Navigating investment opportunities as a limited partner (LP) in real estate syndications can be confusing—especially when legal structures and SEC regulations come into play. Two of the most common frameworks used for these offerings are 506B and 506C, both governed under SEC Regulation D.
In a webinar hosted by George Ozoude, MD, CEO of Time Health Capital, and Adebayo Fasanya, MD, CEO of Dr. Breathe Easy Capital, guest expert Agbaje Taiwo, CPA, founder of TRA CPA LLC, provided a clear, in-depth breakdown of the differences between 506B and 506C offerings—what they mean for limited partners, and how investors can prepare themselves to participate effectively.
What Are 506B and 506C Offerings?
Agbaje began by explaining that Regulation D provides exemptions from SEC registration requirements, allowing private offerings to be legally made to investors. The two most common exemptions used in real estate syndications are:
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506B Offerings
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Allow for up to 35 non-accredited investors and unlimited accredited investors.
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General solicitation (public advertising) is not allowed.
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Investors must have a pre-existing, substantive relationship with the sponsor.
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Accredited investors may self-certify their status—no third-party verification required.
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506C Offerings
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Open to accredited investors only.
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Public solicitation is allowed (social media, podcasts, ads, etc.).
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Third-party accreditation verification is mandatory (via CPA, attorney, or a verification platform).
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There’s no need for prior relationship between the investor and sponsor.
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Taiwo emphasized that both options offer flexibility for sponsors, but the trade-offs lie in investor eligibility, documentation burden, and timeline sensitivity.
For Limited Partners: What You Need to Know
Agbaje walked through the key considerations LPs should understand before participating in either type of deal:
🟩 506B: Ideal for Newer Investors
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You don’t need to be accredited to participate, but you must be “sophisticated” and have a relationship with the sponsor.
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The definition of a pre-existing relationship is nuanced and subjective. Taiwo recommended taking time to build trust and demonstrate understanding of investment risks—something that sponsors can better document through real conversations.
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These deals typically happen in private groups or via referrals, with no public promotion.
🟦 506C: Easier Access, Tighter Requirements
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These are typically the deals you’ll see marketed online or on social media.
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You must be accredited and verified—meaning a CPA, attorney, or third-party verification firm must confirm your financial qualifications.
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There’s no cap on investor numbers, and you don’t need a relationship with the sponsor to invest.
Accreditation: Income vs Net Worth
To participate in a 506C, investors must meet at least one of the following:
✅ Income-Based Accreditation
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$200,000 annual income (individual) or $300,000 (married filing jointly) for the past 2 years, with a reasonable expectation of continuing.
✅ Net Worth-Based Accreditation
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Net worth of $1 million or more (excluding your primary residence).
Taiwo explained the pros and cons of each route. Income-based verification is usually quicker and easier, especially if you have W-2 income. Net-worth based accreditation is more document-heavy and time-consuming, especially for those invested across multiple asset classes (real estate, syndications, stocks, retirement accounts, etc.).
Common Mistakes & Planning Tips for LPs
Taiwo offered several planning insights to help LPs avoid delays:
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Get Accredited Before You Need To
Deals move fast. Having your accreditation ready—especially if you’re planning to invest through 506C—lets you act quickly when opportunities arise. -
Track Your Financials Year-Round
Having a personal financial statement on file makes it easier to calculate net worth and pull together documentation. -
Understand Passive Loss Rules
Many physicians are surprised to learn that K-1 losses from syndications are passive, and often can’t be used to offset W-2 or 1099 income unless you qualify as a real estate professional (REP). -
Plan With a CPA Familiar With Real Estate
Taiwo recommended working with professionals who understand the tax implications of both accreditation and passive investing—especially when it comes to depreciation, suspended losses, and capital gain strategies.
What Counts as a “Sophisticated Investor” in 506B?
One of the gray areas discussed was how to define a “sophisticated” non-accredited investor for 506B deals. Taiwo explained that while there’s no strict definition, it’s typically someone who:
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Has experience in investing (stocks, real estate, or business ownership)
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Understands the risk involved in private placements
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Can make informed decisions based on basic financial knowledge
Having documentation of conversations, questionnaires, or even Zoom recordings can help sponsors prove this sophistication if ever questioned.
Final Thoughts
Agbaje Taiwo’s insights helped demystify the legal and financial layers of real estate syndications. For limited partners, understanding how and where you can invest legally, and how to plan for accreditation, is critical to taking advantage of private placement opportunities.
Whether you’re just starting out or planning your next LP investment, taking the time to prepare financially and legally can save time, reduce stress, and increase access to deals.
Want to connect with our community for more educational opportunities?
📺 Watch the full webinar here, hosted by George Ozoude, MD and Adebayo Fasanya, MD, featuring guest expert Agbaje Taiwo, CPA. You’ll learn everything you need to know about 506B vs 506C offerings, investor accreditation, and how to position yourself wisely as a passive investor.