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Am I an Accredited Investor?

The SEC governs who can and cannot sell and purchase securities, and which investments must be registered with the SEC. These rules, while complicated, exist for a reason –they help prevent fraud and protect investors. There are some qualified investors, however, that are granted exceptions to these rules due to their proven financial status.

According to federal securities laws, private funds and companies are required to register any securities transactions or sales with the SEC, unless it qualifies for certain exceptions. One such exception is for those investors that the SEC refers to as “accredited investors.” The exception is found under Regulation D, and pertains to investors that are financially secure and have less of a need for the protection provided by regulatory disclosure filings.

An accredited investor isn’t just an individual. They can be a natural citizen, bank, or even an insurance company. Trusts and brokers can also be accredited. In order to qualify as an accredited investor, you have to prove a certain level of wealth, either through salary or personal holdings. Again, the SEC has these rules in place in order to prevent fraud and protect investors from risky investments, so the title of accredited investor exists to identify those with the capability to bear the economic risk of investing in unregistered securities.

 

As an accredited investor, you have direct access to all offerings on the CrowdStreet marketplace.

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How Do I Qualify as an Accredited Investor?

Accredited investor verification requires investors to demonstrate a certain level of financial security which would  allow them to absorb economic risks involved with unregistered securities. CrowdStreet produced a helpful infographic to help demonstrate the process, but the first step is for the individual or entity to prove their wealth by verifying the various sources or varieties of qualifying financial holdings.

In the case of an individual an accredited investor must have an annual income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and reasonably expect the same for the current year. An individual also qualifies as an accredited investor if they have a net worth over $1 million, either alone or together with a spouse, excluding the value of the person’s primary residence.

It should be noted that a qualified investor must satisfy the requirements for three consecutive years either alone or with a spouse. Qualified investors cannot satisfy the requirements one year based on individual income and the next two years based on joint income with a spouse unless the individual is married within that period.

How Do Entities Qualify as Accredited Investors?

Entities such as banks, partnerships, corporations, nonprofits and trusts can also be accepted as accredited investors if they fulfill certain requirements. An entity becomes a qualified accredited investor in a couple of scenarios:

  1. If a private business development organization or investment company holds assets in excess of $5 million, and its purchases are directed by a sophisticated investor.
  2. An entity also qualifies if it consists of equity owners who are verified accredited investors.

The term sophisticated investor is important here. In the eyes of the SEC, a sophisticated investor is an investor that has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of prospective investments. There are specific legal requirements, but generally speaking, it’s someone with demonstrated insight, acumen and success in the marketplace.

accredited investor qualifications

How Does Net Worth Affect Becoming an Accredited Investor?

As an individual, one simple way to verify your qualification as an accredited investor is under the net worth clause.  That means that your net worth exceeds $1 million dollars, either alone or in combination with your spouse..Calculating your net worth is as easy as adding up all your assets, and subtracting your liabilities. Assets include property, investments, cash and other things of value you own, while liabilities include loans, mortgages and any debt. If you are calculating your net worth with your spouse it’s not necessary that your properties be held jointly. However, you cannot include your primary residence in your net worth. This rule was put in place with the Dodd-Frank Act in 2010 and may have affected your previous standing as an accredited investor.

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Let CrowdStreet Verify Your Accredited Investor Status

You’re only required to prove your accreditation when you submit an offer but you can register and view all listings simply by registering for the CrowdStreet platform. However, verified status as an accredited investor is required for most offerings on the CrowdStreet marketplace, and some sponsors require that investors be qualified purchasers as well. In order to help you begin investing, we’ve prepared guides and templates to help you navigate the verification process. These guides can help you determine the criteria for the designation of each investing type including:individuals, self directed IRA accounts, joint tenants, trusts and business entities like LLCs, corporations or partnerships.

CrowdStreet has two ways to proceed with verifying your accredited status.

  • Use VerifyInvestor.com via the CrowdStreet Transaction Center –provided for free to CrowdStreet investors
  • Use a qualified, independent third-party verifier, such as your CPA, attorney or wealth advisor

With our integrated access through the CrowdStreet platform to VerifyInvestor.com, CrowdStreet is pleased to be able to absorb the cost of this service on your behalf. To use VerifyInvestor.com, follow the link in the Transaction Center, which becomes available after submitting closing documents for a given offer. If you have any questions about the process or required documentation, you may contact VerifyInvestor directly by emailing support@verifyinvestor.com.

If you wish to verify your status through a qualified, independent verifier you will need them to complete an investor verification letter. You can download a template for an investor verification letter here. Qualified parties under the SEC rules would include your CPA, attorney or wealth advisor attached to a registered broker-dealer. Once the qualified party has completed your letter, you may upload it to your CrowdStreet Transaction Center.

Again, you are free to browse the marketplace without having accredited investor status. You will just need that documentation in order to make an offer.

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