Am I an Accredited Investor?
Most of the time, multifamily syndications require accredited investors. When you submit your application on their websites, usually they will have a field asking whether you are an accredited investor or not. And that is why it’s important to understand whether you qualify as an accredited investor or not.
Here is a simpler definition of the accredited investor
- If you have net worth over $1 million individually or with your spouse without considering the equity in your primary residence
- If you have earned more than $200,000 individually or $300,000 with your spouse for the last two years per year and you are expecting to continue earning at least as much going forward.
In August of 2020, SEC amended rules and allowed some more classes to be identified as accredited investors. Those include family offices with at least $5 million under management, persons with certain professional certifications, knowledgeable employees of the fund and many more other categories. The details can be found out in the following SEC press release.
What do I need to do to get accredited?
There are a couple of scenarios here. How to get accredited depends on whether the multifamily syndication you are participating in is put together under SEC rule 506(b) or 506(c).
A syndication under Rule 506(b) can take investments from accredited investors and up to 35 sophisticated investors. A Sophisticated investor is someone who “must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.” This is defined on the SEC website. That definition is a bit vague and that is why many syndications put together under 506(b) may accept money only from accredited investors as a safe bet. But the most important thing is that the investors participating in a syndication under Rule 506(b) can self-verify! That means you don’t need to go to any third party to declare yourself as an ‘accredited investor’.
A Syndication put together under Rule 506(c) can only accept investments from accredited investors. In addition to that SEC puts the burden of verifying accredited investor status of the investors on the syndication. Such verification means taking reasonable steps to verify such as verifying net worth, reviewing tax returns, verifying bank and brokerage accounts. It can also accept verification letters from a CPA, broker or an attorney. Nowadays there are many services such as verifyinvestor.com and earlyiq.com that can verify accredited investor status on behalf of syndicators. In fact these services also allow investors to get verified themselves as well in exchange for a small fee.
Thus to summarize, if you are participating in a 506(c) syndication a third party must verify your accredited investor status but if you are participating in a 506(b) syndication, you can self-verify.
I think the explanation above is fairly easy to follow and by now you would have found out if you qualify for accredited investor status or not. But if you are one of the edge cases and are still doubtful about your status, I highly recommend you to go to a CPA or websites such as verifyinvestor.com and earlyiq.com to know whether you qualify for the status or not.