Updated
A 506(b) offering is a private securities raise made under Rule 506(b) of Regulation D — the exemption most real estate syndicators use to pool investor capital without registering the offering with the SEC. The sponsor forms an entity (typically an LLC) that acquires and operates the asset; investors receive membership interests in exchange for equity checks.
Who can invest in a 506(b)
The SEC allows two investor classes in 506(b):
| Investor type | Limit | Verification |
|---|---|---|
| Accredited investors | Unlimited | Self-certification via questionnaire is common |
| Non-accredited but sophisticated | No more than 35 purchasers in any 90-day period | Must be able to evaluate the merits and risks |
Accredited investor thresholds (2026) generally require individual income above $200K ($300K joint) in each of the prior two years with a reasonable expectation of the same, or net worth exceeding $1M excluding the primary residence. The SEC investor bulletin on accredited investors explains the full definition.
The practical difference from 506(c) is that 506(b) can include non-accredited purchasers. The cap is 35 purchasers in any 90-day period, and accredited investors are left out of that count. Many small multifamily and value-add syndications still talk to dentists, W-2 professionals, and local operators who can evaluate the deal and do not meet an accreditation test.
The no-solicitation rule
506(b) prohibits general solicitation and general advertising. The sponsor may only offer the deal to investors with whom they have a pre-existing, substantive relationship — no public Facebook ads, no mass email blasts to purchased lists, no posting the offering terms on a public website.
What qualifies as a substantive relationship varies by sponsor counsel, but common practice includes:
- Prior investment in a prior deal with the same sponsor
- Documented meetings, calls, or conference attendance before the offering opens
- Membership in an investor club where the sponsor has an established presence
By contrast, Rule 506(c) allows public advertising but limits the raise to verified accredited investors only — third-party verification of income or net worth is required.
Compare structures: what is a 506(c) offering · what is a syndication
How a 506(b) raise is documented
Investors receive a Private Placement Memorandum (PPM) describing the business plan, risks, sponsor track record, fee structure, and waterfall. Supporting documents include:
- Operating agreement — governance, voting rights, distribution priorities
- Subscription agreement — investor representations and capital commitment
- Form D — filed with the SEC within 15 days of the first sale of securities
The PPM is not a marketing brochure. It must disclose material risks — construction delays, vacancy, interest-rate exposure, key-person dependency — in plain language. The SEC Form D filing guide explains the federal notice requirement; many states also require a blue sky notice filing.
How syndicators pair 506(b) equity with debt
Most apartment, mobile-home-park, and value-add syndications stack 506(b) equity on top of senior debt. The capital stack typically looks like:
| Layer | Typical range | Source |
|---|---|---|
| Senior debt (DSCR or bridge) | 65–75% LTV | Lender like Jaken Finance Group |
| Preferred equity / LP equity | 25–35% | 506(b) investors |
| Sponsor co-invest | 5–10% | General partner |
Debt terms matter to passive investors. A stabilized hold might close on DSCR at 5.75%–10.5% fixed; a value-add acquisition might bridge on hard money at 8.99%–13.5% until renovation and lease-up support permanent refi. See DSCR loan for investment property and what is hard money.
Investor due diligence checklist
Before wiring capital into any 506(b) offering:
- Verify the sponsor’s track record — prior full-cycle deals, not just acquisitions
- Read the PPM risk factors — especially construction, environmental, and refinance risk
- Understand the waterfall — preferred return, promote, and return of capital order
- Confirm Form D was filed — search SEC EDGAR
- Consult a securities attorney and CPA — offerings are not one-size-fits-all
Jaken Finance Group funds the debt side of syndicated acquisitions nationwide — bridge, fix-and-flip, DSCR, and commercial — for sponsors who have raised 506(b) equity. Pre-qualify a deal · commercial property loans by asset class
Blue sky filings and state notice — 506(b) compliance
After Form D with the SEC, many states require a notice filing and fee under blue sky laws. Timelines vary:
| State example | Notice deadline | Typical fee |
|---|---|---|
| Illinois | 15 days after first sale | Varies by raise size |
| Texas | Before or after per TX rules | Filing fee |
| California | 15 days | Tiered fee schedule |
Syndicators consult securities counsel — improper solicitation (general advertising under 506(b)) can disqualify the exemption. Debt stack: DSCR at 5.75%–10.5% · hard money at 8.99%–13.5% · 506(c) comparison.
506(b) investor relations — building substantive relationships
Document pre-existing relationship before offering docs:
| Activity | Documentation |
|---|---|
| Prior deal together | Subscription history |
| Quarterly investor calls | Calendar invites + attendance |
| Conference meetings | Sign-in sheets |
| Angel group membership | Group roster |
Solicitation missteps disqualify the exemption — consult securities counsel. 506(c) comparison · commercial asset hub · DSCR for syndicated assets.
What Rule 506(b) actually counts
The operative text is 17 CFR 230.506. Offers and sales that meet paragraph (b) or paragraph (c) are deemed not to involve a public offering under section 4(a)(2) of the Securities Act. Paragraph (b) is the relationship version. Paragraph (c) is the advertised version, covered on the 506(c) explainer.
This is general education about the regulation. It is not a recommendation to buy or sell a security, and it is not advice about any one raise. Counsel licensed in the relevant states has to apply the rule to a specific offering.
Under 506(b)(2)(i), there are no more than 35 purchasers, or the issuer reasonably believes there are no more than 35, in offerings under that section in any 90-calendar-day period. The count is not a lifetime cap of 35, and it is not “35 plus anyone you forgot.”
17 CFR 230.501(e) tells the issuer who drops out of that count, for 506(b) only. Excluded purchasers include a relative or spouse who shares the purchaser’s primary residence, certain trusts and entities those people control, and any accredited investor. A corporation or partnership counts as one purchaser. If that entity was formed to buy the securities and is not itself accredited, each beneficial owner is counted separately, subject to the same exclusions.
Illustration. In one 90-day window an issuer sells to 40 accredited investors and 10 non-accredited purchasers. The 35-purchaser test looks at the 10, because accredited investors are excluded. A second window with 36 non-accredited purchasers would miss the condition, even if every one of them had a job in finance. Each non-accredited purchaser still has to be able to evaluate the merits and risks, alone or with a purchaser representative, under 506(b)(2)(ii).
Rule 501, as posted on eCFR on October 7, 2026, still uses two income tests. Individual income must exceed $200,000 in each of the two most recent years. Joint income must exceed $300,000. The person also needs a reasonable expectation of the same income this year. They also include individual or joint net worth over $1,000,000. The primary residence is not an asset. The rule lists other categories, including certain knowledgeable employees. Do not stop at the two dollar tests if a purchaser might fit a different category.
General solicitation is still banned in 506(b)
506(b) must satisfy 17 CFR 230.502, including the limit on the manner of offering. Neither the issuer nor a person acting for the issuer may offer or sell the securities by general solicitation or general advertising. The regulation’s examples include an advertisement, article, notice, or other communication in a newspaper, magazine, or similar media, or a broadcast on television or radio. They also include a seminar or meeting whose attendees were invited by general solicitation or general advertising.
A Form D filing, made in good faith, is not itself general solicitation. That does not mean the offering website can post the terms to the public. Public posting is the 506(c) path, and it drops the non-accredited purchasers.
Form D timing
17 CFR 230.503 requires a notice of sales on Form D no later than 15 calendar days after the first sale. If that day is a Saturday, Sunday, or holiday, the due date moves to the next business day. The notice is filed on EDGAR and signed by someone the issuer authorizes. If the offering is still open, an amendment is due on or before the first anniversary of the Form D, or of the most recent amendment. A material mistake must be corrected as soon as practicable. Some information changes do not require an amendment. One example is an increase in the minimum investment. A decrease of more than 10% does. Read the item list in the section before you skip a filing.
State notice filings are a separate step. The sample deadlines in the blue-sky section are not a substitute for the statute in the investor’s state. Confirm the notice with securities counsel.
Bad-actor disqualification, in outline
Rule 506(d) withholds the exemption if covered persons have disqualifying events. Covered persons include the issuer, predecessors, affiliated issuers, directors, executive officers, officers who participate in the offering, general partners, managing members, and beneficial owners of 20% or more of the voting equity. Promoters and people paid to solicit purchasers are on the list as well.
One trigger is a conviction, within 10 years before the sale, for a felony or misdemeanor in connection with the purchase or sale of a security, or involving a false filing with the Commission. For issuers, predecessors, and affiliated issuers, that look-back is five years. Other events are in the same subsection. A sponsor should run the check before the first subscription, not after the wire.
Where the property loan sits
The equity raise does not replace the mortgage. On a stabilized rental, Jaken Finance Group DSCR pricing is 5.75%–10.5%, with a close of about 14 business days. Purchase leverage goes to 85%, cash-out to 80%, and rate-and-term refinance to 85%, in select markets for qualified borrowers. A value-add bridge or fix-and-flip prices at 8.99%–13.5%, closes in 7–10 business days, and can fund up to 100% of cost while staying at or under 75% of ARV. The flip term is 6–12 months.
Illustration. Equity investors fund $1,000,000. A senior DSCR loan is $2,400,000 at 75% of a $3,200,000 price. The $2,400,000 is 75% of $3,200,000. The $1,000,000 equity check covers that $800,000 gap and leaves $200,000 toward costs. Costs above $200,000 need more cash. The illustration does not assume a preferred return. That figure belongs in the operating agreement, not in a lender quote.
Call (833) 264-7776 to discuss the debt on a non-owner-occupied property. Start with the loan menu. The equity documents stay with your securities counsel. Related reading: what a syndication is and commercial loans by asset class.
Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice. Closing times are in business days and commence upon satisfaction of borrower conditions. All loans are subject to full underwriting for loan approvals. Jaken Finance Group only finances non-owner occupied investment properties.
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Jaken Finance Group, 2300 Barrington Road, Suite 400, Hoffman Estates, IL 60196