When considering a new investment opportunity, it is important to understand what opportunities are available to different types of investors. The least restricted individual investors are qualified buyers and accredited investors. Investors who fall into these categories may have additional investment opportunities, such as unregulated securities and non-public companies, available to them. Read on to understand the key differences between accredited buyers and accredited investors below.
What is a qualified buyer?
A qualified buyer is an individual or family with an investment portfolio valued at more than US$5 million. Their main residence and any property used to carry out a commercial activity are excluded from the calculated total.
Alternatively, a qualified buyer may work on behalf of a group of individuals with qualified buyer status and have combined assets of $25 million or more to invest, excluding primary residences and properties normal trade.
Finally, a trust can hold qualified buyer status if it has a portfolio valued at at least $5 million. In this case, it must belong to at least two close members of the same family unit.
Qualified buyers can access unregulated securities, venture capital funds and other high-risk, high-reward investments that would otherwise be available only to retail investors.
Criteria for a qualified buyer
Qualification requirements that apply to a qualified buyer include:
- Minimum requirement for investments: $5 million, excluding primary residence and properties used for normal business activity.
- Net worth requirement: None specifically, only the total investment criteria above
- Ownership of investment vehicles: None specified
- Other applicable criteria: If the qualified buyer is investing for other qualified buyers, they must have at least $25 million on a discretionary basis to invest.
What is an accredited investor?
An accredited investor is a person who meets the criteria set forth in Rule 501(a) of the Securities Act of 1933. To become an accredited investor, you must meet one or more criteria based on net worth or annual income. Individuals or couples with a net worth of $1 million or more, less the value of their primary residence, may also be considered accredited investors.
Individuals who demonstrate an annual individual income of $200,000 or more may be considered accredited investors. Couples can qualify with a joint annual income of $300,000 or more. You must provide proof of this income for two years before applying for qualified investor status.
You can also obtain accredited investor status through a trust, provided the trust has assets in excess of $5 million and was not created to invest solely in a particular fund .
Accredited investors have access to unregulated investments, commonly referred to as Reg D investments. This is the abbreviation of SEC Rule 506(c) of Regulation D for unregulated investments that must meet certain criteria, such as offering only investments to qualified investors.
Criteria for a Qualified Investor
The qualification requirements that define an accredited investor are:
- Minimum investment requirement: None
- Net worth requirement: $1 million for individuals or couples
- Other applicable criteria: As an alternative to net worth requirements, individuals with an annual income of $200,000 or couples with an annual income of $300,000 or more over the past two years may qualify.
Differences between an accredited buyer and an accredited investor
There are significant differences between accredited buyers and accredited investors in terms of investment opportunities, investment thresholds and securities eligibility. Here’s what you need to know.
Although accredited investors must meet certain net worth or income thresholds, there is no minimum investment threshold. In contrast, qualified buyers must have at least $5 million to invest as individuals or $25 million if investing on behalf of other qualified buyers.
Opportunities and limitations of investment options
Qualified buyers and qualified investors have additional investment opportunities with few limitations. However, qualified buyers have additional investment opportunities that could potentially generate higher returns.
Eligibility for securities offerings
Qualified buyers and qualified investors can invest in non-public investments. This means that both can invest in unregulated securities. However, if securities require a significant minimum investment, only qualified buyers may have the funds to invest in these opportunities.
One key difference: Accredited investors generally cannot invest in 3(c)(7) funds. 3(c)(7) funds are limited to qualified buyer investors but can have up to 2,000 qualified buyer investors. And even more limited, 3(c)(1) funds can only have a maximum of 100 beneficial beneficiaries.
Similarities Between an Accredited Buyer and an Accredited Investor
Accredited buyers and accredited investors have many similarities. Both may invest in unregulated securities, meaning the U.S. Securities and Exchange Commission (SEC) considers them responsible and financially secure enough to purchase securities with the potential for higher returns and greater losses. .
Implications and Benefits of Being an Accredited Buyer or Qualified Investor
The benefits of being a qualified buyer include:
- More investment opportunities than qualified investors
- Potential for higher returns
- Access to unregulated securities
- Access to private funds is generally only open to retail investors
The benefits of being an accredited investor include:
- Access to restricted investments
- Increased portfolio diversification compared to a non-qualified investor
- Potential for higher returns
- Access to unregulated securities
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Best Real Estate Investing Platforms for Accredited Investors
As an accredited investor, you have greater opportunities. Find the best real estate investment platforms here exclusively for qualified investors.
Optimize investment opportunities
As an accredited investor or qualified buyer, you have access to real estate investment opportunities, venture capital funds and other securities that can generate higher returns. Although you will face fewer restrictions, understanding potential risks, business structure and historical returns remains essential to investment planning. With greater investment opportunities comes the ability to diversify across asset classes to reduce overall portfolio risk. Learn how to become an accredited investor now and find other investment opportunities for accredited investors here.
Frequently asked questions
To be considered an accredited investor, you must meet minimum income or net worth requirements. You will need an annual income for the previous two years of $200,000 as an individual or $300,000 as a couple. Alternatively, you’ll need at least $1 million in assets, minus your primary residence.
Since the criteria for an accredited buyer are higher than for an accredited investor, any accredited buyer could also be an accredited investor.
A qualified client is a high net worth individual who has $2.2 million in investable assets, has invested at least $1.1 million with an individual advisor, is a qualified buyer, or is a professional such as an officer or director of the fund manager. In contrast, an accredited investor must only meet lower net worth or income requirements.