If you've looked at private real estate deals, you've probably seen "506(b)" or "506(c)" in the fine print. They sound like tax-form trivia, but they tell you a lot: who's allowed to invest, how the sponsor is allowed to find you, and what you'll be asked to prove before you can invest.
I'm not a securities lawyer, and this isn't legal advice. But as the founder of a 506(c) fund, I explain this to investors every week. Here's the plain-English version.
Important: Any numbers in this article are hypothetical examples and are not guaranteed. Omega Property Investments is not a law firm, attorney, or financial advisor and does not provide legal, tax, or financial advice. Please consult your own financial advisor (and your attorney or CPA) before investing.
The background: Regulation D
Selling an investment to the public normally requires registering it with the SEC, an expensive and lengthy process designed for public companies. Regulation D gives private companies and funds an exemption, and Rule 506 is by far the most-used part of it. Offerings under Rule 506 can raise an unlimited amount of money, and they preempt most state registration requirements (states can still require a notice filing and fee).
Rule 506 comes in two flavors: 506(b) and 506(c). The issuer files a short notice called Form D with the SEC, generally within 15 days after the first sale, for either one. You can look these filings up for free on the SEC's EDGAR database.
Rule 506(b): the "quiet" offering
Under 506(b), the sponsor:
- Can't use general solicitation or advertising. No public ads, no open social-media posts about the offering, no "invest in our deal" webinars for anyone who signs up. Sponsors typically raise from people with whom they have a pre-existing, substantive relationship.
- Can accept unlimited accredited investors, plus up to 35 non-accredited investors in any 90-day period. Each non-accredited investor must be "sophisticated," meaning able to evaluate the merits and risks alone or with a representative.
- Must give non-accredited investors extensive disclosure (similar to what a registered offering provides, including financial statements), which is why many 506(b) sponsors take only accredited investors anyway.
- Can generally rely on the investor's self-certification of accredited status, such as a questionnaire, unless the sponsor has reason to doubt it.
Rule 506(c): the "public" offering for accredited investors only
Rule 506(c) came out of the 2012 JOBS Act and took effect in 2013. Under 506(c), the sponsor:
- Can advertise and generally solicit, including websites, social media, podcasts and webinars open to the public.
- Can accept only accredited investors. No exceptions, not even one.
- Must take "reasonable steps to verify" that every purchaser is accredited. Checking a box isn't enough.
That's the trade-off: openness in exchange for verification. A sponsor talking publicly about a current offering should be running a 506(c) offering, and should ask you for proof.
Side by side
| 506(b) | 506(c) | |
|---|---|---|
| Advertising / general solicitation | Not allowed | Allowed |
| Who can invest | Unlimited accredited + up to 35 sophisticated non-accredited | Accredited investors only |
| Accredited status | Usually self-certified | Must be verified by the issuer |
| Disclosure to non-accredited | Extensive disclosure required | Not applicable |
| Amount raised | Unlimited | Unlimited |
| SEC filing | Form D | Form D |
Who counts as an accredited investor?
The SEC's definition (Rule 501(a)) includes, for individuals:
- Income: more than $200,000 in each of the last two years (or $300,000 together with a spouse or spousal equivalent), with a reasonable expectation of the same this year; or
- Net worth: more than $1 million, alone or with a spouse or spousal equivalent, excluding your primary residence; or
- Professional credentials: holders in good standing of certain FINRA licenses (Series 7, 65 or 82), added in 2020.
Certain entities qualify too, such as trusts, LLCs and companies meeting asset tests, or entities whose owners are all accredited.
How verification works in a 506(c) offering
The SEC's rule gives non-exclusive examples of verification methods:
- Income: reviewing IRS forms (W-2, 1099, K-1 or tax returns) for the past two years, plus your written statement that you expect to qualify this year.
- Net worth: reviewing recent bank, brokerage and asset statements plus a credit report (for liabilities), along with your written statement.
- Third-party letter: a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or CPA that they've taken reasonable steps to verify your status within the prior three months.
Many sponsors use an online verification service or ask for a CPA or attorney letter, so you don't have to hand your tax returns to the sponsor directly.
What changed in 2025
On March 12, 2025, SEC staff issued a no-action letter (to the law firm Latham & Watkins) saying a sponsor can generally treat verification as satisfied when an investor commits a high minimum investment: at least $200,000 for individuals or $1 million for entities. The sponsor also needs written representations that the investor is accredited and that the investment isn't financed by a third party, and must have no knowledge to the contrary. It's a practical shortcut for large checks. For offerings with lower minimums, the traditional verification methods above still apply.
Why this matters to you as an investor
- It tells you whether a sponsor is following the rules. If someone advertises a deal publicly and never asks for proof that you're accredited, that's a red flag.
- Verification protects you, too. These offerings are illiquid, lightly regulated compared with public markets, and risky. The rules exist because the SEC assumes accredited investors can bear those risks.
- You'll know what paperwork to expect, so a request for a CPA letter or financial statements doesn't surprise you.
- Neither rule means the SEC reviewed or approved the deal. A Form D filing isn't an endorsement. Do your own diligence: read the private placement memorandum (PPM), especially the risk factors, fees and conflicts of interest.
How Omega handles it
Omega Property Fund LLC is offered under Rule 506(c). That's why you'll see us talk about the fund publicly, and also why we accept only verified accredited investors. Our minimum investment is $100,000 . That's below the 2025 letter's $200,000 threshold, so every investor goes through standard verification, typically a third-party verification letter, before investing. Any offer is made only through the fund's offering documents. Not sure whether you qualify, or want to see how a private real estate allocation might fit a specific goal? Try the investment goal calculator, read our FAQ, or book a call. I'm happy to walk you through the process, with no obligation.
Charles L. White, LCDR, USN (Ret.), Founder, Omega Property Investments
This article is for educational purposes only. The numbers are not guaranteed. Omega Property Investments is not a law firm, attorney, or financial advisor and does not provide legal, tax, or financial advice; please consult your own financial advisor (and your attorney or CPA) before investing. Summaries of SEC rules are simplified; consult a securities attorney for advice about your situation. Investing in private offerings is speculative, illiquid and involves a high degree of risk, including loss of your entire investment. Omega Property Fund LLC's offering is made only to verified accredited investors under Rule 506(c) and only by means of its confidential offering documents. Past performance does not guarantee future results. Full disclosures.