Some investors are qualified to participate in particular investment opportunities that others never learn about. These opportunities are only available to accredited investors. These are investors that have met established accredited investor criteria.
Criteria for Accredited Investor Status
So, what are the qualifications for becoming an accredited investor? There are two conditions that may qualify accredited investors for this status. They are:
- Qualification Based on Earned Income
Any person who earns greater than $200,000 USD in each of the past two years or $300,000 USD with a spouse in the same time period with a reasonable expectation of earning the same level of income in the current year meets the accredited investor criteria.
- Qualification Based on Net Worth
Any person with an individual net worth, or joint net worth with a spouse, of $1 million USD or more excluding the value of their primary residence and all liabilities, qualifies as an accredited investor.
According to the SEC, the net worth calculation is as follows:
NET WORTH = Total Assets – Total Liabilities
The SEC identifies what may be considered an asset or a liability in the net worth calculation.
In the net worth calculation:
- A primary residence may not count as an asset.
- Home equity lines of credit may not count as a liability.
- Any debt (i.e. home equity line of credit or mortgage) secured by the individual’s primary residence typically may not count as a liability as long as the value of the liabilities are lower than the fair market value of the individual’s residence.
According to the SEC’s definition, any person who believes he or she fulfills the accredited investor criteria can benefit from consulting with a financial advisor or tax attorney to go over the pros and cons of investing in these potentially highly profitable, yet higher risk securities offerings. Generally, investments should be made with proper consideration given to one’s broader investment portfolio. A financial advisor or attorney can provide you with information to help you in your investment decision-making process.
An experienced accredited investor verification service can help issuers obtain the important verifications they need about potential purchasers of their securities offering. This type of service can also help investors verify themselves as accredited investors.
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