506b vs 506c: Why It Matters for Real Estate Investors
One of the most common questions real estate investors have is what is the difference between Rule 506b and Rule 506c. In this article we’ll explain this difference in clear terms, and why it should matter to you as an investor.
Background
It used to be that the only way for a company to raise capital was through private fundraise. They had to go to friends, family or anyone willing to put in their money for the growth of the company.
These were the times of Rule 506 of Regulation D. Its objective was to allow for companies to sell securities without registering with the Securities & Exchange Commission (SEC). The problem was that it didn’t allow for general solicitation or advertising, which created many difficulties for companies to raise capital and expand rapidly WITHOUT having to register for a public offering (which is a very complex and expensive process).
In September 2013, the SEC implemented the Jumpstart Our Business Startups Act, also known as JOBS Act. And everything changed. The old regime became Rule 506b, while the new Rule 506c was introduced.
Here Are the Differences
While 506b offerings are available to sophisticated & accredited investors, 506c can only be offered to accredited investors. Learn the difference between accredited and sophisticated investors in this article.
Here are the major differences between these two rulings:
Why It Matters for Passive Real Estate Investors
So why should all this matter to you as a passive real estate investor?
First of all, Rule 506c was introduced to stimulate the economy. It provides companies with ways to reach more investors, while investors can access private deals which were previously hard to find. The only catch is knowing if the offering is for non-accredited, accredited and sophisticated investors, which can be a limitation for investors to get involved in profitable projects.
As a General Partner or sponsor of a real estate investment this means more access to funds for projects, raising capital from their personal network (with Rule 506b), or the general public (with rule 506c) to move into bigger deals.
As a passive investor, it provides an opportunity to be part of better deals such as multifamily syndications or commercial real estate. For this, you have to be either a sophisticated investor (for Rule 506b) or an accredited investor (for Rule 506c), so it pays to build your knowledge, connections and capital for greater real estate returns.
Want to Access Better Deals With Less Stress?
Here at Titanium Investments we have a team of dedicated professionals that can help you achieve great returns through investing in real estate. And we make the process simple and stress-free.
Schedule a call with us here so we can help you define your investment goals and match your dreams with one of our projects. At Titanium Investments we believe smart passive income investments can give you the life you’ve always dreamed of. Start to create yours today.