A question that we are often asked is – what is an accredited investor? Accredited investors have access to many more investment opportunities (506B offerings can allow only up to 35 non-accredited but sophisticated investors; however, such cap does not apply to accredited investors).

The most frequently applied definition by the SEC for accredited investors pertains to an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of such income to continue OR an individual with a net worth or joint net worth with a spouse or spousal equivalent of at least $1 million, not including the value of his or her primary residence (this definition may be changing soon and if so, we’ll share the details as soon as they are published).

However, the full SEC definition captures a few more categories that could enable an individual to qualify as accredited:

  • an SEC-registered broker-dealer, SEC- or state-registered investment adviser, or exempt reporting adviser
  • a director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that company
  • a trust with assets exceeding $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment
  • an entity of a type not otherwise qualifying as accredited that own investments in excess of $5 million
  • an individual holding in good standing any of the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
  • a knowledgeable employee, as defined in rule 3c-5(a)(4) under the Investment Company Act, of the issuer of securities where that issuer is a 3(c)(1) or 3(c)(7) private fund or
  • a family office and its family clients if the family office has assets under management in excess of $5 million and whose prospective investments are directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment

Many individuals opt in to take the Series 65 exam and license as it also enables them to earn income as investment advisers. Taking the exam entails 20-40 hours of studying, a small $200 fee, and a passing grade of 80%. Thereafter one does not lose the license as long as one continues to work for a sponsoring firm in the financial services industry. If you leave your sponsoring employer, you must find a new sponsor within two years to keep your license current. There are third party firms like Regdee (regdee.com) that offer not only help with the testing and registration process, but also with compliance and license maintenance for a small annual fee.

In addition, as of May 2023, the House voted to pass legislation, administering the SEC to introduce an exam program that would qualify investors as accredited. The accredited investor exam would require potential investors to demonstrate a certain level of financial sophistication and understanding of investment concepts.

Thus, there are a few more options beyond the income and net worth traditional accreditation requirements that open up a world of investment opportunities and we thought it is important to share some of the nuances of the definition as well as alternative options to achieve accreditation status.

Should you have any questions or want to learn more about real estate investing or for an overview of our target markets, please reach out to info@dbacapitalgroup.com.

Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.