Am I a SEC accredited investor? Do I have to be rich to be a SEC accredited investor? I get these questions a lot. Many people think the entire concept is backwards. They wonder, how can I get rich if I am not able to invest in the same deals as someone who has a lot of money? I can certainly understand why they would think that way.
The question of whether you are a SEC accredited investor or not is important to determine what kind of private equity investing you are able to participate in. You see, when multifamily property investment firms form their fund, they need to determine if they want to go through the very expensive process of registering their fund with the SEC or if they would rather rely on one of the stated exemptions the SEC offers from registration. The most common exemptions from registration are referred to as 506(b) and 506(c) exemptions.
Now, I am going to resist boring you with an in-depth discussion of all the rules in favor of a high-level overview so you can determine at a high level if you might qualify as an accredited investor. Before you make a final determination, I encourage you to seek legal advice pertaining to your personal situation.
What It Means To Be An SEC Accredited Investor
How do I know if I am a SEC accredited investor?
Generally speaking, an accredited investor must meet one of the following tests:
- An income test; or
- A net worth test.
In addition, the SEC has recently changed the rules to allow people with some professional designations to qualify as an accredited investor. Examples of these designations include those who hold a Series 7 license, Series 82 license or a Series 65 license.
INCOME TEST – The income test is met if you made $200,000 in each of the last two calendar years and you reasonably expect to make at least that in the current calendar year. Alternatively, you can meet the test if you made $300,000 with your spouse or equivalent over the same period and you reasonably expect that to continue for the current calendar year.
NET WORTH TEST – The net worth test is met if you, or you and your spouse’s net worth, exceeds $1 million. Net worth is defined as assets less liabilities, exclusive of your home, but including the fair market value of all your personal property.
You need only pass one test and be able to provide verification to the Fund Manager of your accredited status in order to invest as an accredited investor.
The Next Step: Multifamily Property Investing
Once you determine if you are an accredited investor, then you will know what types of multifamily property investments you will be able to participate in.
Some private equity firms offer funds that allow a certain number of non-accredited investors while other private equity investment firms only allow accredited investors into their funds and deals. The fund KRI is currently raising at the time of this writing can only accept accredited investors.
Now that you know generally what it means to be an accredited investor, you are well on your way to looking seriously at investing in the potentially lucrative private equity investing world!
To see how KRI can help you reach your investment goals, please don’t hesitate to contact us and we will walk you through the entire process.