When a business, large, small and those in between want to raise capital for a particular Investment opportunity, they often seek out accredited investors. Doing so, the company avoids the requirements to file the particular security with the SEC. The thinking is an accredited investor is much morewhat is an accredited investor knowledgeable regarding investments compared to someone who simply contributes to the company’s 401(k) account or to a retirement IRA.

That can mean more investment opportunities and a “first look” when the accredited investor becomes relatively well known in investment circles. If you’re a real estate investor and you see an opportunity for an investment, how do you know if someone is considered accredited or not?

The Securities and Exchange Commission has set forth the definition for an accredited investor. An accredited investor is a person or a couple whose net worth is more than $1 million dollars, not counting the equity in their primary residence. An accredited investor must also make more than $200,000 net annually or $300,000 annually if using a spouse’s income to qualify for the accredited status and the income has a likelihood of continuance for at least three years and a two year history.

An accredited investor doesn’t have to study and pass a licensing exam, much like someone who prepares for a securities exam and obtain a Series 6 or Series 7 certification. An accredited investor simply needs to provide sufficient documentation to the entity seeking the investment. The entity will make the determination in good faith and after having reviewed the information provided, the entity can present an investment opportunity to the accredited investor without registering the offering.

Accredited investors are sought out in the investment arena by both startups and established firms alike as the process to raise funds follows a straightforward approach—contact the accredited investor, make the presentation and ask for the investment.