What it is
Under SEC Rule 501(a), one way a natural person can qualify as an accredited investor is by having a net worth over $1 million, either alone or together with a spouse or spousal equivalent. The value of your primary residence is not counted toward that figure.
Because the home is excluded, the calculation looks at your other assets minus your liabilities. Under the rule, debt secured by the primary residence is generally not counted as a liability, up to the estimated fair market value of the home, though there are special rules if that debt has increased in the 60 days before a purchase of securities, or if the debt exceeds the home's value.
The net worth test is only one path. Since the August 2020 amendments, a person may also qualify by holding certain licenses in good standing (Series 7, Series 65 or Series 82), or by meeting the income test of over $200,000 individually or $300,000 with a spouse or spousal equivalent. Certain knowledgeable employees of a private fund, entities and family offices with over $5 million in investments or assets, registered investment advisers and exempt reporting advisers can also qualify.
How it’s traditionally been approached
Traditionally, issuers of private offerings have relied on the accredited investor definition to decide who may take part in certain offerings that are not registered with the SEC. The definition is meant to describe people presumed able to evaluate and bear the risks involved.
Under Rule 506(b), an issuer may not use general solicitation, and the issuer often relies on a person's own representation about their status. Under Rule 506(c), general solicitation is allowed, but all purchasers must be accredited and the issuer must take reasonable steps to verify that status.
Verification methods have commonly included reviewing documents such as bank and brokerage statements, credit reports or tax records, or obtaining a written confirmation from a licensed professional such as an attorney, CPA or registered investment adviser. Each issuer decides how it meets the rule's requirements.
How the right fund manager may help
The right fund manager may help you understand how the net worth test applies to your situation, including which assets and liabilities are generally counted and why the home is left out. They may also explain how their own offering documents describe eligibility, which is separate from any general education you read online.
A first conversation is generally informational. You might be asked broad questions about your financial picture so the manager can understand whether you may meet the definition, and you may be told what documentation could be requested if verification applies. You are never required to proceed.
Helpful questions include: Which accredited investor category does your offering rely on? Is it offered under Rule 506(b) or 506(c)? What verification steps are used? How are illiquidity, fees and risks described in the offering documents? Please also consult your own licensed attorney, CPA or financial adviser before making any decisions.
The bigger picture
Looking closely at your net worth can feel personal. Totaling assets and debts can bring up questions about security, goals and how much uncertainty you are comfortable with. Taking time to understand the rules first can bring some calm and clarity to the process.
Wellbeing is part of financial decision-making too. Considering how any commitment fits with your liquidity needs, family responsibilities and peace of mind can matter as much as meeting a technical definition. If stress about money is weighing on you, Providers.plus can help you find supportive resources.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Meeting the accredited investor definition does not mean an investment is suitable for you, and past performance does not guarantee future results.
- Tax treatment, including how items like K-1 reporting or Section 1202 (QSBS) may apply, depends on individual circumstances; consult your own licensed advisers.
- The Hastings Fund is an independent educational directory. It is not a broker-dealer, funding portal or investment adviser, does not recommend, endorse or rank investments, and nothing here is an offer to sell or a solicitation of an offer to buy any security.
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Create an investor account →Frequently asked questions
Is the primary residence included in accredited investor net worth?
No, your primary residence is not counted toward the net worth test under SEC Rule 501(a). Its value is excluded from assets, and mortgage debt secured by it is generally excluded from liabilities up to the home's estimated fair market value, with some exceptions. Ask your own licensed adviser how this applies to you.
What is the net worth requirement for an accredited investor?
The requirement is a net worth over $1 million, individually or together with a spouse or spousal equivalent, excluding the value of the primary residence. This is the amount set in the rule. Meeting it is one of several ways to qualify.
How is accredited investor net worth calculated excluding primary residence?
You generally add up your assets other than your primary residence and subtract your liabilities, with mortgage debt on the home treated according to the rule. Special treatment applies if that debt increased in the 60 days before a securities purchase or exceeds the home's value. A licensed attorney or CPA can walk through the details.
Can I qualify as an accredited investor without meeting the net worth test?
Yes, there are other paths. These include the income test, holding a Series 7, 65 or 82 license in good standing, being a knowledgeable employee of a private fund, or being an eligible entity, family office, registered investment adviser or exempt reporting adviser. Each category has its own conditions.
Does a spouse's or spousal equivalent's net worth count?
Yes, the net worth test may be met jointly with a spouse or spousal equivalent. The combined figure must exceed $1 million, excluding the primary residence. The two of you need not hold assets jointly.
Will I have to prove my accredited investor status?
It depends on how the offering is conducted. Under Rule 506(c), the issuer must take reasonable steps to verify that all purchasers are accredited, while under Rule 506(b) there is no general solicitation and issuers often rely on other methods. Each issuer explains its process in its own offering documents.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.