Accredited Investor vs. Qualified Purchaser
Accredited investors are individuals or entities who are qualified by the SEC to invest in unregulated or sophisticated securities, while a qualified purchaser is an individual or entity with an investment portfolio worth over $5 million. Most often, accredited investors meet the legal threshold by having $1 million or more in investable assets and/or having an annual income of $200K or more each of the past two tax years.
Achieving an accredited investor or qualified purchaser status will welcome you into exclusive real estate asset types that you can now begin building wealth from. Reaching the accredited investor threshold is a milestone worth celebrating, as it opens up new investing possibilities that can help you diversify beyond a 60/40 portfolio
Since nearly 11% of households in America were accredited in 2020, there are a significant number of individual investors who may not be aware that they qualify for a whole world of previously restricted real estate investment opportunities.
Privately listed real estate and certain restricted funds, for example, are restricted to only accredited investors or qualified purchasers. Keep reading to learn more about the investment opportunities that these statuses can offer you.
Who is an Accredited Investor?
Accredited investors are individuals or entities who are qualified by the Securities and Exchange Commission (SEC) to invest in unregulated or sophisticated securities, or long-term investment holdings. The Securities Act of 1933 made it possible for accredited investors to become notified about public securities.
Encompassing a wide array of alternative investment structures, accredited investors can go a step beyond publicly listed real estate investment styles. They can also dabble in privately listed real estate and try their hand at previously restricted funds and other private-market opportunities.
After meeting strict investor accreditation requirements, accredited investors are granted access to 3(c)(1) funds and Regulation D offerings. Both of these investment types are privately listed and only open to a limited number of accredited investors.
Accredited Investor Requirements
Accredited investor private equity opportunities are only available for investors who meet strict financial requirements. Qualifying as an accredited investor is dependent on individual investors possessing at least one of the following:
- Net worth: A net worth exceeding $1 million, excluding the value of the primary residence, either individually or jointly with a spouse.
- Household income: An annual income of over $200,000 for the past two years for an individual, or $300,000 for a couple, with the expectation of the same income level in the current year.
- Licenses: Possession of a Series 62, 65, or 7 license, which demonstrates to the SEC the individual’s capability to invest in sophisticated securities.
It’s also possible to become an accredited investor via a secure trust investment history — in other words, a clear history of your trust fund being soundly managed. At least one of the factors listed above must be taken into account before an investor can have access to unregulated asset classes and other alternative investments.
The SEC periodically considers updates to the accredited investor definitions, including aligning net worth and income thresholds with inflation.
Am I Accredited Here? And What Can I Invest In?
Based on the definitions above, you should have a good idea already whether or not you meet the accredited investor threshold. Accredited investors are legally able to access a much broader set of asset classes than in decades past, owing to both the current regulatory environment and the proliferation of fintech platforms. As an accredited investor, you may be able to tap into various “accredited only” investment platforms, such as EquityMultiple.
As an RIA and steward of investor capital, EquityMultiple abides by all relevant regulations. The EquityMultiple platform offers a streamlined method of proving accreditation and accessing accredited-only real estate investments.
How Does EquityMultiple Verify Accredited Investor Status?
EquityMultiple uses third party data sources to verify accredited investor status once personal details are provided at sign-up. We take information security and privacy seriously (see our privacy policy and terms of use for more). If you are automatically verified, you will be able to browse investments and securely, easily invest should our offerings be a fit for your portfolio. If you believe yourself to be accredited, but are not automatically verified, you will be prompted to manually complete accreditation.
Manual accreditation can be carried out by uploading a signed letter from an attorney, tax professional, or licensed financial advisor. Should this step be necessary, EquityMultiple has built a workflow to be as seamless as possible so that you can proceed to choosing investments and building your real estate portfolio.
Who is a Qualified Purchaser?
Because the barrier of entry to become a qualified purchaser is higher, these investors have access to a broader range of investment opportunities than accredited or unaccredited investors.
Much like accredited investors, qualified purchasers are granted access to private real estate opportunities like special funds with over 100 investors. Thanks to the Investment Company Act of 1940, qualified purchasers are also granted broader investment access to 3(c)(1) and 3(c)(7) funds.
3(c)(1) funds contain less than 100 investors, so accredited investors can qualify for this investment type, while 3(c)(7) funds have no investor limit and are strictly open for qualified purchasers. Since the latter type of investment has less investor capacity, the returns are potentially higher.
Qualified Purchaser Requirements
There is a reason why qualified purchasers are sometimes referred to as “super accredited investors.” Achieving qualified purchaser status is often more difficult for the average investor.
Because of the high barrier of entry, verified qualified purchasers are granted access to a subset of Regulation D asset listings like private real estate. Certain of these securities are legally inaccessible by accredited investors who are not also qualified purchasers. EquityMultiple occasionally offers qualified purchaser-only investments to registered members who meet the threshold. However, most offerings are accessible to all accredited investors.
Qualified purchaser verification is dependent on an individual’s investment portfolio rather than their overall net worth. Their net worth must be over $5 million as an individual or $25 million as a group to qualify for this status.
Just like with accredited investors, a trust fund investment of the same amount can also potentially validate investors as qualified purchasers.
Accredited investors and qualified purchasers can access exclusive private-market investments, like those offered on EquityMultiple
How Is Accredited Investor vs. Qualified Purchaser Status Determined?
Accredited investor and qualified purchaser statuses can be determined by anyone who is an unregistered securities issuer. Investors will need to have the following documents prepared prior to their meeting with the issuer:
- Tax returns from the last two years
- W-2 forms from the last two years
- Last year’s bank statements
Qualified purchasers will also need to show their most recent investment portfolio returns and prove that their investment portfolio is worth over $5 million.
The securities officer will examine your documentation and double-check if your net worth, income or investment portfolio meets the minimum financial requirements before granting you an approved status.
Investors hoping to become accredited or qualified should keep in mind that the actual steps to be granted permission may vary depending on the exact structure of securities offered; i.e. how the party offering investments abides by SEC regulations. Status verification is required before investors can begin participating in investments through private real estate platforms like EquityMultiple.
Qualified Purchaser vs. Accredited Investor: Key Differences
The SEC finds it important to differentiate between an accredited investor vs. qualified purchaser for a couple of reasons.
First, qualified purchasers are able to prove a greater amount of financial security and are ultimately granted access to the most unregulated asset classes, like funds containing over 100 investors and 3(c)(7) funds.
Accredited investors, however, are able to prove that they have consistently earned a significant amount of income over multiple years and are therefore able to take part in sophisticated security structures like 3(c)(1) funds and privately listed real estate.
Each status caters to different investment goals. A qualified purchaser may want to take part in funds consisting of over 100 investors, while an accredited investor may only want to invest in privately listed commercial real estate on privately listed crowdfunding platforms like EquityMultiple.
Still not sure if you qualify as an accredited investor? You can also find out via amiaccredited.com.
SEC Regulations and Investment Acts
The SEC updated its definition of an accredited investor in 2020 and is able to change regulations as they see fit. Thanks to this updated definition, more investors will be able to participate in sophisticated markets like private equity.
These regulations and the following pieces of legislation were created to keep investors of all experience levels safe while investing in new opportunities with higher levels of associated risk:
- Securities Act of 1933: Requires investors to receive information about public securities for sale
- Securities Exchange Act of 1934: Allowed Congress to create the Securities and Exchange Commission (SEC)
- Investment Company Act of 1940: Requires compensated investment advisors to register with the SEC
The investment and exchange acts listed above drastically changed the investment landscape of the 20th century by creating the SEC and regulating investment advisor protocols.
The SEC continues to regulate who has access to sophisticated investments by differentiating between accredited investors, qualified purchasers and other statuses.
Lawmakers and security regulators are feeling the pressure to loosen up or entirely eliminate strict accreditation standards so that average investors can also begin investing in venture capital funds and other alternative investments.
Maintaining Your Accredited Investor or Qualified Purchaser Status
To maintain your accredited investor or qualified purchaser status, it’s essential to continuously meet the financial requirements set by the SEC. This involves keeping up with the necessary net worth or income thresholds for accredited investors and managing an investment portfolio that meets the required value for qualified purchasers.
Via EquityMultiple’s streamlined workflows, you should not have to re-verify accredited status. Should you need to, EquityMultiple’s Investor Relations Team will reach out to assist.
Periodic Verification Requirements
There is no SEC-mandated timeframe for re-verifying your status as an accredited investor or qualified purchaser. That said, some investment platforms and issuers may require you to confirm your eligibility periodically, typically every 12 to 24 months. This helps ensure that all investors continue to meet the criteria for participating in sophisticated investment opportunities.
To verify your status, be prepared to provide updated documentation demonstrating your continued eligibility:
- For accredited investors, this may include recent tax returns, W-2 forms, and bank statements reflecting consistent income levels above the required thresholds.
- For qualified purchasers, you’ll need to present updated investment portfolio statements showing a maintained net worth of over $5 million as an individual or $25 million as a group.
In addition to meeting these financial requirements, it’s worth keeping informed about any changes in SEC regulations that may affect your accredited investor or qualified purchaser status. Staying up-to-date on relevant legislation and industry news will help you ensure compliance, and empower you to take advantage of exclusive investment opportunities without interruption.
So I’m an Accredited Investor, What Now?
Per financial services regulations, a number of opportunities are available to accredited investors that are not available to non-accredited investors. Specifically, accredited investors can access private-market investments structured in accordance with the Regulation D exemption and listed on platforms like EquityMultiple. As of early 2023, there are an expanding array of options for accredited investors and qualified purchasers.
If you meet the accredited investor threshold, consider which of these new opportunities align with your strategy, risk tolerance, and capital availability. Investments like those within EquityMultiple’s Keep or Earn pillars may be a good place to start, versus equity crowdfunding or more speculative types of accredited-only investments.
The Bottom Line
Whether you qualify as an Accredited Investor or a Qualified Purchaser, you can begin to explore what privately listed real estate and other alternative investments have to offer. Participating in privately listed Regulation D real estate investment opportunities on private investment platforms like EquityMultiple is a viable way to begin utilizing your new investor status.
As always, it’s important to consider the risk of any particular investment in the context of your overall net worth and preexisting portfolio.
Accredited Investor vs. Qualified Purchaser — FAQs
Q: Who is an accredited investor?
A: An accredited investor is an individual or entity that the Securities and Exchange Commission (SEC) has deemed financially sophisticated and capable enough to take on the risk of investing in more complex and unregistered securities. The main requirements include a net worth of over $1 million (excluding the primary residence) or an annual income exceeding $200,000 ($300,000 for couples) for the past two years. Accredited investors gain access to a broader range of investment opportunities, such as privately listed real estate and restricted funds.
Q: Who is a qualified purchaser?
A: A qualified purchaser is an investor with a higher financial threshold, having an investment portfolio worth over $5 million individually or $25 million as a group. This status grants access to more exclusive investment opportunities, such as 3(c)(1) and 3(c)(7) funds. 3(c)(1) funds contain less than 100 investors, so accredited investors can qualify for this investment type, while 3(c)(7) funds have no investor limit and are strictly open for qualified purchasers. Since the latter type of investment has less investor capacity, the returns are potentially higher.
Q: What are the differences between a qualified purchaser and an accredited investor?
A: The key differences lie in the financial criteria and access to investment opportunities. Qualified purchasers need a higher financial threshold (over $5 million in investments) compared to accredited investors, who may qualify with a $1 million net worth or $200,000 in annual income. As a result, qualified purchasers can access more exclusive investment opportunities, such as 3(c)(7) funds, that are beyond the reach of accredited investors.
Q: Why differentiate between the two?
A: The SEC differentiates between accredited investors and qualified purchasers to ensure that access to investment opportunities aligns with an investor’s level of financial security and sophistication. Qualified purchasers demonstrate a higher degree of financial security, allowing them to invest in more unregulated asset classes, such as 3(c)(7) funds with over 100 investors, which often carry higher risks and potential rewards. In contrast, accredited investors show consistent income levels over multiple years, qualifying them for sophisticated but somewhat less risky investments like 3(c)(1) funds and privately listed real estate.