What is an Accredited Investor?
Written by Brent Carnduff | October 3, 2019
Under Rule 506(c) of Regulation D of the Securities Act of 1933 (introduced as part of the Jumpstart our Business Startups Act of 2012), private investment funds like the Alturas Real Estate Fund, are exempt from registering with the Securities and Exchange Commission (SEC) on the condition that the Fund only accepts investments from “Accredited Investors”.
SEC Requirements for a Person or Entity to be an Accredited Investor
According to the SEC, an Accredited Investor is:
- Any person who for each year of the past two years has earned an income greater than $200,000 individually, or greater than $300,000 combined income with their spouse, and expect to earn at least that amount again in the current year.
OR
- Any person who has a net worth over $1 million alone or with a spouse, excluding the value of the individual’s primary residence.
OR
- An entity such as a bank, corporate partnership, non-profit, or trust can be considered as an accredited investor if:
- The trust has assets in excess of $5 million, was not formed to specifically purchase the subject investment, and whose investment is directed by a sophisticated person (a person judged to have sufficient knowledge and experience to evaluate the prospective investment)
OR
- Any entity in which all of the equity owners meet the accredited investor threshold individually.
* See the Electronic Code of Federal Regulations for a complete list of Accredited Investor qualifications.
How do I Verify that I am an Accredited Investor?
Assuming you meet one or more of the requirements outlined by the SEC, you qualify as an accredited investor. In some exempt offerings, you can self-report that you are an accredited investor, but usually you need to verify that status with the investment company with whom you are working.
In the case of the Alturas Real Estate Fund, which is a 506c offering, the manager of the Fund must verify that you are accredited before you can invest. Verification can be achieved by providing the following documentation to the Fund manager or to a 3rd party, such as verifyinvestor.com, who can attest that you are an accredited investor.
- Have your CPA, attorney or financial advisor submit a letter that verifies your accredited investor status. The letter must certify that within the past three months, reasonable steps were taken to confirm that the investor is an accredited investor.
- Provide copies of your tax returns or pay stubs for the last two years that show you meet the income test of $200,000+ ($300,000 with spouse) in each of the past two years, plus an affirmative statement that your income will meet those benchmarks again in the current year.
- Provide a personal financial statement along with statements that support your assets, plus a credit report that shows your debt obligations.
For the purposes of this test, the positive value of your primary residence is not included in the net worth calculation, however debt incurred during the last 60 days against the primary residence, or any debt in excess of the value of the primary residence is counted.
If you have any questions about the Alturas Real Estate Fund, or investing with Alturas, please contact us today.
This information is for informational purposes only and not for the purpose of providing legal or financial advice. You should contact your CPA, Financial Advisor, or attorney to obtain advice with respect to any particular issue or investment.