What Is an Accredited Investor?

Why Understanding Accredited Investors Matters

Private investments are everywhere today — from real estate to venture capital to private credit.
But most people still have questions about a foundational topic:

What exactly is an accredited investor, and why does it matter?

The term gets thrown around in investment conversations, but few understand how it actually works or how it shapes access to different types of investment opportunities.

In this article, we break down:

• What an accredited investor is
• The 3 ways you can qualify
• Why the rules exist
• The difference between 506(b) and 506(c) offerings
• Who can participate in each structure
• How accreditation is verified

This is an educational overview only.
 It is not an offer of securities or investment advice.

What Is an Accredited Investor?

An accredited investor is someone the SEC deems financially experienced or financially resilient enough to participate in private, unregistered securities offerings.

The rationale is simple:

Private investments don’t have the same disclosure requirements or regulatory oversight as public markets.
So the SEC uses accreditation as a filter for investor protection.

There are 3 primary ways to qualify.

1. The Income Test

You qualify as an accredited investor if:

• You earned $200,000 or more in the last 2 years,
  
  --- Or ---
• You earned $300,000 combined with your spouse,
  AND you expect to earn the same this year.

This is one of the simplest pathways — no special licenses required, just consistent income.

2. The Net-Worth Test

You qualify if your net worth exceeds $1,000,000,
 not including your primary residence.

This calculation includes:

• Cash
• Investment accounts
• Business equity
• Secondary real estate
• Other assets minus liabilities

But it does not include equity in your home. 
This is the most commonly used accreditation path.

3. The Professional Credentials Test

In 2020, the SEC expanded accreditation rules to recognize financial sophistication, not just wealth.

Holding any of these licenses qualifies you:

• Series 7
• Series 65
• Series 82

These credentials demonstrate knowledge of financial markets and investment risks.

Why Do These Rules Exist?

The purpose is not to exclude people.
The purpose is risk protection.

Public markets — like the stock exchange — require:

• Audited financial statements
• Standardized disclosures
• Regulatory oversight

Private markets do not.

So the SEC uses accreditation as a proxy for:

• Financial stability
• Experience.
• Ability to understand risk
• Ability to absorb loss

It’s a regulatory safeguard — not a judgment on intelligence or capability.

What Is a 506(b) Offering?

Under Regulation D (the rule set that governs most private offerings), a 506(b) offering has distinct characteristics:

1. No public advertising is allowed.
   
   • No social media posts.
   • No public webinars.
   • No broad email campaigns.
2. A pre-existing, substantive relationship is required.
   
   • The issuer must already know the investor.
3. Up to 35 non-accredited but “sophisticated” investors are allowed.
   
   • These individuals must demonstrate financial understanding — but not accreditation.
4. No verification is required.
   
   • Investors can self-attest.

506(b) = private, relationship-driven capital.

What Is a 506(c) Offering?

A 506(c) offering is almost the opposite.

1. Public marketing is allowed.
   
   • Podcasts, YouTube, email campaigns, ads, social media — all permitted.
2. All investors must be accredited.
   
   • No exceptions.
3. Accreditation must be verified. 
   
   Self-attestation is not allowed.
   
   Verification typically requires:
   
   • A CPA letter.
   • An attorney letter
   • A registered investment advisor letter
   • Or a third-party service (Parallel Markets, VerifyInvestor, etc.)

506(c) = publicly marketable, accredited-only offerings with strict verification.

506(b) vs 506(c): Why the Difference Exists

The SEC is balancing 2 priorities:

1. Investor protection.
   If a deal is publicly advertised, the SEC wants to ensure only accredited investors can participate.
2. Capital markets flexibility.
   If a company wants to work privately with a known investor base, it can use 506(b) and include sophisticated—but not accredited—participants.
   
   Neither structure is “better.”
   They simply serve different purposes.

Who Can Invest in What?

506(b)

• Accredited investors.
• Up to 35 non-accredited but sophisticated investors.
• Must have pre-existing relationship.
• Cannot be publicly advertised

506(c)

• Accredited investors.
• Full third-party verification required.
• May be publicly marketed.

How Verification Works

For 506(c), investors must verify accreditation through one of these methods:

1. Letter from CPA.
2. Letter from attorney.
3. Letter from registered investment advisor.
4. Third-party verification portal.

Verification typically requires:

• W-2s or tax returns (income path).
• Brokerage statements or balance sheets (net worth path).
• License lookup (professional path).

Issuers are required to maintain documentation — again, for investor protection.

Key Takeaways

Here’s the simple breakdown:

1. You can become accredited through income, net worth, or professional licenses.
2. 506(b) investments are private, relationship-based, and may include sophisticated but non-accredited investors.
3. 506(c) investments allow public advertising but require strict accreditation verification.
4. The purpose is regulatory safety — not exclusivity.
5. Understanding these rules helps investors navigate private markets confidently and responsibly.

Educational Next Steps

For more educational content on real estate, private markets, and capital structures:

What Is an Accredited Investor?

Articles, videos, and frameworks on private capital, debt, and equity.

Discuss how private markets work at a deeper level — no commitments, no offering discussions.

Important Disclaimer

This article and the linked video are for educational purposes only and are not:

1. An offer to sell any securities.
2. A solicitation of an offer to buy any securities.
3. Investment, tax, or legal advice.

Any actual investment opportunity would be offered only through formal documents and only to eligible investors under applicable securities laws. You should consult your own advisors before making any investment decisions.

About the Author

Jeff Zimmerman is the CEO of Fort + Home, a vertically integrated real estate and construction company based in Grand Junction, Colorado. Through its Fort Homes and Fort + Home Capital divisions, the company is redefining how attainable housing is built, financed, and delivered across the Rocky Mountain region.

Follow Builder’s View for weekly education on construction, investing, and the future of housing finance.