Accredited Investor Definition Could Be Expanded Again, Boosting Real Estate Crowdfunding Industry

By The ArborCrowd Team
May 13, 2022

The passage of the Jumpstart Our Business Startups (JOBS) Act in 2012 sparked the beginning of the crowdfunding industry, which has since allowed individual investors to access institutional real estate deals previously unavailable to those without connections.

Lawmakers could further expand access to real estate crowdfunding deals as part of a new Republican proposed U.S. Senate bill to spur economic growth, aptly named the “JOBS Act 4.0.”

Among other modifications, the proposed JOBS Act 4.0 seeks to expand the definition of an accredited investor, which is a federally mandated qualification for investors to participate in certain private market offerings. These changes, should they be passed into law, would materially alter the landscape for many investors who despite the original JOBS Act, are still restricted from investing in offering structures such as Rule 506(c) of Regulation D of the Securities Act of 1933, a common method used for commercial real estate transactions. The JOBS Act 4.0 could potentially allow more investors to participate in these institutional real estate deals through crowdfunding.

What Is an Accredited Investor and How Is Accredited Investor Status Verified?

As we explain below, the definition of an accredited investor has changed over the years. Currently, for an individual or couple to be an accredited investor, one of the following requirements must be met:

  • They must have an annual income of at least $200,000 ($300,000 with a spouse or “spousal equivalent”) in the prior two years and reasonably expect the same for the current year; or
  • They must have a net worth of more than $1 million (individually or with a spouse or spousal equivalent), excluding the value of a primary residence; or
  • They must have obtained a financial professional license (such as a Series 7, 65, or 82 license).

There are several ways for an investor to verify their accredited investor status, including obtaining a letter from their attorney, broker-dealer, or certified public accountant, provided such professional maintains a license and is in good standing in the state in which they are licensed. An investor may also obtain third-party verification from a firm that specializes in accredited investor verification. One of the most commonly used is, which provides a secure method for investors to verify their accredited status in compliance with federal laws. ArborCrowd offers its investors a complimentary verification through for each deal it offers on the ArborCrowd platform.The Purpose of the Accredited Investor Qualification and Past Expansions of the Definition

The accredited investor qualification was created in 1982 when Rule 501 of Regulation D was adopted into the Securities Act of 1933. The idea behind limiting certain investments to accredited investors was to ensure that participating investors are sophisticated enough to understand the potential risks involved with the investments.

Upon its creation, the accredited investor definition simply required specified income, net worth and offering size thresholds. Over the past 40 years, the accredited investor definition was amended only a few times. In 1988, it was notably amended to remove a minimum investment of $150,000 to be considered an accredited investor and it added the $300,000 joint income threshold. In 2011, the definition was modified to exclude the value of a primary residence in the net worth calculation.

Additionally, in 2020, the U.S. Securities and Exchange Commission (SEC) expanded the accredited investor definition to include professionals with specific financial certifications and allow the aggregation of financial assets with “spousal equivalents”—which are defined as cohabitants that have a relationship equal to that of a spouse.

The 2020 expansion worked to address the criticism over the years that basing accredited status on income and net worth thresholds lock out investors who may have the capability, knowledge, or expertise to fully understand private investments. However, the income and net worth thresholds have never been adjusted for inflation, and therefore, qualified households have increased over the decades.

The SEC estimated ahead of its decision to expand the accredited investor definition in 2020 that there were approximately 16 million households (or 13%) in the U.S. that qualified to be accredited in 2019, up from just 1.31 million in 1982 (or 1.6%).

Nevertheless, the current accredited investor definition continues to be criticized by policymakers for being too limiting, which may be why members of the U.S. Senate Banking Committee included language to expand the definition of an accredited investor and the ability to self-certify accredited status in the proposed JOBS Act 4.0 legislation.

How Could the JOBS Act 4.0 Expand the Definition of an Accredited Investor?

If passed in its current form, the JOBS Act 4.0 could be a boon for investors who want access to institutional quality offerings, but have been shut out, by allowing individuals to qualify as an accredited investor if they pass an exam established or approved by the SEC. This would give investors who simply do not meet the financial qualifications the ability to grow their wealth by demonstrating they have the understanding and sophistication to make investment decisions.

Other significant modifications the JOBS Act 4.0 include are:

  • The ability for investors to self-certify accredited investor status, simplifying the process for both issuers of investments as well as investors.
  • Expanding the definition of accredited investor to include those who have at least $500,000 worth of investments, even if they don’t earn $200,000 (or $300,000) annually or have a net worth of more than $1 million.

Perhaps the most material change, however, would be the ability for any individual to qualify as an accredited investor if in the preceding 12-month period, they did not enter into transactions that exceeded the value of the greater of (a) 10% of the total investments held by such individual, (b) 10% of the total income of such individual (or combined income if investing with a spouse) and (c) 10% of the net worth of the individual, excluding the value of a primary residence.

While this bill is still in the early stages, and would require bipartisan support, it is substantial evidence there is strong interest to further expand the accredited investor definition, which may allow even more individual investors to access institutional real estate investments through crowdfunding platforms, promoting growth of the industry.

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