Rule 504 for Small Real Estate Raises: How It Works

Rule 504 of Regulation D exempts an offering of up to $10 million in a 12-month period, and at the federal level it has no accredited investor test, no sophistication test and no cap on the number of investors. A small apartment deal can use it, but Rule 504 does not preempt state securities law, so the offering must be registered or exempt in every state where you sell. That work in each state, plus a general ban on advertising, is why most apartment sponsors choose Rule 506 instead.

This guide covers what Rule 504 allows, why state law matters so much, and how it compares with Rule 506 for a small raise. Rules are as of October 2026.

What does Rule 504 allow?

Rule 504 exempts offers and sales by an issuer that is not an Exchange Act reporting company, not an investment company and not a development stage company with no specific business plan. The aggregate offering price cannot exceed $10,000,000, less the aggregate offering price for securities sold within the 12 months before the start of and during the offering under Rule 504 or in violation of Section 5(a).

The SEC raised the limit from $5 million to $10 million in amendments effective March 15, 2021, according to its Rule 504 compliance guide.

Who can invest in a Rule 504 deal?

At the federal level, anyone. Rule 504 has no accredited investor requirement, no sophistication test and no limit on the number of purchasers. Rule 502(b), the extra disclosure duty for non-accredited buyers in Rule 506(b), does not apply to Rule 504.

That freedom is the reason sponsors ask about it. But federal rules are only half the picture, and the antifraud rules still apply to everything you say. States often add their own investor limits and disclosure rules.

Why does state law matter so much for Rule 504?

Section 18 of the Securities Act stops states from requiring registration of "covered securities." Section 18(b)(4)(F) makes securities sold under SEC rules issued under Section 4(a)(2), such as Rule 506, covered securities. Rule 504 is issued under Section 3(b), so it is not covered by that provision. The SEC's guide says plainly that issuers must comply with the securities laws in each state where securities are offered or sold.

Topic	Rule 504	Rule 506(b)	Rule 506(c)
Federal size limit	$10 million in 12 months	None	None
Federal investor test	None	Accredited, plus up to 35 sophisticated	Verified accredited only
State registration	Applies unless a state exemption fits	Preempted; notice filing and fee	Preempted; notice filing and fee
Advertising	Generally no, with state-law exceptions	No	Yes
Bad actor rule	Yes	Yes	Yes
Form D	Yes, 15 days after first sale	Yes	Yes

For a raise with investors in several states, Rule 504 can mean several state registrations or exemptions, each with its own forms, fees and timing. Rule 506 replaces that with notice filings. See blue sky notice filings.

Can you advertise a Rule 504 deal?

Generally no. Rule 504 incorporates the Rule 502(c) ban on general solicitation, except for offers and sales made:

Only in states that register the securities and require a public disclosure document delivered before sale, following those state rules
In states without such a process, if the securities are registered in at least one state that has it and the disclosure document goes to every purchaser
Only under state exemptions that allow general solicitation, so long as sales are made only to accredited investors

In those cases, the securities are also not restricted. Otherwise, buyers in a Rule 504 deal usually receive restricted securities. See what general solicitation is.

Does the bad actor rule apply to Rule 504?

Yes. Since January 20, 2017, Rule 504(b)(3) makes Rule 504 unavailable if the issuer would be disqualified under Rule 506(d). Events before that date must be disclosed in writing to each purchaser a reasonable time before sale. See the bad actor rule.

A worked example (made up)

A sponsor wants $1,800,000 for a 12-unit building from 30 investors averaging $60,000 each (30 x $60,000 = $1,800,000). Investors live in three states. The facts are invented.

Under Rule 506(b) with accredited investors only: file Form D, then make a notice filing and pay a fee in each of the three states. No state reviews the offering.
Under Rule 504: file Form D, then in each of the three states either register the offering (which can mean a state review of the disclosure document) or find a state exemption that fits. If one investor is not accredited, the state rules for that investor decide what is allowed.

The Rule 504 path can work when every investor lives in one state that has a workable exemption. With investors spread across states, the work multiplies.

Why do most apartment sponsors pick Rule 506?

Preemption. Notice filings instead of state registration.
No size cap. Rule 506 has no dollar limit, so a raise can grow without changing exemptions.
Advertising. Rule 506(c) allows public marketing to verified accredited investors.

The trade-off is that Rule 506(c) admits only verified accredited investors, and Rule 506(b) adds disclosure duties for any who are not. See 506(b) vs 506(c).

How DoorRaise fits in

DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from their friends and followers under Rule 506(b) or 506(c), not Rule 504. It prepares the standard offering documents, forms the LLC, files Form D and state notices, and verifies accredited investors for 506(c) deals. Escrow is at Enterprise Bank & Trust, an FDIC-insured bank, and investors fund by wire only. Fees are $1,500 at setup (non-refundable), $5,000 at closing (only if the deal closes) and $3,500 a year, with no percentage of the raise and no part of the promote. DoorRaise is not a law firm, broker-dealer, investment adviser, funding portal or bank.

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FAQ

Is the $10 million limit per deal or per issuer?

It is per issuer, over a rolling window. The limit is reduced by what the same issuer sold under Rule 504, or in violation of Section 5, in the 12 months before the offering starts and during it. A new LLC for each building starts with a fresh limit, though integration rules can still combine offerings.

Does a Rule 504 offering file Form D?

Yes. Rule 503 requires Form D within 15 days after the first sale for Rule 504 and Rule 506 offerings. The SEC charges no fee.

Can I combine Rule 504 with Rule 506?

Two offerings at the same time can be treated as one under the integration rules. See integration under Rule 152 and ask your attorney.

Next step: read what Regulation D is to see how Rules 504 and 506 fit together.

Sources

This article is general information, not legal, tax or investment advice. Talk to a securities attorney about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.