Am I an Accredited Investor? If Not, How Can I Qualify?

You may be wondering, “Am I an accredited investor?” In fact, no formal certification is provided by an institution or agency that officially confirms you as an accredited investor. Rather, the Securities and Exchange Commission (SEC) provides two specific ways in which to determine if an individual is accredited. If you are an individual investor (not investing on behalf of an organization or entity) and interested in qualifying as an accredited investor, you need only match one of the following criteria:

* You are a natural person having an income greater than $200,000, or $300,000 with a spouse, in both of the most two recent years, with the reasonable expectation that it will remain at that level or greater in the current year.

OR

* You are a natural person with a net worth, or joint net worth with your spouse, greater than $1 million at the time the securities are purchased (not including the value of your primary residence)

Demonstrating You Meet the Criteria

Following the income criteria, you may simply provide tax returns or W-2s to the investment issuer to confirm your earnings over the last two years and certify that you reasonably expect to exceed the threshold amount this year.

When answering the question “Am I an accredited investor?” establishing your net worth is a little more involved process. You may have to utilize a balance sheet that considers assets minus liabilities. The balance sheet will detail all assets, including bank accounts, cash, IRAs, 401(k)s, vehicles, etc. and then subtract from that amount all liabilities, such as auto loans, student loans, equity lines of credit, etc. Liabilities should be documented by a credit report and written statement of liabilities. In addition to the balance sheet, you will need to provide sufficient evidence of each asset listed.

Assets may not include your home equity. At the same time, your mortgage does not have to be included in your list of liabilities. The exception is if you took out a cash-out refinance or home equity line of credit within the past two months. Only then would you have to include the additional debt under your liabilities. If the value of your home is less than your mortgage, you must include the excess amount of the loan as a liability.

Boost Your Net Worth to Help You Qualify

As you evaluate the question, “Am I an accredited investor?” You may want to consider growing your net worth in order to qualify. If you are a business owner, your broker or CPA may be able to help you utilize the valuation of your company as an asset in order to boost your net worth.

If you possess a considerable amount of home equity, you might consider taking some cash out by refinancing. You will need to wait the prescribed two-month period in order to count the cash-out amount as an asset.

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