Quick Take: An accredited investor meets income or net worth thresholds set by the SEC. A qualified purchaser meets a higher investment holdings threshold. Both designations determine which private investment opportunities you can access — but qualified purchasers generally have access to a broader range of funds.
Origin requires investors to qualify as either accredited investors or qualified purchasers. The Securities and Exchange Commission sets these requirements to identify individuals who can take on the risk of private investments. Private equity and other nonpublic offerings are illiquid. They also lack the level of disclosure that comes with registered public securities. As a result, investors must satisfy one or more requirements regarding income, net worth, expertise or knowledge. While often used interchangeably, accredited investor and qualified purchaser have different requirements.
What is an Accredited Investor?
Accredited investors meet income, net worth or educational requirements that allow them to purchase financial investments. These instruments include securities or real estate that regulatory authorities have not registered. The SEC updated the accredited investor definition in 2020. Persons or entities qualify for accredited investor status under any of these conditions:
- A person’s net worth, or joint net worth with spouse, exceeds $1 million. The value of a primary residence must be excluded.
- A person’s annual income exceeds $200,000 in each of the past two years and is expected to reach the same level this year.
- A couple’s annual income exceeds $300,000 in each of the past two years and is expected to reach the same level this year.
- A business, investment company or family office holds more than $5 million in assets, or all its equity owners are accredited.
- A person holds a Series 7, 62 or 65 securities license, or is licensed or registered as an investment adviser, or is a knowledgeable employee of a fund.
There is no one place to register your accredited investor status, confirm your income level or tax returns, or be certified as an accredited investor. The government does not review individual investor credentials or certify financial statements. Instead, companies that offer investments must determine who is an accredited investor as part of their due diligence process. Investors can’t simply check a box, though. Once they inquire about an investment opportunity, they may be asked to fill out an online form to start the process.
What is a Qualified Purchaser?
The qualified purchaser definition is based on investment holdings, not on net worth or income. But the requirements are higher than those for accredited investors. Because of this, qualified purchasers typically have more investment opportunities than accredited investors. For example, they can commit to private offerings with up to 2,000 qualified purchasers. Other funds must be limited to 100 or fewer accredited investors.
The term is often used interchangeably with qualified investor, but qualified purchaser is the legal term. Persons or entities can be qualified purchasers under any of these conditions:
- A person with $5 million or more in investments, either independently or together with spouse. The value of a primary residence or business property must be excluded.
- A family with $5 million or more in investments through a charity, company or estate, or a trust set up for their benefit.
- A trust sponsored and managed by qualified purchasers, which is not formed solely to invest in a fund.
- A person with discretionary control of at least $25 million in assets, for others or their own accounts.
- An entity consisting solely of qualified purchasers.
The higher threshold requirements for qualified purchasers allow funds with a small group of private equity investors to buy and sell public assets such as mortgage-backed securities without the reporting requirements of a publicly traded bond fund.
Accredited Investor vs. Qualified Purchaser: Key Differences at a Glance
Both designations open the door to private investments. But they differ in how eligibility is measured and what that eligibility unlocks. Here’s a side-by-side comparison:
| Accredited Investor | Qualified Purchaser | |
|---|---|---|
| Governing law | Securities Act of 1933 (Reg D) | Investment Company Act of 1940 |
| Primary threshold | Net worth or income | Investment holdings only |
| Individual threshold | $1M net worth or $200K/$300K income$1M net worth or $200K/$300K income | $5M in investments |
| Institutional threshold | $5M in assets | $25M in discretionary assets |
| Max investors per fund | Up to 100 (or 250 if fund is under $10M) | Up to 2,000 |
| Fund type access | 3(c)(1) funds | 3(c)(1) and 3(c)(7) funds |
Why Do These Designations Exist?
The SEC created these classifications to balance investor protection with capital market access. Private investments — including private equity, hedge funds, and private real estate funds — are exempt from many of the disclosure requirements that apply to publicly traded securities. Because these investments carry higher risk and lower liquidity, the SEC limits participation to investors who are presumed to have the financial sophistication and capacity to absorb potential losses.
Accredited investor status serves as the baseline threshold. Qualified purchaser status reflects a higher level of financial sophistication, which is why it comes with access to a broader set of fund structures and a larger pool of co-investors.
Whether you are an accredited investor or qualified purchaser, Origin’s multifamily investment Funds benefit a wide range of financial goals and risk tolerances. We invite you to explore our open Funds and learn more about how we invest.
Originally published on Nov. 4, 2021.
There is a private real estate investment strategy for virtually every investor.
FAQ
What is the difference between an accredited investor and a qualified purchaser?
An accredited investor qualifies based on income or net worth thresholds, while a qualified purchaser qualifies based on investment holdings alone. Qualified purchasers face a higher bar — $5 million in investments for individuals — and gain access to a broader set of private fund structures as a result.
Can you be both an accredited investor and a qualified purchaser?
Yes. Many high-net-worth individuals meet both standards simultaneously. The $5 million investment threshold for qualified purchasers typically exceeds the $1 million net worth threshold for accredited investors. As a result, most qualified purchasers are also accredited investors.
What is a qualified client, and is it the same as a qualified purchaser?
No — these are different designations. A qualified client is a standard that allows an investment adviser to charge performance-based fees, requiring a net worth of at least $2.2 million (excluding a primary residence). A qualified purchaser is a higher standard based on investment holdings and determines access to certain private fund structures. An investor who qualifies as a qualified purchaser will also meet the qualified client threshold.
How do I verify my accredited investor or qualified purchaser status?
There is no government registry. The investment firm offering the opportunity is responsible for verifying your status, typically through a questionnaire and supporting documentation such as tax returns, W-2 forms, bank or brokerage statements, or a letter from a licensed CPA or attorney.
