“Accredited investor” sounds like a credential. It is not. Nobody issues a card, there is no exam, and you do not apply for it. It is a set of financial tests written into federal securities law, and you either meet one of them on the day you invest or you do not.
The tests exist because private offerings, including ours, are not registered with the Securities and Exchange Commission (SEC) and carry less mandatory disclosure than a public stock. The law’s answer is to limit them to people presumed able to absorb a loss and to evaluate the risk. Here are the tests in plain English, the situations that generate the most questions, and what happens when a sponsor has to confirm the answer.
The Tests for an Individual
Under the SEC’s definition in Rule 501 of Regulation D, an individual qualifies by meeting any one of the following. You do not need more than one.
- Income: more than $200,000 in each of the two most recent years, or more than $300,000 combined with a spouse or spousal equivalent, with a reasonable expectation of reaching the same level in the current year.
- Net worth: more than $1,000,000, alone or together with a spouse or spousal equivalent, not counting the value of your primary residence.
- Professional license: a Series 7, Series 65, or Series 82 license held in good standing, regardless of income or net worth.
- Role at the issuer: a director, executive officer, or general partner of the company selling the securities.
Two details in the income test trip people up. The threshold is “more than,” so exactly $200,000 does not qualify. And it is two consecutive years plus an expectation for the third, so a single strong year is not enough on its own.
The net worth test has its own wrinkle. Because the home is excluded, the mortgage on it is excluded too, up to the home’s value. A $1,400,000 house with a $900,000 mortgage contributes nothing either way. Someone with $1,100,000 in brokerage and retirement accounts and that house qualifies; someone whose wealth is mostly home equity may not, however comfortable they feel.
The Tests for an Entity
If the investor is a trust, LLC, partnership, corporation, or family office rather than a person, the SEC applies a different set of tests. The common ones:
- An entity with more than $5,000,000 in total assets that was not formed for the specific purpose of making this investment.
- An entity, of any size, in which every equity owner is individually an accredited investor.
- A trust with more than $5,000,000 in assets, not formed for the purpose of the investment, whose purchase is directed by a person with the financial sophistication to evaluate it.
- A family office with more than $5,000,000 under management, and the family clients it advises.
The “not formed for the purpose” language matters. Three friends who set up an LLC last month to pool $150,000 for a real estate offering will not qualify on the entity’s assets. The LLC qualifies only if each of the three friends does.
Edge Cases People Ask About
A revocable living trust. Most families hold their investments this way, and most such trusts have well under $5,000,000 in them. The usual route is to look through the trust to its grantor: if the person who created it and can revoke it is accredited, the trust is generally treated as accredited. An irrevocable trust is harder and depends on its assets and who directs its investments, so ask counsel before assuming.
A self-directed IRA. The IRA itself is not the investor in the ordinary sense; the account owner is. In practice sponsors assess the individual who owns the IRA, and the custodian signs the subscription on the account’s behalf. Retirement accounts can participate in VWC investments through a custodian, and the custodian will have its own paperwork on top of ours.
A partner you are not married to. Since the SEC’s 2020 amendments, a “spousal equivalent” — a cohabitant in a relationship generally equivalent to marriage — can be combined with you for both the joint income and joint net worth tests. You do not need to hold assets jointly to combine them for the calculation.
Income that changed recently. The income test looks backward two years and forward one. If you earned $260,000 in each of the last two years and were laid off in March, the “reasonable expectation” for this year is gone and the income route with it. If you were promoted to $220,000 last year after years at $150,000, you have one qualifying year, not two. In both cases check whether the net worth test carries you instead.
A 1031 exchange into an offering. The exchange changes the tax treatment, not the eligibility test. Whoever holds title to the relinquished property is the investor and must qualify in the normal way.
What Verification Means in Practice
Meeting a test and proving you meet it are different steps. VisionWise Capital runs a private real estate offering for verified accredited investors, which means before you are admitted as a Class Member we need evidence, not a signature on a questionnaire.
Most investors satisfy this with a short letter from their CPA, attorney, or investment adviser confirming they have reviewed the underlying figures within the last three months. Others provide the tax forms or account statements directly. The full list of what works for each test, what expires, and how to prepare it before you are asked is in our guide to accredited investor verification documents.
One last point, because it is the one people most often get backwards. Qualifying tells you the law permits you to invest. It says nothing about whether a five-year, illiquid interest in Southern California apartment buildings belongs in your portfolio, at what size, or alongside what else. That judgment is yours and your adviser’s, and it starts after the eligibility question ends. The SEC’s own summary of the definition is on its capital-raising resource page, and it is worth ten minutes before you sign anything.
Not sure which test applies to your situation? Talk to VisionWise Capital →
This content is for informational purposes only and does not constitute investment, legal, or tax advice. Real estate transactions and private placements involve significant risk, including potential loss of principal. Always consult qualified legal, financial, and tax professionals before making investment decisions.
Related Reading
- Accredited Investor Verification Documents: A Preparation Guide
- Accredited Investor Real Estate: What Changes When You Qualify for the Private Markets
- The 1031 Exchange into a Multifamily Syndication: What Every Accredited Investor Should Know