What Is a 506(c) Offering? Rules for Real Estate Sponsors

A 506(c) offering is a private securities offering under SEC Rule 506(c) that lets you advertise publicly, with no cap on the amount you raise. The trade is that every buyer must be an accredited investor, and you must take reasonable steps to verify it. If you are the sponsor, we built DoorRaise for raises like this, and accreditation checks on every investor are part of the setup.

What does Rule 506(c) require?

Rule 506(c) has two conditions that matter day to day: all purchasers must be accredited investors, and the issuer must take reasonable steps to verify that status. The text is in 17 CFR 230.506(c). It also requires the sale to satisfy Rule 501 (definitions) and Rule 502(a) and (d), which cover integration and resale limits.

What 506(c) leaves out is the ban on general solicitation. That ban sits in Rule 502(c) and applies to 506(b) raises, not 506(c). Read what general solicitation is if you are unsure what the ban covers.

The offering also has to clear the bad actor rule. A disqualifying event for the issuer or a covered person takes Rule 506 off the table, whether you advertise or not.

This post sits inside the bigger process of a real estate syndication. Here we stay on the 506(c) piece: what it is, how verification works, and when it is the wrong choice.

Who counts as an accredited investor?

For individuals, the main tests in 17 CFR 230.501(a) are net worth over $1,000,000, or income over $200,000 (or $300,000 with a spouse or spousal equivalent) in each of the last two years with the same expected this year. Net worth is measured alone or jointly with a spouse or spousal equivalent, and it excludes the primary residence.

Entities can qualify too, for example with total assets over $5,000,000 if they were not formed to acquire the securities. Some people qualify through professional certifications the SEC has designated. Our guide to the accredited investor definition goes through every category.

The definition is under review. As of October 2026, the SEC has published a request for comment (notice dated September 30, 2026, Release 33-11445) on possibly designating a FINRA-developed accredited investor exam under Rule 501(a)(10). It is a request for comment, not a rule. Check the current text before you launch.

How do you verify accredited status?

The rule is principles-based: you take "reasonable steps," judged on the facts of each investor. The rule lists methods for natural persons, but they are non-exclusive, and a method only works if you do not know the person is actually not accredited.

Method	What you collect	Timing
Income	IRS forms (W-2, 1099, Schedule K-1 or Form 1040) for the two most recent years, plus a written statement that the investor reasonably expects to reach the income level this year	Two most recent years
Net worth	Asset documents (bank, brokerage, CD statements, tax assessments, appraisals) and a consumer report from a nationwide agency, plus a written statement that all liabilities are disclosed	Dated within the prior 3 months
Third-party letter	Written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney in good standing, or CPA in good standing	Within the prior 3 months
Prior verification	Written representation at the time of sale, if you verified the person before and know nothing to the contrary	Valid for 5 years

The method for joint income or joint net worth with a spouse needs documents and statements from both spouses.

The high-minimum approach

In March 2025, SEC staff issued a no-action letter that gave sponsors another path. An issuer can reasonably conclude it took reasonable steps if the investor commits to a minimum investment of at least $200,000 (natural person) or $1,000,000 (legal entity), represents in writing that they are accredited and that the minimum is not financed in whole or part by a third party for the purpose of the investment, and the issuer has no actual knowledge that those statements are false. There are separate rules for entities that qualify only because all their owners are accredited. See the Dechert summary.

That is staff guidance (a no-action letter and related interpretations), not a rule change, and the 506(c) rule text itself is unchanged. Whether it fits your deal is a question for your securities attorney. Our post on accredited investor verification walks through the practical choices.

A worked example (illustrative)

Say a sponsor opens a $2,000,000 equity raise for a 24-unit building and posts about it publicly. Four different situations can come up across the first investors. All numbers below are illustrative.

Investor A commits $250,000. That clears the $200,000 minimum in the staff letter, so the sponsor collects a written accredited representation and a written statement that the money is not borrowed for this purpose. No tax returns are needed if counsel agrees the letter's conditions are met.
Investor B wants to put in $75,000. That is below $200,000, so the sponsor falls back on documents. B and her spouse show joint income of $320,000 and $340,000 on their last two returns, both over $300,000, and sign a statement that they expect the same this year.
Investor C wants $100,000 and has strong assets but few tax documents. His CPA provides a dated letter confirming he is accredited, within the prior 3 months.
Investor D has $90,000 and says she is accredited, but cannot show any support. The sponsor cannot accept her under 506(c) as things stand.

A $2,000,000 raise built from eight $250,000 investors would be 8 x $250,000 = $2,000,000, with every investor eligible for the high-minimum approach. The same raise built from $50,000 tickets would need 40 investors, each with a document-based check. The ticket size changes your verification workload more than almost anything else.

What can you say when you advertise?

You can advertise, but every statement is still covered by the antifraud rules. Avoid guarantees, cherry-picked returns, and projections you cannot support with assumptions.

Keep a copy of what you published, and keep the story consistent with your offering documents. Our posts on what creators can say about a deal and raising money on social media go deeper on wording and platform habits.

506(c) vs 506(b)

The core difference is who you can talk to and who can invest. 506(c) lets you talk to anyone but limits buyers to verified accredited investors, while 506(b) limits who you can solicit but can include up to 35 sophisticated non-accredited purchasers in any 90 calendar days.

Topic	506(b)	506(c)
Advertise publicly	No	Yes
Non-accredited investors	Up to 35, if sophisticated	None
Verification	Reasonable belief, often by questionnaire	Reasonable steps to verify
Raise limit	None	None
Form D	Yes	Yes

The SEC's own page on Rule 506(b) confirms the 35-purchaser cap, the no-advertising condition and the Form D deadline. For a decision framework, read 506(b) vs 506(c).

What do you file after the first sale?

You file Form D electronically with the SEC no later than 15 calendar days after the first sale, and you handle state notice filings. Under Rule 503, if the due date falls on a weekend or holiday it moves to the next business day, and you amend the form annually if the offering continues.

Rule 506 securities are "covered securities" under 15 U.S.C. 77r, which generally keeps states from requiring registration. States can still require copies of your federal filing, a fee and consent to service of process, and timing varies by state. See how to file Form D and blue sky notice filings.

Our take

Our take: 506(c) is the right default for a sponsor whose main plan is public reach, and the wrong one for a sponsor whose investors are all people they already know well. If you do not plan to advertise, the extra verification step may add friction with little benefit.

We think the verification burden is also a feature. A clean paper trail of how you checked each investor is the best answer to a regulator or an upset investor later. It is far easier to build it as you go than to reconstruct it after the closing.

We also think sponsors should decide early, in writing. Switching from 506(b) to 506(c) mid-raise raises questions about prior outreach that your attorney needs to work through.

Trade-offs and who this is not for

506(c) costs you the non-accredited investors, adds an intake step, and exposes more of your paperwork. For some sponsors that is a poor trade.

Friends and family who are not accredited. If part of your circle will not pass the tests, 506(c) shuts them out. See options for non-accredited investors.
Investors who value privacy. Some will not hand over tax returns or statements. The high-minimum approach and the third-party letter reduce that friction, but the friction remains.
Small first deals with a close circle. If you know everyone who will invest, a 506(b) raise may be simpler.
Sponsors who cannot document steps. Reasonable steps means evidence. If you will not keep records, you will struggle to defend the raise.

A common mistake is treating the investor's checkbox as the whole check. In a 506(c) raise, the checkbox is a starting point and the evidence behind it is the real work.

How DoorRaise fits in

DoorRaise helps sponsors raise equity for apartment buildings with 5+ units under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money.

For a 506(c) raise, the three flat fees map onto the work like this:

$500 at setup forms the deal's LLC, prepares investor documents from attorney-approved templates, opens an escrow account in the deal's name, builds the deal page, and runs accreditation checks on every investor. It is not refunded if the raise does not close.
$5,000 at closing, paid from the funds raised and only if the deal closes, covers attorney review of the offering documents, sponsor background and purchase contract checks, Form D filing and electronic signing.
$3,500 a year while you own the property, paid from the property's income, covers bookkeeping, the tax return and K-1s for every investor, and investor updates.

State filing fees are included in the $5,000 closing fee. We take 0% of the raise or profits.

Ready to raise? Create your free sponsor page or see pricing.

FAQ

Can I use a 506(c) offering for apartment buildings?

Yes. Rule 506 applies to securities offerings in general, including interests in a company that owns real estate. Your offering documents describe the property and the business plan.

Is there a limit on how much I can raise under 506(c)?

No. Rule 506 has no dollar cap, unlike Rule 504, which is limited to $10,000,000 in 12 months.

Can I switch from 506(b) to 506(c) mid-raise?

Sometimes, but you have to deal with what you already did. If you spoke publicly under a 506(b) plan, ask your attorney before you change course.

Is self-certification enough to verify accredited status?

Not on its own. The rule asks for reasonable steps, and the listed methods involve documents, a third-party letter, or the high-minimum approach described in the March 2025 staff letter. Your attorney can tell you what is enough for your investors.

Do I need to file with the SEC?

Yes. File Form D within 15 calendar days after the first sale. Most states also want a notice filing and a fee.

Can a non-accredited friend join if they invest through an accredited entity?

An entity can qualify through its own assets, or in some cases because all its equity owners are accredited. A shell formed just to let a non-accredited person in is not a workaround, so check structure with counsel.

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.