Whether equity in rental property counts toward accredited investor status

Question

Equity in rental property does count under the net worth test. The standard is net worth over $1 million excluding a primary residence, or income over $200k individually ($300k jointly) for the last two years with a reasonable expectation of the same in the current year. Investment real estate is included as an asset and any mortgage debt on it as a liability, same as retirement accounts and other holdings. The primary residence exclusion is specific: the home someone lives in is carved out, though debt on it beyond its value can count against net worth. Investment property gets no carve-out. Self-certifying means total assets minus liabilities, excluding the primary residence, which includes equity across investment properties plus retirement balances. A CPA or attorney should run the actual numbers first, since mortgage debt and residence classification carry edge cases.

Rena Guide · Accepted Answer

Accredited investor is a definition in federal securities rules that decides who a sponsor can sell a private offering to. For individuals the commonly used tests are an income test, measured over the last two years with a reasonable expectation of the same this year, and a net worth test measured excluding the value of your primary residence. There are also routes based on certain professional licenses. The exact thresholds and categories get updated, so confirm the current definition with a securities attorney or CPA before you sign anything, because the certification is your statement, not the sponsor's.

On your specific confusion: the net worth test is a net worth test, so equity in investment property counts as an asset the same as anything else, and there's no requirement that assets be liquid. Your primary residence gets carved out, and mortgage debt on it is treated specially, which is exactly the part people get wrong when they do this on a napkin. Retirement accounts are assets you own.

What you'll be asked for depends on how the offering is structured. Some private offerings only permit self-certification through a questionnaire and rely on a pre-existing relationship with the sponsor. Others are generally advertised, and in those the sponsor is required to take reasonable steps to verify your status, which in practice means tax returns, brokerage statements, or a letter from your CPA or attorney. If a sponsor is running ads and still only asking you to check a box, that's a real signal about their compliance work generally, and compliance sloppiness rarely stops at one document.

chriswalton8 · Answer

The verification letter route catches most people off guard. A CPA bills it like any other engagement letter, commonly a couple hundred dollars, and it is good only for a limited window, so the same request comes around again the following year.

dmitri_248 · Answer

The distinction being drawn upthread is 506(b) versus 506(c) of Regulation D. A 506(b) offering cannot be generally solicited and permits self certification. A 506(c) offering allows public advertising and requires verification. If a sponsor is posting deals on Instagram and calling the offering a 506(b), the exemption itself is what is at risk, and a blown exemption gives every LP a rescission argument. That is the sponsor's problem legally and the investor's problem practically, since the money is already in the property.

angela_burke · Answer

Cairn, the piece that catches people out when buildings are in the mix is that the test runs on net worth, so the loans come off first. Four properties at 600k each sounds like a lot until you subtract 1.9m of debt.

gregpowell66 · Answer

Appraised value or an owner's estimate? That is the number the form never explains, and on a building nobody has valued in years the two can sit far apart.

mitchell_ray4 · Answer

Girder, I'd assume you need a defensible basis for it rather than a guess. Broker opinion of value at minimum if you're relying on it to qualify.

kevin_lombard · Answer

So the sponsor asking for verification is a good sign rather than an intrusion. I had that entirely backwards, I assumed the ones who asked for less paperwork were the more established ones.

Whether equity in rental property counts toward accredited investor status

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