, excluding the primary residence; qualifying annual income; or certain professional credentials held in good standing.

You do not need to meet both the income and net worth tests. Meeting one applicable qualification route can be sufficient. However, eligibility and the decision to invest are separate: qualifying does not establish that a particular investment fits your finances or goals.

Why does accredited investor status matter?

Many private offerings rely on exemptions from SEC registration that restrict who may invest. Accredited investor status helps determine whether you can participate in those offerings.

These opportunities can include private real estate funds and other private investments. Their disclosure requirements and liquidity can differ from publicly traded securities, so access comes with a need to evaluate the terms and risks carefully.

The SEC's accredited investor overview explains the main qualification categories. Status is an eligibility classification, not a rating of your investing ability or an endorsement of an offering.

How can an individual qualify?

The most common routes are:

• Net worth: More than $1 million individually or jointly with a spouse or spousal equivalent, excluding the primary residence under the applicable calculation rules.
• Individual income: More than $200,000 in each of the two most recent years, with a reasonable expectation of reaching the same income level in the current year.
• Joint income: More than $300,000 with a spouse or spousal equivalent in each of the two most recent years, with a reasonable expectation of reaching the same level in the current year.
• Professional credentials: A Series 7, Series 65, or Series 82 license held in good standing.

A spousal equivalent is a cohabitant occupying a relationship generally equivalent to that of a spouse. A job title or professional degree alone does not establish eligibility. For example, being a physician, engineer, or business owner does not automatically make someone accredited.

Other routes apply in particular circumstances, including certain directors, executive officers, or general partners of the issuer, and knowledgeable employees investing in the relevant private fund. These categories should be reviewed against the specific rules.

How does the net worth calculation work?

Net worth generally means assets minus liabilities. For this test, you exclude your primary residence as an asset. You generally also exclude debt secured by that residence up to its estimated fair market value, subject to exceptions.

Debt above the home's estimated value counts as a liability. Certain increases in home-secured borrowing during the 60 days before the securities purchase also count, except increases resulting from acquiring the residence.

For a simplified illustration, suppose your assets excluding your primary residence total $1.4 million and your counted liabilities total $250,000. Your resulting net worth is $1.15 million, above the threshold. This illustration does not determine anyone's eligibility; asset values and which liabilities count must be assessed under the rules.

Having $1 million of equity in your primary residence alone does not satisfy the test. Exactly $1 million of qualifying net worth also falls short because the requirement is to exceed that amount.

The SEC's accredited investor bulletin explains the calculation and provides examples.

Can a trust, LLC, or other entity qualify?

Yes, but the rules depend on the entity and the qualification route. Common examples include:

• Corporations, LLCs, and partnerships: More than $5 million in total assets, when not formed specifically to acquire the offered securities.
• Trusts: More than $5 million in total assets, not formed specifically for the offering, with the purchase directed by a person capable of evaluating its merits and risks.
• Entities with accredited owners: An entity in which all equity owners are accredited investors.
• Family offices: More than $5 million in assets under management, not formed specifically for the offering, with the investment directed by a person with the required knowledge and experience. Family clients must meet the applicable conditions.

Other institutional and entity categories exist. These examples are not a complete checklist. Creating an LLC or naming a trust as the investor does not, by itself, establish accredited status. Review the proposed ownership structure with your adviser against Rule 501(a) of Regulation D.

Do you need to apply, and how is status verified?

There is no general SEC application or certificate you must obtain to become accredited. You qualify by meeting an applicable category. If using a professional-credential route, its licensing and good-standing requirements still apply.

Verification is a separate step in the investment process. For offerings under Rule 506(c), which permits general advertising, the issuer must take reasonable steps to verify purchasers' accredited status. A checkbox alone, without other relevant information, is insufficient.

Depending on the verification method, you may be asked for income or net worth documentation, or written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant. One specified method uses a professional's confirmation that they took reasonable steps and determined your status within the preceding three months.

Methods vary with the offering and circumstances. The SEC's verification guidance explains the available approaches. Ask the investment provider what it accepts before collecting or sending documents, and confirm the submission process for sensitive financial information.

If you are unsure whether you qualify, you can ask about the criteria before committing to an investment. An initial eligibility answer is not the same as completed verification.

What should you consider after confirming eligibility?

Start with the investment itself: where your capital goes, how returns are generated, who manages it, what fees apply, and when you might receive payments or recover your principal. Consider whether you can accommodate losses or an extended holding period.

Our article Transparency in Real Estate Investing offers questions to bring to a sponsor. You can also read Is Debt Fund Investing Right for You? to understand one type of private investment.

All Pro Capital's investment opportunities are available to accredited investors who meet the applicable offering requirements. Explore our Current Offerings, or ask our team about eligibility and next steps. You do not need to choose an investment before requesting information.

This article is for educational purposes only and is not legal, tax, financial, or investment advice, nor an offer to sell or a solicitation to buy securities. It summarizes selected U.S. accredited investor criteria and does not determine your eligibility. Applicable rules and offering requirements govern. Private investments involve risk, including possible loss of principal, and may be illiquid.