The Who, What, and How of Qualified Purchasers
When it comes to real estate investing, the term "qualified purchaser" gets thrown around a lot. But what does it actually mean? In short, a qualified purchaser is an individual or entity that meets certain criteria set forth by the Securities and Exchange Commission (SEC).
Definition
In order for an investor to be considered a qualified purchaser, they must meet one of the following conditions:
- Have an individual net worth, or joint net worth with their spouse, of more than $5 million.
- Have an individual income in excess of $200,000 per year, or joint income with their spouse in excess of $300,000 per year, in each of the two most recent calendar years and have a reasonable expectation of reaching the same income level in the current calendar year.
- Be a “family office” with at least $5 million in assets under management.
- Be a qualified purchaser as defined in Rule 501(a) of Regulation D under the Securities Act of 1933.
The definition of a qualified purchaser has changed over time and will likely continue to change in the future. For example, prior to December 2011, the thresholds were lower (an individual net worth of $1 million or joint net worth with a spouse of $2 million). As you can see, if you want to be considered a qualified purchaser, you'll need to have quite a bit of money at your disposal.
Why it Matters
So why does it matter if you're considered a qualified purchaser? Well, for one thing, it allows you to take part in certain types of investments that are not available to the general public. For example, you may be able to invest in hedge funds or private equity funds that have fewer restrictions than other types of investment vehicles.
In addition, being a qualified purchaser can also make you eligible for certain tax breaks and incentives. For example, some states offer tax breaks to qualified purchasers who invest in certain types of businesses or projects located within the state. These sorts of incentives can be quite valuable so it's definitely worth looking into whether or not you might be eligible for them.
Conclusion
If you're thinking about venturing into real estate investing, it's important to understand what a qualified purchaser is and whether or not you meet the criteria. While there are benefits to being considered a qualified purchaser, such as access to certain types of investments and eligibility for certain tax breaks and incentives, there's also a significant amount of money required in order to meet the criteria. So before you take the plunge, make sure you do your research and understand what being a qualified purchaser entails.