Non-Accredited Followers: Real Estate Raise Options

A Rule 506(c) deal cannot take money from non-accredited followers, so a creator who wants to include them has three federal routes: a limited number of sophisticated non-accredited investors under Rule 506(b), Regulation Crowdfunding, or Regulation A. Each trades flexibility for cost, limits or oversight. If you are the sponsor, we built DoorRaise for 506(b) and 506(c) apartment raises, and we explain below where it stops.

Why can't a 506(c) deal take non-accredited followers?

Because Rule 506(c) requires every purchaser to be accredited and requires the issuer to take reasonable steps to verify it. That is the text of 17 CFR 230.506(c), and it is the price of being allowed to advertise publicly. Both paths sit inside the broader real estate syndication process.

The accredited tests are in 17 CFR 230.501(a). For individuals, they are net worth over $1,000,000 (alone or with a spouse or spousal equivalent, excluding the primary residence), or income over $200,000 ($300,000 joint) in each of the last two years, or a credential the SEC has designated, such as the Series 7, 65 or 82 per the SEC's guide.

Our accredited investor definition post lists the entity tests too. For the creator side of 506(c), see Rule 506(c) for content creators.

How do the main routes compare?

The routes differ in raise size, who can invest, how you can promote, and what you owe afterward. This table uses the rules and SEC guidance we opened for this post, and thresholds can change, so confirm them with counsel.

Topic	506(b)	Reg CF	Reg A Tier 2
Raise size	No cap in the rule	Up to $5 million in 12 months	Up to $75 million in 12 months
Non-accredited investors	Up to 35 in 90 days, must be sophisticated	Yes, with income and net worth based limits	Yes, up to 10% of the greater of income or net worth, with exceptions
Public promotion	No general solicitation	Limited notice pointing to the platform, plus testing the waters before filing	Permitted, with conditions
Intermediary	None required	SEC and FINRA registered broker-dealer or funding portal	None required
Filing	Form D notice	Form C	Form 1-A, qualified by the SEC
Ongoing reporting	None under the rule	Annual Form C-AR	Ongoing reports, confirm with counsel

Option 1: Rule 506(b) with a few non-accredited investors

This works when you have real, documented relationships with the people you invite. Non-accredited purchasers must have knowledge and experience in financial and business matters sufficient to evaluate the merits and risks, alone or with a purchaser representative, and the issuer must give them the information Rule 502(b) requires.

That disclosure includes financial statement information, and the SEC's 506(b) overview says it generally contains the same type of information as provided in Regulation A offerings. You also cannot publicly pitch the deal. The relationship test is covered in whether followers can invest under 506(b).

For an apartment sponsor, the extra disclosure usually means a longer offering document and more attorney time. See our private placement memorandum guide.

Option 2: Regulation Crowdfunding

Regulation Crowdfunding fits smaller raises from a broad base, but it changes how the whole raise works. Per the SEC's guidance for issuers (staff guidance dated October 2024), an issuer can raise up to $5,000,000 in a 12-month period and must run the offering exclusively through one online platform operated by a registered broker-dealer or funding portal.

You file a Form C with disclosures and financial statements, and the guidance says advertising of terms is limited to a notice directing people to the platform. Before filing, you may test the waters, but you cannot accept money or commitments until the Form C is filed. Annual reports on Form C-AR follow.

The financial statement burden rises with the raise size. In that guidance, a raise above $1,235,000 (or any raise by an issuer with prior Reg CF sales) needs audited statements. The thresholds are inflation-adjusted, so check the current numbers.

Our Regulation Crowdfunding for real estate post goes deeper.

What investor limits apply?

For non-accredited investors, the same guidance says that if either annual income or net worth is under $124,000, the limit is the greater of $2,500 or 5% of the greater of income or net worth. If both are at least $124,000, the limit is 10% of the greater, and the total across all Reg CF offerings in 12 months cannot exceed $124,000. These dollar figures adjust over time.

Option 3: Regulation A

Regulation A is built for bigger raises with a broader public base, and it carries the heaviest process. Under 17 CFR 230.251, Tier 1 is capped at $20,000,000 and Tier 2 at $75,000,000 in a 12-month window, and in Tier 2 a non-accredited purchaser is limited to 10% of the greater of annual income or net worth unless the securities will be listed on a national exchange.

The SEC must qualify the offering statement before sales, and Tier 2 issuers generally need audited financial statements and ongoing reports. We did not open the Form 1-A or reporting rules for this post, so ask counsel for the current requirements. The legal and accounting cost is much higher than a Rule 506 raise.

Rule 251 also excludes certain issuers, such as investment companies and development stage companies with no specific business plan. A single-property apartment LLC with a clear plan is not automatically excluded, but confirm with counsel.

A worked example (illustrative)

Suppose a creator wants to raise $1,500,000 for an apartment building. These numbers are illustrative. Compare what a 506(c) raise and a Reg CF raise ask of the investor base.

Under 506(c), at an average of $50,000, the raise needs 1,500,000 / 50,000 = 30 verified accredited investors.

Under Reg CF, consider three followers using the limits above. Follower A has income $60,000 and net worth $50,000, so both are under $124,000 and the limit is the greater of $2,500 or 5% of $60,000 = $3,000, so $3,000.

Follower B has income $90,000 and net worth $300,000, so the limit is 5% of $300,000 = $15,000. Follower C has income $150,000 and net worth $200,000, so both are over $124,000 and the limit is 10% of $200,000 = $20,000.

If the average check were $3,000, raising $1,500,000 would take 1,500,000 / 3,000 = 500 investors. It would also exceed $1,235,000, which means audited statements under the guidance. The broader base costs more administration and more process.

What can you do for non-accredited followers?

Teach them, and point them to options that do not involve your offering. Education is not an offer, as long as you keep it separate from any live deal. Our posts on how to invest in apartment buildings as a beginner and investing in apartments without being accredited are written for that audience.

Public REITs are another route, since they are exchange-listed and open to any investor. Investor.gov notes that REITs must distribute at least 90% of taxable income and that their dividends are generally taxed at ordinary rates, and it lists risks such as interest rate exposure. Our syndication vs REIT comparison explains the difference.

Our take

Our take: run an accredited-only Rule 506(c) raise for your first deal, and be plain with non-accredited followers that it is not open to them. That is better than quietly taking a few checks and risking the exemption.

We think Regulation Crowdfunding and Regulation A make sense later, when you have a repeatable process, a track record and a budget for filings. They are different businesses from a single apartment raise, with different cost and reporting.

We also think creators should resist the "just this once" request. A follower who wants in is a reason to build an education path, not a reason to bend the investor test.

Trade-offs and who this is not for

Every route to non-accredited money adds cost, process or limits. If speed and low cost matter most, an accredited-only raise is usually the lightest.

Not for sponsors who want a quick, low-cost raise. Reg CF and Reg A add filings, financial statements and ongoing reporting.
Not for creators with no documented relationships. Rule 506(b) with non-accredited investors leans on sophistication and records.
Not for anyone planning to mix routes casually. Running a public 506(c) and a Reg CF raise for the same property raises integration and messaging questions that need attorney design.

Common mistakes:

Letting a small non-accredited check into a 506(c) raise.
Assuming "sophisticated" means "interested."
Posting about a 506(b) deal to a general audience.

How DoorRaise fits in

DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from people who already trust them, under Rule 506(b) or 506(c). It is software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, so we cannot host a Regulation Crowdfunding raise, and we do not run Regulation A offerings.

We charge three flat fees and take 0% of the raise or profits.

The $500 setup fee, due when you submit the deal, covers forming the deal's LLC, investor documents from attorney-approved templates, an escrow account in the deal's name, the deal page, live call sign-up, and accreditation checks on every investor.

The $5,000 closing fee, paid from the funds raised and only if the deal closes, covers attorney review of the offering documents, sponsor, purchase contract, title and loan checks, and the Form D filing.

The $3,500 yearly fee covers bookkeeping, the tax return and K-1s while you own the property.

State filing fees are included in the $5,000 closing fee. If the raise does not close, you never pay the closing or yearly fee, and every investor gets their money back from escrow. See flat-fee pricing.

Ready to raise? Create your free sponsor page or see pricing.

FAQ

Can I let a non-accredited follower invest just a little?

Not in a Rule 506(c) raise. The rule requires all purchasers to be accredited, so even a small non-accredited check puts the exemption at risk.

What is the cheapest way to include non-accredited investors?

Often a limited number under Rule 506(b), if you know them well and can document it. Reg CF and Reg A add filings, financial statements and reporting.

Does Reg CF let me post about the deal?

Only limited notices that direct people to the platform, according to the SEC's guidance. Before filing a Form C you may test the waters, but you cannot take money or commitments until it is filed.

A real co-sponsor with defined duties and capital is a different structure from a passive investor. Have an attorney design it, because labeling an investor a partner does not change the securities analysis.

Is Regulation A realistic for one apartment building?

It can be done, but SEC qualification, audited financials for Tier 2 and ongoing reports make it heavy for a single property. Ask counsel whether the cost fits your raise.

Where do non-accredited followers go instead?

They can learn first, and consider public options such as listed REITs. Those have different risks, which Investor.gov describes.

Sources

This article is general information, not legal, tax or investment advice. Talk to a securities attorney before you choose an exemption. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.