5 Ways to Qualify as an Accredited Investor Even With a Low Income

Let’s face it: every investor needs either disposable income or considerable assets to yield high returns. This is especially true if you want to invest in entrepreneurial projects and other small businesses, because most of these deals use the Securities and Exchange Commission (SEC) registration exemptions in Rule 506 of Regulation D of the Securities Act. In general, both Rule 506(b) and  Rule 506(c) of Regulation D require all sales to be made only to accredited investors. 

Rule 501 of Regulation D defines one category of an accredited investor as “a natural person with income exceeding $200,000 USD in each of the two most recent years or joint income with a spouse or spousal equivalent exceeding $300,000 USD for those years and a reasonable expectation of the same income level in the current year.”  

Please note that if your annual income doesn’t meet the threshold mentioned above, you may still qualify as an accredited investor using the net worth test. 

The net worth test for accredited investors under Rule 501 of Regulation D requires the individual net worth of any “natural person,” or the joint net worth with that person’s spouse or spousal equivalent, to exceed $1 million USD, with some important caveats regarding the primary residence. Even though the primary residence presents a significant boost to net worth for many, Rule 501 excludes its value for net worth calculations, posing additional challenges for some individuals. Therefore, it is essential that we consider a few other viable wealth-building options that can make a difference and help a prospective accredited investor. Here are five practical strategies to take into account.

1. Pay Off Debts

While reducing or eliminating existing debt may seem obvious, this very important method is so easy to overlook. For example, it’s often best to pay off high-interest debt first. In addition, you can often get a lower rate on a loan if you consolidate or refinance. While weekly and bi-weekly payments will decrease the interest and the principal faster, beware of early payment penalties, especially on mortgages. If you are considering a home equity loan to lower the interest rate on your debts, remember that defaulting may potentially result in property loss, which is one of the most devastating occurrences for any property owner. When it comes to credit card debt, a 0% finance offer may help, but watch out for potential fees and penalties. Using home equity loans to diminish debt can help you qualify to be an accredited investor, so long as the home equity loan was not incurred in the last sixty days and does not exceed the value of your primary residence.

2. Track Your Expenses to Reduce Debt

To reduce or pay off your credit card debt, try to track your expenses as diligently as possible. Are you noticing any spending patterns or careless habits that need to be eliminated? It’s a no-brainer that tracking everyday expenses will help you make adjustments over time. Furthermore, keeping home, automobile, and leisure expenses low can go a long way toward decreasing debt and increasing the financial resources you may need to benefit from lucrative investment opportunities.   

3. Manage Your Assets Properly

A few simple techniques can help you manage assets for maximum net worth. For instance, you can keep most liquid assets in interest-bearing accounts, as opposed to letting your assets “stagnate” in checking accounts. When calculating your net worth, remember to add the taxes on your assets to your liabilities. Furthermore, be sure to get collectibles appraised, as you may decide that the money is worth more to you than the item. If you can invest as well as save, try to do so.

4. Utilize Your Employer’s Retirement Contribution-Matching Programs

Retirement accounts defer your taxable income to your lowest earning years while generating revenue. If possible, you may want to maximize these contributions, especially if your employer can match them. After all, who wouldn’t want to double their investment? Therefore, it comes as no surprise that unexpected cash increases are perfect opportunities to do this.

5. Invest Wisely and Consider Stock Market Alternatives

Sometimes, diverse portfolios can mitigate risks and bring stable returns, as long as you invest wisely. Therefore, you may want to consider adding alternatives to traditional stocks and bonds, index funds, mutual funds, or pension funds. For example, a guaranteed investment contract (GIC) from an insurance company sets a certain rate of return if you maintain a deposit for a specified period of time. Another stock market alternative, the private placement offering, is a risky, but a potentially very lucrative path for investors with a higher income or net worth.

The most optimal way to use this long-term strategy is to make smaller investments in multiple startups, rather than investing one lump sum in a single company. For safer investments in private placements, seek out those startups that have already obtained some seed money.

There are several key ways to document your net worth in order to obtain accredited investor verification status. When you contact VerifyInvestor.com today, we will guide you through the quick and easy process, and our highly experienced attorneys will review your submissions thoroughly.

New Addition:

Here are an additional five tips to become an accredited investor with low income:

Education and Experience: If an individual has significant knowledge and experience in the financial industry, they may qualify as an accredited investor. For example, a person who holds a professional certification like a series 7, 65, or 82 may be considered an accredited investor.

Joint Income: If an individual is married and files a joint tax return, their combined income may qualify them as accredited investors. Even if only one spouse or spousal equivalent earns an income, they can still count the other spouse's income towards the joint income threshold.

Net Worth Calculation: If an individual has a significant net worth, they may qualify as an accredited investor. An individual can calculate their net worth by subtracting their liabilities from their assets. Assets can include real estate, investments, retirement accounts, and other valuables like art or jewelry.

Crowdfunding: Many crowdfunding platforms allow investors to participate in private offerings without meeting the accredited investor requirements. However, there are investment limits, and investors should still do their due diligence before investing.

SEC Exemptions: Certain SEC exemptions, such as Regulation A+ and Regulation Crowdfunding, allow non-accredited investors to participate in private offerings. However, these exemptions have specific requirements and limitations, so investors should thoroughly research and understand them before investing.