With great power comes great responsibility.
With this guiding principle in mind, the United States Securities and Exchange Commission Regulation D has guidelines about who is allowed to buy unregistered securities, which are lower-cost to purchase, but don’t come with the promise of disclosure filings.
These securities aren’t open to the general public to purchase; instead, only accredited investors can buy them.
The Securities and Exchange Commission Regulation D defines individual accredited investors in two ways — a person is considered accredited if he or she made more than $200,000 last year and the year before that, and if he or she can expect to do it again this year.
Make that $300,000 for the last two years if that person files jointly with a spouse.
Or, a person is an accredited investor if he or she has a net worth of more than $1 million at the time of purchase, excluding the value of the home in which he or she lives.
both categories, a person is considered accredited automatically.
An entity, such as a company, trust or fund, is considered accredited if its assets are worth more than $5 million.
The Securities and Exchange Commission doesn’t regulate or watch over accreditations, and no certificates are issued; instead, the onus is on the company selling non-registered securities to vet investors and make sure they fall under the above definitions.
Companies can do their due diligence to research an investor by looking at his or her credit report, financial statements, W2s or tax returns, among other indications.
Benefits of Accreditation
- Being an accredited investor means you gain access to non-registered investments, which pay out dividends as income and can be had for a smaller upfront cost.
- Because non-registered securities don’t come with the, well, security of disclosure filings, the Securities and Exchange Commission protects investors by making sure only people with the financial insulation or investing know-how can access them.
- Those people are accredited.
- We love letting accredited investors behind the red ropes of unregistered private equity real estate securities, especially because investments with us mean investments into Massachusetts communities starving for affordable housing.