Episode 4 – What qualifies someone as an ‘Accredited Investor’ for a Regulation D Rule 506 syndication?

My name is Tilden Moschetti. I am a syndication attorney and the founder of the Moschetti Syndication Law Group. We focus on private placements and creating private placement memorandums for syndicators. One question we often get is, “What exactly is an Accredited Investor?”

So what qualifies someone to be an Accredited Investor? Well, there are a few different tests that determine this. For this video, I’m going to focus on individual investors, although there are different categories and ways to analyze if an organization is an accredited investor.

According to § 230.501 of Regulation D, an Accredited Investor is defined as any person who falls within specific categories, or who the issuer reasonably believes falls within these categories, at the time of the sale of securities to that person.

One category includes natural persons holding in good standing one or more professional certifications, designations, or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status. The Commission considers several attributes when designating these qualifications, including the rigor of the examination process and the individual’s demonstrated knowledge in securities and investing.

If they hold certain securities licenses, they are allowed to be considered an accredited investor. These are specifically securities licenses registered through FINRA and recognized by the SEC. It does not include licensed real estate brokers, CPAs, or lawyers.

The main tests we look at are the income test and the net wealth test.

For the income test, we consider the investor’s taxable income. If an individual’s income is greater than $200,000 for the past two tax years and likely to be the same in the current year, they qualify. For a couple, the threshold is $300,000. So if you and your spouse each make $160,000 a year, totaling $320,000, that works. Or if you make $210,000 and your spouse doesn’t work, that’s okay too because you can qualify under the individual status.

For the net wealth test, we look at whether an individual or couple has over $1 million in net worth, not counting the value of any equity in the primary residence. We calculate all assets minus all liabilities. If the primary residence is underwater, we do include it on the liability side.

For example, if the house is worth $1 million but has a loan of $1.2 million, we subtract the $200,000 difference when calculating net wealth. However, if that same $1 million house has a loan of $500,000, you don’t get to add the $500,000 equity to the asset column.

This is how we determine if you are an accredited investor. If you need help with your syndication, whether it’s for real estate, raising capital for your business, or setting up a cryptocurrency hedge fund, give us a call. My name is Tilden Moschetti. I am a syndication attorney, and if you need help just with your private placement memorandums, we’ve got you covered there too.