Reg D & Compliance
Qualified Purchaser vs. Accredited Investor: Which Your Raise Needs
A qualified purchaser is a much higher investor standard than an accredited investor — generally an individual or entity with at least $5 million in investments. Most real estate sponsors never need one: a standard Reg D 506 offering only requires accredited investors. But the moment your fund gets large or you want to sidestep certain investment-company limits, the qualified-purchaser standard suddenly matters, and confusing it with 'accredited' can send you down the wrong structuring path.
By One Million Media4 min read
This guide explains, for sponsors, what a qualified purchaser is, how it differs from an accredited investor and a 'qualified client,' and when your raise actually needs the higher bar. It's educational, not legal advice.
What is a qualified purchaser?
A qualified purchaser is a status defined under the Investment Company Act of 1940. In broad terms, it includes an individual (or family-owned entity) who owns at least $5 million in investments, and certain entities that own and invest at least $25 million in investments on a discretionary basis. The key word is investments — it's a measure of investable assets, not net worth or income.
The status exists because of the funds that rely on it. A private fund that wants to accept an unlimited number of investors and avoid registering as an investment company can use the Section 3(c)(7) exemption — but only if every investor is a qualified purchaser. That's the main reason a sponsor would ever care about this standard.
Qualified purchaser vs. accredited investor vs. qualified client
Three different standards, three different statutes, three different purposes. Sponsors mix them up constantly:
| Standard | Rough threshold | Why it exists |
|---|---|---|
| Accredited investor | $200k income ($300k joint) or $1M net worth ex-home | Lets an offering use Reg D 506 — the standard private-raise exemption |
| Qualified client | ~$2.2M net worth or ~$1.1M managed (amounts adjust over time) | Lets an adviser charge performance fees / carried interest |
| Qualified purchaser | $5M+ in investments (individuals) | Lets a private fund use the 3(c)(7) exemption with unlimited investors |
The ladder, lowest to highest: accredited investor → qualified client → qualified purchaser. Every qualified purchaser is also accredited, but the reverse is far from true. For most single-asset syndications and smaller funds, accredited is the only standard you'll touch.
When does your raise need qualified purchasers?
You generally only need qualified purchasers when fund structure — not the Reg D exemption — forces it:
- You're running a private fund under the 3(c)(7) exemption to accept more than 100 investors (3(c)(1) caps you at 100, or 250 for certain smaller funds).
- You're raising a large fund and want institutional-grade flexibility on investor count without becoming a registered investment company.
- An institutional investor or fund-of-funds you're courting is itself structured to require qualified-purchaser counterparties.
If none of those apply — and for the typical sponsor raising a single deal or a modest fund from accredited investors under 506(b) or 506(c), none usually do — you do not need qualified purchasers. Imposing the higher bar unnecessarily just shrinks your investor pool.
What it means for structuring your offering
The investor standard and the offering exemption are two separate decisions that interact:
- Reg D 506 (the offering exemption) sets the accredited-investor requirement and whether you can advertise (506(b) vs. 506(c)).
- The Investment Company Act exemption — 3(c)(1) or 3(c)(7) — sets your investor count and whether you need qualified purchasers.
- A 3(c)(7) fund can use 506(c) and still must verify each investor is both accredited and a qualified purchaser — a higher diligence burden.
- Decide fund size and target investor count early, because they determine which exemptions you can use and therefore which investor standard your documents must enforce.
This is squarely securities-counsel territory. Get the structure right before you market — choosing 3(c)(7) and qualified purchasers (or correctly deciding you don't need them) is a decision that shapes your entire raise.
Frequently asked questions
What is a qualified purchaser?
A qualified purchaser is a status under the Investment Company Act, generally meaning an individual or family entity with at least $5 million in investments (or certain entities investing $25 million or more on a discretionary basis). It's based on investable assets, not net worth, and it exists mainly so private funds can use the 3(c)(7) exemption to accept an unlimited number of investors.
What's the difference between a qualified purchaser and an accredited investor?
An accredited investor meets income or net-worth thresholds ($200k/$300k income or $1M net worth excluding home) and is the standard required for a Reg D 506 offering. A qualified purchaser is a much higher bar ($5M+ in investments) required only for certain large private funds using the 3(c)(7) exemption. Every qualified purchaser is accredited, but not vice versa.
Does my real estate syndication need qualified purchasers?
Usually not. A standard single-asset syndication or smaller fund raising from accredited investors under Reg D 506(b) or 506(c) only needs accredited investors. The qualified-purchaser standard typically only applies when you run a private fund under the 3(c)(7) exemption to accept more than the 3(c)(1) investor limit.
What is a qualified client, and how is it different?
A qualified client is a standard under the Investment Advisers Act (roughly $2.2M net worth or about $1.1M managed by the adviser, with amounts that adjust over time) that allows an investment adviser to charge performance fees or carried interest. It sits between accredited investor and qualified purchaser on the ladder and addresses fees, not the offering exemption.
How do I verify someone is a qualified purchaser?
Verification is more involved than for accredited status because it's based on investments owned, often confirmed through documentation of the investor's holdings or a third-party letter, and the representation is captured in the subscription documents. Because a 3(c)(7) fund using 506(c) must verify both accredited and qualified-purchaser status, this should be handled with your securities attorney.
Keep reading
This article is for educational purposes only and is not legal, investment, tax, or securities advice. Securities offerings are regulated; always work with your securities attorney to structure and run your offering. One Million Media is a marketing and lead-generation provider — not a broker-dealer, investment adviser, or law firm.
