Am I An Accredited Investor?

This learning series on Modern Commercial Real Estate Investing first appeared on the EquityMultiple blog. Please check in there for updates and additions to this series.

The JOBS Act of 2012 ushered in a new era in equity and real estate investing by allowing firms to broadly market private placements for the first time since the Securities Act of 1933. With the bitter taste of the Great Recession still lingering, legislators justifiably limited participation to accredited investors; ostensibly those with the means and investing experience to protect themselves against undue risk. It follows, then, that the question many investors ask is “am I accredited?” Answering this question may not be as straightforward as you think.

In short, an accredited investor — per the SEC’s definition — is an individual who

• Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
• Has a net worth over $1 million, either alone or together with a spouse

However, this definition comes with a couple of caveats. Per the Dodd-Frank Act, which passed in 2010, the value of a primary residence can no longer be counted towards an individual’s net worth for the purposes of accreditation. This means that more than a few people met the definition of accredited investor in 2010, but not after. Furthermore, certain liabilities — including those associated with homeownership — are counted against an individual’s net worth. The SEC provides the following table to help aid in calculating net worth for this purpose

If using earned income to qualify, keep in mind that this cannot be satisfied using one year of individual income and the next two years based on joint income with a spouse, unless you were married during this period.

What’s more, the SEC has considered imposing even tougher standards, per a mandate in the Dodd-Frank Act to review the accredited investor definition. This may include qualitative hurdles for investors looking to become accredited, such as educational attainment and professional background.

Verification of accredited investor status — which can be done by a letter from a personal lawyer, CPA or CFP, or a disclosure of personal assets — only lasts for three months. While this has no implication for existing investments, it means that investors must re-verify before investing in another project offered through general solicitation. The good news for EQUITYMULTIPLE investors is that we’re keenly aware of this pain point, and we’ve continually refined the investment process within our platform to remove friction from the verification process as much as possible. If you have questions about your accreditation status, we’re always happy to help.

Can a Trust Be An Accredited Investor?

Yes indeed. Simply put, a corporation, partnership, or charitable organization with assets exceeding $5 million can be accredited. In select cases, other entities may be eligible as accredited investors, including an employee retirement plan whose asset allocation decisions are made by a registered investment advisor. Again, there can be some complexity here, and we’re always standing by to help — contact@equitymultiple.com