What is a qualified purchaser?
A qualified purchaser is a person or entity that meets one of the definitions in Section 2(a)(51)(A) of the Investment Company Act of 1940. The test is based on investments owned, not income or net worth. Congress created the category in 1996 to let private funds take larger numbers of very wealthy investors without registering as investment companies.
The status matters because of Section 3(c)(7). A fund whose securities are owned only by qualified purchasers, and that doesn’t make a public offering, isn’t treated as an investment company. That spares it from the 1940 Act’s registration and operating rules, which were built for mutual funds, not private real estate deals.
Who counts as a qualified purchaser?
Section 2(a)(51)(A) lists four kinds of qualified purchasers, and SEC Rule 2a51-3 adds a fifth path for entities owned entirely by qualified purchasers. The statute sets these dollar amounts with no inflation indexing.
| Type of investor | Test | Source |
|---|---|---|
| Individual | Owns at least $5 million in investments, including investments held jointly or as community property with a spouse | ICA 2(a)(51)(A)(i); Rule 2a51-1(g) |
| Family company | Owns at least $5 million in investments and is owned by two or more related people, such as siblings, spouses or lineal descendants, or their estates, foundations or trusts | ICA 2(a)(51)(A)(ii) |
| Trust | Not formed to buy the securities offered, and the trustee and each person who contributed assets is a qualified purchaser | ICA 2(a)(51)(A)(iii) |
| Institution or other person | Owns and invests on a discretionary basis at least $25 million in investments, for itself or other qualified purchasers | ICA 2(a)(51)(A)(iv) |
| Entity owned by qualified purchasers | Each beneficial owner of the entity is a qualified purchaser | Rule 2a51-3(b) |
What counts as investments under Rule 2a51-1
Rule 2a51-1 defines investments, and the definition is narrower than net worth. Securities, real estate held for investment, commodity interests, certain financial contracts and cash held for investment all count. Your home, the building your business operates from and the stock of a private company you control generally don’t.
- Securities: stocks, bonds, funds and private placement interests, but not securities of a company you control unless it is a public company, an investment vehicle or has at least $50 million of shareholders’ equity.
- Real estate held for investment: rental property and apartment buildings count; property used as a residence or as a place of business generally doesn’t, unless you are primarily in the business of investing in, trading or developing real estate.
- Cash and cash equivalents held for investment, including bank deposits and the net cash surrender value of an insurance policy.
- Commodity interests and physical commodities held for investment, and certain financial contracts.
- Valuation: fair market value on the most recent practicable date, or cost.
- Deductions: subtract any outstanding debt incurred to acquire or for the purpose of acquiring the investments, such as the mortgage on a rental building.
Worked example: does an apartment investor reach $5 million?
Say an investor holds a $2,400,000 brokerage account, $300,000 of cash set aside for investing and two apartment buildings worth $3,800,000 in total, with $1,900,000 of mortgages used to buy them. The investor also owns a $1,500,000 home and an operating business they control.
The home and the controlled business don’t count. The buildings count at $3,800,000, but the $1,900,000 of acquisition debt is subtracted. That gives $2,400,000 + $300,000 + $3,800,000 − $1,900,000 = $4,600,000 of investments, which falls short of the $5 million test, even though the investor easily clears the $1 million net worth test for accredited investor status.
Now suppose the investor and spouse invest jointly in a 3(c)(7) fund, and the spouse has a separate $600,000 account. Rule 2a51-1(g) lets spouses making a joint investment each count the other’s investments, so the couple has $5,200,000 and qualifies for that joint investment.
| Item | Counts? | Amount counted |
|---|---|---|
| Brokerage account | Yes | $2,400,000 |
| Cash held for investment | Yes | $300,000 |
| Two apartment buildings (market value) | Yes | $3,800,000 |
| Mortgages used to buy the buildings | Subtracted | −$1,900,000 |
| Primary home | No | $0 |
| Controlled private business | No | $0 |
| Investor alone | Below $5 million | $4,600,000 |
| With spouse’s $600,000 account (joint investment) | Meets $5 million | $5,200,000 |
3(c)(7) funds vs 3(c)(1) funds
A 3(c)(1) fund can sell to accredited investors but is limited to 100 beneficial owners. A 3(c)(7) fund can have more, but every investor must be a qualified purchaser. Neither can make a public offering. A qualifying venture capital fund may have up to 250 investors under 3(c)(1), but that carve-out is limited to venture funds with no more than $10 million of capital, so it rarely, if ever, applies to real estate.
A 3(c)(7) fund has no investor cap in the 1940 Act, but it still watches Section 12(g) of the Securities Exchange Act, which generally requires registration once an issuer has more than $10 million in total assets and a class of equity held of record by 2,000 persons or 500 non-accredited investors. Because these funds usually sell through Rule 506 of Regulation D, investors generally must be accredited as well as qualified purchasers.
| Feature | 3(c)(1) fund | 3(c)(7) fund |
|---|---|---|
| Investor test under the 1940 Act | None, though Reg D usually requires accredited investors | Every investor must be a qualified purchaser |
| Investor limit | 100 beneficial owners (250 for a qualifying venture capital fund) | No 1940 Act limit; Exchange Act 12(g) caps holders of record in practice |
| Public offering | Not allowed | Not allowed |
| Performance fees by a registered adviser | Each investor must be a qualified client | Qualified purchasers count as qualified clients |
Qualified purchaser vs accredited investor vs qualified client
These three statuses come from three different rules and serve three different purposes, so meeting one doesn’t mean you meet the others. Accredited investor status, under Rule 501(a) of Regulation D, decides who can buy most private placements. Qualified client status, under Advisers Act Rule 205-3, decides whether a registered investment adviser may charge you a performance fee such as carried interest. Qualified purchaser status decides who can invest in a 3(c)(7) fund.
The qualified client thresholds rose for agreements entered into on or after June 29, 2026, under an SEC inflation order. Our accredited investor requirements guide covers the accredited tests in detail.
| Status | Rule | Individual threshold | What it unlocks |
|---|---|---|---|
| Accredited investor | Securities Act Rule 501(a) | $1 million net worth excluding primary residence, or $200,000 income ($300,000 with spouse or partner); or a Series 7, 65 or 82 license | Most Reg D private placements, including 506(c) |
| Qualified client | Advisers Act Rule 205-3 | $1.4 million under management with the adviser or more than $2.7 million net worth excluding primary residence (from June 29, 2026) | Performance fees from a registered adviser |
| Qualified purchaser | Investment Company Act 2(a)(51) | $5 million in investments (net of acquisition debt) | 3(c)(7) funds |
How real estate funds use these exclusions
Many real estate vehicles never need 3(c)(1) or 3(c)(7) because they aren’t investment companies in the first place. The 1940 Act targets issuers that are primarily in the business of investing in securities, or that hold investment securities worth more than 40% of their total assets. A fund that owns apartment buildings directly is in the business of owning real estate, which isn’t a security.
Section 3(c)(5)(C) also excludes issuers primarily engaged in purchasing or otherwise acquiring mortgages and other liens on and interests in real estate, as long as they don’t issue redeemable securities. Real estate debt funds and some equity funds rely on it.
Funds that invest through joint venture interests, preferred equity or other securities can cross the line, and those funds then rely on 3(c)(1) or 3(c)(7) instead. Which exclusion fits is a structuring decision for fund counsel, and it is spelled out in the private placement memorandum.
Qualified purchasers and multifamily syndications
Most multifamily syndications don’t require qualified purchaser status. A typical deal forms one LLC or limited partnership to buy one apartment building and raises equity under Rule 506(b) or Rule 506(c), so accredited investor status is the main hurdle. Under 506(b), the sponsor can’t advertise and may admit up to 35 sophisticated non-accredited investors; under 506(c), it may advertise but must take reasonable steps to verify that every investor is accredited.
Qualified purchaser language shows up in larger blind-pool funds, funds of funds and platforms that pool investors into a vehicle that buys interests in other entities. If a subscription document asks you to certify qualified purchaser status, the fund is probably relying on 3(c)(7). Our rule 506(b) vs 506(c) guide explains how each offering type works.
How qualified purchaser status is verified
Qualified purchaser status is typically established through representations in the subscription agreement and an investor questionnaire, supported by account statements if the sponsor asks for them. Rule 2a51-1(h) lets a fund treat someone as a qualified purchaser if it reasonably believes the person meets the definition, which is why sponsors ask detailed questions about what you own and what you owe.
Expect questions about each asset type, the acquisition debt on real estate and whether you are investing jointly with a spouse. An entity formed for the specific purpose of investing in the fund can’t count its own assets; under Rule 2a51-3(a), it qualifies only if each of its owners is a qualified purchaser.
Don’t confuse this with a separate qualified purchaser term in Section 18(b)(3) of the Securities Act, which concerns state preemption for registered offerings and was the subject of an SEC proposal in 2026. When fund documents say qualified purchaser, they almost always mean the Investment Company Act definition.
Investing in multifamily with Skyline
Skyline Capital Investments buys apartment buildings with five or more units and works with passive investors through our Investor Network. Most of our offerings are limited to accredited investors, and the investor standard for any offering is set out in its offering documents.
Specific offerings are made only to eligible investors through those documents. Join the Investor Network to get educational material, ask questions about how our deals are structured and hear about opportunities that may fit you.
