What Is an Accredited Investor? The Rules in Plain English

Why the definition exists

The accredited investor rules decide who can buy into most private deals. Public companies register their securities with the SEC and file regular disclosures. Private offerings, such as many real estate syndications, startup rounds and private funds, usually rely on an exemption from registration under Regulation D instead.

The trade-off is disclosure. A private offering does not have to give investors the standardized, reviewed information a public company does. The law's answer is to limit most of these deals to people it assumes can evaluate the risk, demand the information they need and afford a loss. That is the accredited investor.

The tests for individuals

You qualify as an individual if you meet any one of these tests. The SEC lists them on its accredited investors page, and the full text is in Rule 501(a) of Regulation D.

A spousal equivalent is a cohabitant in a relationship generally equivalent to that of a spouse. The net worth test can count a couple's assets together.

How the net worth test treats your home

The net worth test leaves your primary residence out, and that cuts both ways. Under Rule 501(a)(5):

1. The home is not an asset. Its value, and your equity in it, do not count toward the $1 million.
2. The mortgage is usually not a liability. Debt secured by the home, up to its estimated fair market value, is left out too.
3. Underwater debt counts. Any mortgage debt above the home's estimated fair market value counts as a liability.
4. Recent borrowing counts. If the debt on your home went up in the 60 days before you invest, the increase counts as a liability, unless it came from buying the home. This stops people from pulling cash out of a house to qualify.

Everything else counts: brokerage and retirement accounts, cash, other real estate, a business you own, less all other debts, such as car loans, credit cards and loans on other property.

How entities qualify

Companies, trusts and funds can be accredited too, and the tests are different. Under the SEC's list, an entity can qualify in several ways:

• Investments over $5 million. An entity not formed to buy the specific securities, owning more than $5 million in investments as the SEC defines them.
• Assets over $5 million. A corporation, partnership, limited liability company, trust, 501(c)(3) organization, employee benefit plan, family office or family client, with more than $5 million in assets.
• All owners accredited. An entity in which every equity owner is an accredited investor.
• Regulated firms. SEC-registered, state-registered and exempt reporting investment advisers, SEC-registered broker-dealers, banks, savings and loan associations, insurance companies, registered investment companies, business development companies and small or rural business investment companies.

Many people invest through a family trust or a holding company. If that entity does not meet a test on its own, the "all owners accredited" route is often the one that works.

Rule 506(b) and 506(c): when status is checked

Whether anyone checks your status depends on the type of offering. Most private real estate deals use one of two Regulation D exemptions:

Our guide to real estate syndication under 506(b) and 506(c) explains the two in more depth. The short version: if you found a deal through a public website, ad or social post, expect to prove you are accredited.

How verification works under 506(c)

Under Rule 506(c), the issuer has to take reasonable steps to verify that every buyer is accredited; a checked box is not enough. The rule lists methods that count, though it does not limit issuers to them:

1. Income. Reviewing IRS forms that report your income for the two most recent years, such as a W-2, 1099, Schedule K-1 or Form 1040, plus your written statement that you expect to reach the threshold this year.
2. Net worth. Reviewing statements dated within the prior three months, such as bank, brokerage and other securities statements, certificates of deposit, tax assessments or independent appraisals, plus a consumer report from a nationwide credit bureau for your debts and your written statement that all liabilities are disclosed.
3. A professional letter. A written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a registered CPA, stating that they took reasonable steps to verify your status within the prior three months.
4. Prior verification. If the same issuer verified you before, a written representation at the time of sale can work for five years after the original verification.

Many sponsors use a third-party verification service, which collects the documents and issues the letter, so you do not send tax returns to every sponsor.

The 2025 minimum investment letter. On March 12, 2025, SEC staff issued a no-action letter saying that a high minimum investment is a relevant factor in verification. The letter set no single dollar amount. It said an issuer could reasonably conclude it had taken reasonable steps when investors give written representations that they are accredited under a named category and that their minimum investment is not financed by a third party for that investment, and the issuer has no actual knowledge to the contrary. It is staff guidance on specific facts, not a new rule.

Common misunderstandings

A few points trip up first-time private investors:

• "Accredited means protected." It means the opposite. You are in a market with less required disclosure.
• "My 401(k) does not count." Retirement accounts count toward net worth.
• "Home equity gets me over $1 million." It does not; the residence is excluded.
• "Once accredited, always accredited." Status is tested at the time of each investment. A drop in income or assets can change it.
• "Non-accredited investors are shut out of everything." Some 506(b) offerings can take up to 35 sophisticated non-accredited investors, and other exemptions exist with their own limits. Ask a securities attorney what applies to you.

Before you invest in any private deal

Being accredited lets you in the door; it does not tell you whether to walk through it. Before you invest, read the private placement memorandum and operating agreement, understand every fee, ask how and when you can get your money out, and look at the sponsor's record on past deals.

Run the property numbers yourself as well. Our free investor tools, including the deal analyzer, and the guide on how to analyze a short-term rental deal help you test a sponsor's assumptions. For investing with JekkyStay, see our investors page, where accredited investors can register interest in future opportunities. Any offering is made only through its own offering documents, and only to investors whose status has been verified.

The bottom line

An individual is accredited with income over $200,000 ($300,000 jointly) for two years and the same expected this year, net worth over $1 million excluding the home, or a Series 7, 65 or 82 license. Entities have their own tests. In a 506(c) deal, expect to prove it with tax forms, recent statements or a professional letter. The status only says the law expects you to judge and absorb private-deal risk, so judge each deal on its own documents, and ask a CPA or securities attorney when your situation is close to a line.