*As investors involved in 27 syndications as either Passive Investors or General Partners, we would like to share regulations, requirements, and practical steps for getting certified as an accredited investor.
What steps do I need to take to be certified as an accredited investor, and what are the verification steps?
To become an accredited investor, you must meet certain net worth or income criteria established by the Securities and Exchange Commission (SEC). We will first show how most of our investors qualify as accredited investors. Then show how to be certified as an accredited investor. Lastly, we will go over the new categories the SEC allows. Then, just for fun, what the future holds for the $1,000,000 net worth hurdle.
To be an Accredited Investor, Most People Qualify Based on Income and/or Net Worth:
Verify your income: You must have an earned income of at least $200,000 for the last two years (or $300,000 for joint income with a spouse) and have the reasonable expectation to make the same amount this year.
OR
Meet a net worth hurdle of at least $1 million, excluding your primary residence. Either individually or jointly with your spouse. This net worth must not include the value of your primary residence.
OR
Hold a Series 7, 65, or 82 license.
Accredited Investor Certification
Once you have met one of the above hurdles, in many cases, you can self-certify, which is checking a box and signing your name to it. That’s it. You do not need to share your private financial information with the General Partners in an apartment syndication.
However, in 506(c) offerings, you will most likely need to have your: licensed broker-dealer, investment advisor, licensed attorney, certified public accountant, or enrolled agent fill out a form verifying you are accredited. It is a simple form called an Accredited Investor Verification Letter. Here is the one which we use for our investors. In Media folder/forms you do not need to share your net worth or income with the General Partners in a deal.
More Methods of Being an Accredited Investor
Any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person. A sophisticated person means the person must have sufficient knowledge and experience in financial matters to evaluate the merits and risks of the prospective investment.
OR
Certain entity with total investments in excess of $5 million, not formed to specifically purchase the subject securities.
OR
Any entity in which all of the equity owners are accredited investors.
If you do not meet those requirements, you may still qualify to invest in some real estate syndication deals as a sophisticated investor.
Even more ways to meet the accredited investor requirements
The above has been the requirements since 1982, when Regulation D was adopted by the SEC. In 2019 the SEC amended the criteria to become an accredited investor and added optional entity requirements as well:
- Investment advisers registered with the Commission
- State-registered investment advisers
- Exempt reporting advisers
- Rural business investment companies
- Limited liability companies with more than $5 million in assets
- Certain family offices and family clients
- Entities owning investments in excess of $5 million
Future Accredited Net Worth Hurdles to be Raised in 2023:
It is expected that sometime in 2023, the accredited investor requirements will be raised to keep pace with inflation. The current hurdles were placed in 1982! When adjusted for inflation to 2023 dollars the numbers are as follows:
| 1982 | 2023 |
|---|---|
| $1,000,000 in net worth is now | $3,075,620. |
| $200,000 income | $615,123 |
| $300,000 joint income | $922,685 |
The rumors are the accreditation hurdle is expected to be reset by congress in 2023 to:
- $3,000,000 in net worth or
- $300,000 income or
- $500,000 joint income if filing with your spouse