In brief, an accredited investor is a person or entity the SEC believes has enough wealth or income that they can safely lose a large amount of money investing in securities or platforms that are not highly regulated and require less disclosure than more regulated investments. A main question that follows is, “how does one get accredited investor status?”
Requirements for Accredited Investor Status
The various persons and entities that may qualify for accredited investor status include:
A person with a net worth greater than $1 million (not including the value of their primary residence)
A person with income greater than $200,000 in each of the past two years with the reasonable expectation of having the same or greater amount of the current year
A person with joint income with a spouse that is greater than $300,000 in each of the past two years, with a reasonable expectation of having the same or greater amount in the current year
A trust with assets greater than $5 million
A corporation, charity, or partnership having assets greater than $5 million
An insurance company, bank, or registered investment company
A business entity where all the equity owners are accredited investors
An ERISA employee benefit plan having assets greater than $5 million
One way of obtaining accredited investor status involves working until you can qualify under the income qualification standard. Many working professionals, however, may not qualify at all unless later in their investment career they have obtained a net worth of greater than $1 million, not counting the value of their primary residence.
Accredited Investor Investment Opportunities
It’s important to note that there are many types of investments that are only open to accredited investors. A few to be pointed out here include:
Hedge funds – you likely won’t be able to participate in a hedge fund unless you are an accredited investor
Private equity – this includes an investment range of nonpublic investments in which money is typically raised from non-institutional and institutional investors
Real estate crowdfunding – most online investing platforms in the realm of real estate are only accessible to accredited investors
Startups – often referred to as angel investors in such scenarios, these accredited investors can invest directly in startups and private businesses
Crypto investing – Crypto offerings and ICOs are often available only to accredited investors
The opportunities are profitable for those who know how to get accredited investor status. If you are one of these investors, it’s important to do your homework and evaluate investment opportunities carefully before participating.
