The Securities and Exchange Commission (SEC) regulates offerings in the United States. Any sale of securities must be registered with the SEC or meet one of their exemptions. Many real estate offerings are filed under a regulation called Regulation D. This regulation has a set of exemptions that allow companies to sell their securities without registering them with the SEC. But it comes with a catch. The regulation requires companies to only offer those securities to Accredited Investors.
So how does the SEC define an Accredited Investor?
Accredited Investor Defined
For most individual investors, qualifying as an accredited investor can be done on the basis of your income or your assets.
Income - to qualify, your individual income must be over $200,000 or over $300,000 as joint income with your spouse, in each of the two most recent years.
Assets - to qualify, your current individual or joint net worth must be over $1,000,000.
What about your primary home? Can that be included in your asset calculation? The answer is NO. The SEC requires that you exclude your primary home when doing the net worth calculation. You also don't need to include your primary home debt as long as its less than the market value of the home. If the debt on your residence is more than its market value, then you will be required to subtract that difference when calculating your net worth.
When making an investment in a Regulation D offering, you will be required to verify if you are an accredited investor.
How Do I Get Accredited?
It's a common question. There are two primary ways to get qualified as an accredited investor.
CPA/Attorney/RIA/Certified Financial Planner - if you work with one of these professionals and they are willing to certify your income and/or net worth, you can request them to write a letter for you to certify that they have reviewed your information and attest that you are an accredited investor.
3rd Party Verification Services - there are numerous online 3rd party verification services that can also provide you an accreditation letter. You will be required to submit your W-2s or income tax statements to them for the past two years. For asset based verification, you will need to provide information on your total assets and primary home. Avestor utilizes InvestReady for our verification services.
How Long Does It Take?
Getting qualified as an accredited investor takes approximately one week if all of your documentation is submitted properly. Accreditation letters are generally valid for a period of three months so you should plan accordingly if you believe there is an upcoming real estate deal that you want to invest in.
We hope this quick overview was helpful in getting you up to speed on becoming an accredited investor. With this qualification, you will have access to a whole new world of real estate investment opportunities.
Good luck investing!