Qualified Purchaser vs. Accredited Investor

When it comes to investing and participating in certain financial opportunities, understanding the distinction between a qualified purchaser and an accredited investor is crucial. These classifications are set by the Securities and Exchange Commission (SEC) and are used to determine who is eligible to invest in private placements and certain types of securities.

Accredited investors have access to a wider range of investment opportunities, as they are deemed to have the financial sophistication and ability to bear the risks associated with private placements. On the other hand, qualified purchasers have access to more sophisticated and complex investment opportunities that may not be available to accredited investors due to the larger amounts of capital involved.

Continue reading to learn the key differences between qualified purchasers vs. accredited investors.

What is a Qualified Purchaser?

A qualified purchaser is an individual or family with an investment portfolio valued at over $5 million. Their primary residence and any property used to conduct business are excluded from the calculated total.

Alternatively, a qualified purchaser may work on behalf of a group of individuals with qualified purchaser status and have $25 million or more in combined assets for investment, excluding primary residences and normal business properties.   

Finally, a trust can hold qualified purchaser status if it has a portfolio valued at least $5 million. In that case, it must be owned by at least two close members of the same familial unit.

Qualified purchasers can access unregulated securities, venture capital funds, and other high-risk, high-reward investments otherwise only available to retail investors. 

Criteria for a Qualified Purchaser

The qualification requirements that apply to a qualified purchaser include:

• Minimum requirement for investments: $5 million, excluding primary residence and properties used for normal business activity. 
• Net worth requirement: None specifically, only total investment criteria above
• Ownership of investment vehicles: None specified
• Other applicable criteria: If the qualified purchaser invests for other qualified purchasers, they must have at least $25 million on a discretionary basis for investment. 

What is an Accredited Investor?

An accredited investor is an individual who meets the criteria set out under 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, minus the value of their primary residence, can also qualify as accredited investors. 

Individuals who demonstrate an annual individual income of $200,000 or greater can qualify as accredited investors. Couples can qualify with a joint annual income of $300,000 or more. You must demonstrate this income for two years before applying for accredited investor status. 

You could also get accredited investor status through a trust, as long as the trust holds assets in excess of $5 million and was not formed to invest only in one particular fund.

Accredited investors have access to unregulated investments, commonly called Reg D investments. That's short for SEC Rule 506(c) of Regulation D for unregulated investments that must meet certain criteria, like only offering investments to accredited investors. 

Criteria for an Accredited 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 for the last two years can qualify. 

Differences Between a Qualified Purchaser and an Accredited Investor

There are significant differences between qualified purchasers and accredited investors in terms of investment opportunities, investment thresholds, and securities eligibility. Here's what you need to know. 

Investment Thresholds

While accredited investors must meet certain net worth or income thresholds, there is no minimum investment threshold. In contrast, qualified purchasers must have at least $5 million for investment as individuals or $25 million if investing on behalf of other qualified purchasers. 

Opportunities and Limitations in Investment Options

Both qualified purchasers and accredited investors have additional investment opportunities with few limitations. However, qualified purchasers have additional investment opportunities that could potentially yield higher returns. 

Securities Offerings Eligibility

Both qualified purchasers and accredited investors can invest in non-public investments. This means both can invest in unregulated securities. However, if the securities have a large investment minimum, only qualified purchasers may have the funds to invest in these opportunities. 

One key difference: accredited investors typically cannot invest in 3(c)(7) funds. 3(c)(7) funds are limited to qualified purchasers but can have up to 2,000 qualified purchaser investors. And even more limited, 3(c)(1) funds can only have up to 100 beneficial owners.

Similarities Between a Qualified Purchaser and an Accredited Investor

Qualified purchasers and accredited investors have many similarities. Both can invest in unregulated securities, which means the U.S. Securities and Exchange Commission (SEC) deems them responsible and financially secure enough to purchase securities with the potential for greater returns and losses. 

Benefits of Being a Qualified Purchaser or an Accredited Investor

The advantages of being a qualified purchaser include:

• More investment opportunities than accredited investors
• Potential for higher returns
• Access to unregulated securities
• Access to private funds typically only open to retail investors

The benefits of being an accredited investor include:

• Access to restricted investments
• Increased portfolio diversification compared to nonaccredited investors
• Potential for higher returns
• Access to unregulated securities

Best Real Estate Investing Platforms for Nonaccredited Investors

Ready to get started? If you're not an accredited investor, you’ll find many excellent real estate investing platforms open to you. Seek out the best real estate investments for nonaccredited investors and lock in your next investment opportunity here. 

Best Real Estate Investing Platforms for Accredited Investors

As an accredited investor, you have greater opportunities. Find the best real estate investment platforms exclusively for accredited investors here. 

Optimizing Your Investment Opportunity 

As an accredited investor or qualified purchaser, you have access to real estate investing opportunities, venture capital funds, and other securities that can yield higher returns. While you'll face fewer restrictions, understanding the potential risks, company structure and historical returns remain foundational to investment planning. With greater investment opportunities come the possibility of diversification across asset classes to reduce overall portfolio risk.

Frequently Asked Questions