Rule 506(b) VS Rule 506(c)

Rule 506(b) VS Rule 506(c)

By: Sean Flanagan

These are the two main rules real estate syndicators use in raising money. There are other avenues, but for today I want to focus on Rule 506(b) VS Rule 506(c).

So, what are they? Think of both 506(b) and 506(c) as guidelines or instructions we as syndicators have to follow.

Here are some differences between the two:

For a real estate offering under Rule 506(b):

—This offering would be open to “both “accredited” investors and “non-accredited” investors.

—This offering would only allow up to 35 “non-accredited” investors.

—With “non-accredited” investors in the deal, I would need to provide a PPM (Private Placement Memorandum).

—This offering would not be marketed. For example, I couldn’t promote this deal through any social media, print ads, etc.

For a real estate offering under Rule 506(c):

This offering would be open to “accredited” investors only.

This offering could have an unlimited number of “accredited” investors.

A PPM is still provided in this offering.

I would be able to promote, advertise, and market this offering anywhere.

I would say for someone just learning about real estate syndications and the difference between 506(b) VS 506(c) those are the main takeaways.

So then the question to be answered …Sean what rule would you use?

Well, being honest I would use Rule 506(b). I would want the real estate offering to be open to “non-accredited” investors. By doing this, I am giving 99% of all my family and friends the opportunity to invest in the deal along with me. If I went straight for a 506(c) offering, only 1% of my family and friends would be able to invest in the deal. Sarah and I started our business with the goal and focus not just on acquiring 1,000 unit portfolio, but helping others along the way. We want to not only teach financial literacy to our investors but help them achieve their financial goals as well. 

I’m curious have you ever invested in a real estate syndication before? If so, was it a 506(b) or 506(c), or something completely different?

Let me know, send me an email sean@jamesonassetmgmt.com

All the best, be great!

~ Sean

‍