Most private real estate investments are structured as Regulation D offerings under the Securities Act of 1933. Understanding how these offerings work — and what protections they provide — is essential knowledge for any accredited investor considering private placements.
Regulation D allows companies to raise capital from accredited investors without going through the full public registration process. The most common exemptions are Rule 506(b) and Rule 506(c). Under 506(b), issuers can raise unlimited capital from up to 35 non-accredited investors and any number of accredited investors, but cannot use general solicitation. Under 506(c), issuers can generally solicit — meaning they can advertise — but all investors must be verified as accredited.
What Accredited Investor Status Means
The SEC defines an accredited investor as someone with income exceeding $200,000 individually ($300,000 jointly) for the past two years with a reasonable expectation of the same, or a net worth exceeding $1 million excluding primary residence. Professional certifications including Series 7, 65, and 82 licenses also qualify individuals.
Accredited investor status exists because private placements carry risks that public securities do not — illiquidity, limited disclosure requirements, and concentration. It is not a guarantee of investment quality, but it signals that the investor has the financial sophistication to evaluate and absorb the risks involved.