Non-Accredited Followers: Real Estate Raise Options

Many followers aren't accredited, and a 506(c) deal can't take their money. A creator who wants to include them has three other routes: a limited number of sophisticated non-accredited investors under 506(b), Regulation Crowdfunding, or Regulation A. Each trades flexibility for cost, limits or oversight.

New to this? Start with our guide to how creators raise money from followers for real estate.

Comparing the routes

The routes differ in raise size, investor limits, public promotion and ongoing reporting.

Topic	506(b)	Reg CF	Reg A Tier 2
Maximum raise	No limit	$5 million per 12 months	$75 million per 12 months
Non-accredited investors	Up to 35 in 90 days, sophisticated	Yes, with limits based on income and net worth	Yes, up to 10% of the greater of income or net worth unless listed
Public promotion	No	Only notices pointing to the portal	Yes, with conditions
Intermediary	No	Registered portal or broker-dealer required	No
SEC review	Form D notice	Form C filing	SEC qualification of Form 1-A
Ongoing reporting	None	Annual Form C-AR	Annual, semiannual and current reports

Option 1: 506(b) with a few non-accredited investors

Good when you have close relationships. Non-accredited investors must be sophisticated, alone or with a purchaser representative, and must receive disclosure that includes financial statement information. You can't publicly pitch the deal. See the substantive relationship test.

Option 2: Regulation Crowdfunding

A good match for smaller raises from a broad base. You raise through a funding portal or broker-dealer registered with the SEC and FINRA, file a Form C with financial statements, and follow advertising rules that limit what you say outside the portal. Non-accredited investors have annual limits based on income and net worth. See Regulation Crowdfunding for real estate.

Option 3: Regulation A

Built for bigger raises with a larger public base. The SEC must qualify your offering statement, financial statements are typically audited for Tier 2, and you owe ongoing reports. The legal and accounting cost is much higher than for Rule 506.

Can you run two routes at once?

Sometimes, but it needs attorney design. Mixing a public 506(c) deal with a Reg CF raise for the same property raises questions about integration and what you can say publicly.

A practical path for most creators

Most creators should run an accredited-only 506(c) raise first and consider other routes later.

Start with a 506(c) raise for accredited followers on your first deal.
Build a track record and an investor list with real conversations.
Consider Reg CF or Reg A later, once you have a repeatable process and a budget.
Be honest with non-accredited followers that this deal isn't open to them. It protects you.

Who this isn't for

Regulation Crowdfunding and Regulation A aren't for sponsors who want a quick, low-cost raise. Both add filings, financial statements and ongoing reporting.

How DoorRaise helps

DoorRaise runs 506(c) raises for apartment deals, so every investor is accredited and verified. Non-accredited followers aren't a fit for a DoorRaise deal today.

DoorRaise is for apartment buildings with 5 or more units. Start your deal or see pricing.

These guides cover the next questions most readers have.

FAQ

Can I let a non-accredited follower invest just a little?

Not in a 506(c) deal. Even a small check from a non-accredited investor can break the exemption.

What's the cheapest way to include non-accredited investors?

Often a limited number under 506(b) if you know them well. Reg CF and Reg A have more filing and reporting costs.

Does Reg CF let me post about the deal?

Only limited notices that point people to the portal once your Form C is filed. You can test the waters before that.

Can non-accredited people be co-GPs?

A real co-sponsor with duties and capital is a different structure from an investor. Have an attorney design it.

Sources

This post is general information, not legal advice. Talk to a securities attorney before you choose an exemption. DoorRaise is not a broker-dealer, investment adviser or funding portal.