506b vs. 506c: Comparing Rule 506(b) & Rule 506(c) – A Capital Raising Overview For Real Estate Syndicators

When it comes to private placements and raising capital, understanding the distinctions between Rule 506(b) and 506(c) can be essential for everything from how to attract the right investors to what you’re allowed to share on social media to how to talk to investors, and so much more.

The type of offering you choose can have a huge impact – not only on the amount of capital you’ll be able to raise – but also on the overall growth and trajectory of your business.

Depending on where you are in your business and the size of your existing network, you’ll want to choose the type of offering that maximizes opportunities for your existing investors, while also giving you as much leeway as possible to attract new investors.

Whether you’re new to raising capital or are looking to expand your fundraising capabilities, you’re in the right place. 

In this article, we’ll dive into the ins and outs of 506(b) vs. 506(c) offerings, as well as the nuances of these two rules, in order to help you make an informed decision for your fundraising needs.

Important: Please note that we are not attorneys, so nothing here should be construed as legal advice. Please consult your own attorney for insight on your specific situation.

Key Takeaways

  • This article explains the key differences between Rules 506(b) and 506(c) of Regulation D, so you can make the right decision when it comes to raising capital for your syndications.

  • Rule 506(b) offers private placements without general solicitation, with the option to include a limited number of non-accredited investors. You must have a pre-existing relationship with all investors.

  • Rule 506 (c) permits public advertising and soliciting, but only from accredited investors that must be verified. No pre-existing relationship is required.

  • Regulation Crowdfunding (RegCF), established under the JOBS Act, provides you with an alternative funding source to reach non-accredited investors but comes with its own set of regulations & limitations.

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Understanding Regulation D And Its Impact On Private Offerings

A group of accredited investors discussing financial and business matters

The Securities Act’s Regulation D has opened up fresh avenues for businesses and real estate syndicators looking to raise capital through private offerings of securities.

Rules 506(b) and (506c), in particular, have become the go-to options when it comes to real estate syndications, yet their nuances may make one or the other more suitable depending on your unique business, as well as the pool of investors you’re looking to bring in.

This article will focus on how these two regulations differ from each other while evaluating which is best suited for raising capital given your situation.

Related: Co-GP Real Estate: How To Launch And Scale Your Own Private Equity Business

Origins And Purpose Of Regulation D

In case you’re curious about the history of how Regulation D came about, here’s a brief overview. In 1982, the Securities and Exchange Commission (SEC) introduced Regulation D to make it easier for small businesses to acquire funding by allowing them access to capital through exempt securities offerings that don’t require a public offering.

The framework also safeguards investors from any potential harm with measures such as limits on accredited investors, disclosure of pertinent information, and outlawing general solicitation.

Quick Overview: Rules 506(b) & 506(c)

Under Rule 506(b), you can raise an unlimited sum of money from accredited investors and a maximum of 35 non-accredited investors, as long as they meet certain sophistication requirements in the span of 90 days without utilizing general solicitation.

  • Can accept accredited investors: YES

  • Can accept non-accredited investors: YES

    • Up to 35 non-accredited investors

  • Can advertise: NO

On the other hand, when using Rule 506 (c), you are allowed to advertise your investments, but only for accredited investors, and you’ll need to verify each investor’s accreditation status before allowing them to invest in your deal.

  • Can accept accredited investors: YES

  • Can accept non-accredited investors: NO

  • Can advertise: YES

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Rule 506(b): Open To Non-Accredited Investors, But No Advertising

A group of investors discussing the risks of a prospective investment

Real estate syndicators have often opted for 506(b) when seeking to raise capital, as it allows not only accredited investors, but perhaps more importantly, it allows up to 35 non-accredited investors per offering.

When you’re first starting out raising capital, particularly if your existing network includes many non-accredited investors, this can be a great way to help people you already know to invest while building up your track record.

Investor Eligibility Under Rule 506(b)

Rule 506(b) offers are open to both accredited and non-accredited investors, with the latter needing to meet certain financial sophistication criteria. This financial sophistication requirement ensures that investors who are not yet accredited and thus may have a lower net worth or more moderate income are experienced enough to understand the investments they’re getting into.

Typically, investors can self-certify their accredited status when investing in a 506(b) offering, without the need to provide tax or other financial documents to verify their accreditation status. This can help to alleviate the administrative hurdle for your investors, which is another reason a 506(b) offering can be a great choice for when you’re first starting out.

Related: How To Find Investors For Your Syndication Deals

Solicitation Restrictions And Pre-Existing Relationships

The downside with a 506(b) offering, however, is that you are forbidden to advertise or conduct a general solicitation. This means that you can’t post 506(b) deals on social media, put out Facebook ads, or share them at conferences.

Further, all investors must have a substantial and pre-existing relationship with you as the issuer of the offering. This is another way that the SEC protects investors, by ensuring that you already know them and understand their financial situation.

Pro Tip: To remain in compliance with this requirement, be sure to keep clear and current records on your relationship with your investors, including how you met them, notes from conversations you’ve had, emails and other resources you’ve shared with them, and their investing experience and background.

Related: Insanely Effective Investor Calls: The Foolproof System For How To Ask Investors For Money (Including Word-For-Word Scripts!

Rule 506(c): Accredited Investors Only, But You Can Advertise

A group of investors discussing the advantages of raising capital through a Rule 506(c) offering

With Rule 506(c), you can openly advertise your deals (yay!), but you may only accept verified accredited investors into your deals. As part of this, each investor must go through the process of verifying their accreditation status, either through a third party service or through a letter from their CPA or attorney.

While this may be a bit of a burden for your investors, many investors who are experienced with private placements are familiar with this process. And, once you integrate this into your process and educate your investors on it, they won’t see it as a burden but rather part of the process.

The big draw with 506(c) offerings, of course, is that you are free to shout them from the rooftops. You can advertise them and share them openly, which can have a substantial impact on increasing your investor pool and elevating your overall raise capacity.

General Solicitation And Advertising Under Rule 506(c)

Rule 506(c) permits issuers to access a broader range of investors through the use of general solicitation and advertising, including on online platforms or social media. Want to post the deal on LinkedIn? Great! Want to put out Facebook ads? Go for it!

As long as investors are accredited, this general solicitation allows syndicators of 506(c) offerings to attract more potential investors than before due to the potential for a much greater reach.

Verifying Accredited Investor Status

In order to comply with securities regulations and maintain capital raising efforts, you must take reasonable steps to verify the accredited investor status of each investor in your 506(c) deals.

These measures may include reviewing tax returns, bank statements, or brokerage documents as well as verifying credentials from a registered broker-dealer, certified public accountant, or attorney. You can also use a third party verification tool, though you’ll want to factor in the additional expenses.

Although this accredited verification process is an added step for investors over the 506(b) process, it is required for 506(c) deals. To mitigate potential objections from investors, educate your investors about this process as early as possible so they know exactly what to expect.

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Choosing Between Rule 506(b) And Rule 506(c)

A group of investors discussing the factors to consider when choosing between Rule 506(b) and Rule 506(c)

When selecting between Rule 506(b) and Rule 506(c) when raising capital for your deals, you’ll want to take into account the following:

  • Your existing investor pool

    • Are there more accredited or non-accredited investors?

    • How much investing / financial experience do they have?

    • Is there enough capital within your existing pool, or will you need to find new investors?

    • Do your investors have experience with the accredited verification process?

  • Advertising

    • How do you plan to get the word out about your opportunity?

    • How do you plan to advertise the deal to people outside your network, if at all?

    • If you plan to advertise, what’s your advertising budget?

  • Timeline

    • How much time do you have to raise the capital you need?

    • How ready are your investors to jump into a deal like the one you’re offering?

    • How long do you plan to have your offering open? Will there be enough time to set up advertising?

Related: Is a fund of funds right for you? Find out here.

Real-World Examples And Scenarios

Let’s walk through a couple of examples, to help you better understand which type of offering might work best for you and your needs.

Example #1

Let’s say that your goal is to raise $500k within the next 30 days. You’ve spent the last few months warming up your audience – telling them about the markets you’re looking into and the types of assets you’re looking to acquire.

As such, you’re fairly confident that you’ll be able to raise $400k from 7 of your existing investors, 2 of which are non-accredited.

Given this scenario, many would likely choose a 506(b) offering, to be able to include the non-accredited investors. On top of that, with a short 30-day timeline, unless you had prepared your advertising campaign ahead of time, you might not have very much time to run the ads (as you might do with a 506(c) deal).

Plus, with just a $100k gap, you could likely go to existing investors and see if they’re interested in investing more, go back to other investors you’d previously talked with, or ask for referrals from your existing network.

Example #2

In this example, let’s say you’re raising a bit more – $2 million. You have soft commitments for $1 million, so you’re already halfway there. Most of these soft commitments are from accredited investors.

You have 60 days to raise the remainder, and you’re looking to use this deal as an opportunity to expand your overall investor base.

Given this scenario, you might consider a 506(c) deal, so you can leverage advertising and general solicitation to find more accredited investors. This will mean that you won’t be able to include any non-accredited investors in this deal, but as long as you communicate to them that you’re continuing to look for the right opportunity for them, you can perhaps bring them into the next opportunity.

Legal Implications And Compliance Issues

A group of investors discussing the penalties and risks of non-compliance

Failure to abide by the requirements of Rules 506(b) and 506(c) can have dire repercussions, including fines, lawsuits, and more.

For that reason, it is essential for you to understand your legal responsibilities when it comes to these different offering types, so you can stay in compliance and ensure that you’ll be able to continue offering more deals to your investors.

Best Practices For Compliance

To ensure compliance with 506(b) and 506(c), you’ll want to thoroughly document your interactions with each of your investors, including emails you’ve sent them, conversations you’ve had, and notes on their financial experience and background.

One of the best ways to keep this all organized is via an all-in-one CRM (customer relationship management tool) like Salesmate, ActiveCampaign, or HubSpot. These tools can also help you automate the communications and resources you send to your investors, to continue to educate them and keep them in the loop.

In addition, when sharing information with your investors about your deals, be sure to let them know what type of offering it is and who’s eligible to invest (accredited, non-accredited, or both), as well as whether they can openly share the opportunity with others.

On top of that, if you decide on a 506(c) offering, be sure to educate your investors early and often, on the process for accredited verification, so they’re not taken by surprise.

Pro Tip: Don’t reinvent the wheel! Success leaves clues, and it’s no different with syndication. Find a mentor with a strong track record, and emulate their path to success.

Bonus: Regulation Crowdfunding (RegCF) – Open To Non-Accredited, Can Advertise, Raise Up To $5M

A group of investors discussing the advantages of raising capital through a Regulation Crowdfunding offering

Fund managers have another option apart from Rules 506(b) and 506(c), known as Regulation Crowdfunding (RegCF), to acquire capital from non-accredited investors via registered crowdfunding platforms.

This section will provide a brief overview of how RegCF works so you can understand the ways a fund manager can employ it for raising money by reaching out to multiple types of investors.

What Is RegCF?

Under the JOBS Act, Regulation Crowdfunding (RegCF) has been developed as an alternative method to raise capital and enable companies to offer securities for sale in exchange for investments from accredited and non-accredited investors.

This new approach offers a level of exemption from registration requirements with respect to securities based crowdfunding, which differs greatly compared with private placements under Regulation D.

Through RegCF, you can raise up to $5 million for each acquisition. You’ll be able to include both accredited and non-accredited investors, with no pre-existing relationship required. However, keep in mind that you’ll need to use a registered third party platform and complete additional SEC filings, which may require additional time and cost.

Using RegCF To Raise Capital From Non-Accredited Investors

RegCF can be used to obtain capital from a large pool of investors, both accredited and non-accredited alike. This provides you with an alternate funding option that permits you to expand your investor base as well as diversify how you raise money.

One thing that we’ve done for our deals is to open up a diversified fund via a 506(c) offering, then open a companion RegCF offering to come in alongside the 506(c) offering to invest in a specific asset within the greater fund.

This allows us to raise capital from a diverse group of investors, set different minimum investment amounts for the different offerings, and give investors more choice when it comes to whether they want to invest in one or multiple assets.

Pros & Cons Of RegCF

When planning to raise capital, you should weigh the advantages and disadvantages of RegCF, along with the ins and outs of 506(b) and 506(c) offerings.

With RegCF, you are able to include non-accredited investors (unlike a 506(c) offering), AND you can advertise (unlike a 506(b) offering). Seems like the best of both worlds, right?

That being said, you can only raise a maximum of $5 million via RegCF, and because you must use a registered SEC-compliant crowdfunding portal, you’ll need to factor in added time and costs, as well as additional paperwork and legal costs. Prospective purchasers must carefully consider both sides before deciding if this approach is suitable for their needs.

Frequently Asked Questions

Can you change from 506(b) to 506(c)?

It is possible to switch from a 506(b) offering to a 506(c) one. The fundraising for the former must cease at least thirty days prior in order to collect money under the new 506(c) structure.

While this does seem like the best of both worlds, keep in mind the additional timing and legal costs you’ll need to factor in.

What is a 506(b) relationship?

Under SEC Reg D Rule 506(b), it is possible to sell securities to an unrestricted number of accredited investors, as well as up to 35 non-accredited investors. However, you must have a substantive and pre-existing relationship with each investor.

That means that you can’t meet a new investor today and share a deal opportunity with them tomorrow. You must be able to show that the relationship has both substance and longevity.

What is the main difference between Rule 506(b) and Rule 506(c)?

Rule 506(b) permits up to 35 non-accredited investors to invest in a private placement without general solicitation, while Rule 506(c), which only allows accredited investors, is designed for offerings that allow public advertisement.


When seeking to raise capital through private placements, it is important for real estate syndicators to understand the distinctions between Rule 506(b), Rule 506(c), and RegCF. Each type of offering offers unique benefits and restrictions that could help you reach capital raising success with your deals.

Here’s a quick recap:

  • Want to include non-accredited investors?

    • Use 506(b) or RegCF

  • Want to publicly advertise your deal so you can find more investors?

    • Use 506(c) or RegCF

  • Want to raise more than $5 million?

    • Use 506(b) or 506(c)

  • Want to include investors whom you do not have a pre-existing relationship with?

    • Use 506(c) or RegCF

  • Want to allow investors to self-certify whether they’re accredited?

    • Use 506(b) or RegCF

Next Steps

If you’re raising capital for real estate and are trying to connect with more potential investors, we’re here to help! Start by educating yourself through reading articles like this one, creating a simple lead magnet and automated funnel, and spreading the word on your business plan, to convince investors that you might be the right fit for them.

If you haven’t already, be sure to craft a compelling story through your website and marketing communications so that potential investors can understand your track record, the positive impact you’re making, and why you’ve decided to pursue this business idea – all so that investors can build trust with you, see that you can help them make a reasonable return on their investment, and consider investing their personal funds with you.

If you’d like support with any of this, including marketing, branding, investor call scripts, how to effectively raise capital, how to get calls with multiple investors every week on your calendar, how to automate your marketing funnel, and more – we’re here to help!

Through our Real Estate Accelerator program, we’ll give you all the resources, tools, and vendors we’ve used to help our coaching members successfully launch their own funds, so you don’t have to reinvent the wheel.

Learn more and apply today.

Are You Raising Capital?

Get access to our proven system – including our exact email templates, scripts, and more – so you can raise capital for your own deals.

learn more

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