how to become an accredited investor
people who want to be accredited investors don t apply to the sec for the designation rather it is the responsibility of the company offering a private placement to make sure that all of those approached are accredited investors individuals or parties who want to be accredited investors can approach the issuer of the unregistered securities the issuer may ask the applicant to fill out a questionnaire and provide financial documents the required documentation may include account information financial statements and a balance sheet it may extend to tax returns w 2 forms salary slips and even letters from cpas tax attorneys investment brokers or advisors the company may check the applicant s credit report as part of the assessment most participants in private placements do not have to go through this process people with certain financial accreditations managers of hedge funds and partners in private equity firms are among those who don t have to prove their credentials to buy unregistered securities example of an accredited investorfor example suppose there is an individual whose income was 150 000 for the last three years they reported a primary residence value of 1 million with a mortgage of 200 000 a car worth 100 000 with an outstanding loan of 50 000 a 401 k account with 500 000 and a savings account with 450 000 while this individual fails the income test they are an accredited investor according to the test on net worth which cannot include the value of an individual s primary residence net worth is calculated as assets minus liabilities 1this person s net worth is exactly 1 million this involves a calculation of their assets other than their primary residence of 1 050 000 100 000 500 000 450 000 less a car loan equaling 50 000 since they meet the net worth requirement they qualify to be an accredited investor who qualifies to be an accredited investor the sec defines an accredited investor as either 6