506b vs. 506c
Let’s chat about the difference between a 506b, or a 506c offering and what the differences are.
Why they're important to understand is because these rules and regulations are for different types of syndications, in what you're available to invest in, so it's really critical to know the difference between the two.
A 506b is an offering that allows both sophisticated and accredited investors to invest. The difference between sophisticated and accredited, it means that accredited investors have a net worth of over $1 million outside of their primary residence, or they make 200k a year, individually, or 300k, a year with a spouse. along with a few other qualifications.
A sophisticated investor would be somebody who doesn't meet those requirements. Because of that, the Security and Exchange Commission, or the SEC, regulates what security is they can invest in. A sophisticated investor also needs to understand the security that's being offered and can intelligently understand it and know the risk that you're investing into. In a 506b, there's a number of a limit to the number of sophisticated investors allowed, 35, and you can have an unlimited number of accredited investors after that. Another, big difference between a 506b and 506c is that you cannot advertise the offering, you have to know the operator or the sponsor who's sponsoring the syndication before they have a deal to offer you. You have to have a pre-existing or prior existing relationship with that sponsor or operator before you can invest in their deal. You have has a phone call or a meeting, they have to understand your goals, what you know, what your investment capability is, what your knowledge about investments is, etc.
A 506c is only available for accredited investors. The investment can have an unlimited amount of verified accredited investors. You have to be able to verify It and show proof. Your CPA, an attorney, or some other financial professional will have to verify your net worth or your income for the last few years. You’ll upload your verification form onto a platform that the sponsor will have before you can actually invest in that type of deal. You may have seen on social media before or just on the internet anywhere how people are advertising investments and so with a 506c, you can do general solicitation. People can post on Facebook about it, people can send an email about it to anyone, and they can also use a crowdfunding platform.
At Adventurous Real Estate Investors, we mainly focus on 506b's so if you're interested in investing alongside of us in a deal, please feel free to reach out to us!
Until next time…
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Disclaimer: The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
