Introduction
Launching a real estate syndication or fund means stepping into the world of securities laws—a world that can seem intimidating to even experienced investors. While your syndication attorney will guide you through the legal process, it’s essential to understand the basics of SEC regulations yourself. Being informed not only keeps you compliant but also builds trust with your investors and helps you avoid costly mistakes.
Let’s break down what you truly need to know about SEC regulations and how to stay on the right side of the law as you raise capital for your real estate deals.
Why SEC Regulations Matter
Whenever you raise money from investors—whether for a single deal or a fund—you’re offering a security, and that means you fall under the jurisdiction of the Securities and Exchange Commission (SEC).
Failure to comply with SEC rules can result in fines, lawsuits, or even being barred from future offerings.
Key Concepts: Syndications and Securities
A security exists when you pool investor money, manage the project, and promise returns. This is the case for almost all real estate syndications and funds.
Your syndication attorney will help you select the proper SEC exemption so you can avoid the full burden of registering your offering (which is expensive and time-consuming).
The Most Common SEC Exemptions for Real Estate
#1. Regulation D, Rule 506(b)
- Allows up to 35 non-accredited investors and unlimited accredited investors.
- No general solicitation (you can’t publicly advertise the deal).
- You must have a “substantive pre-existing relationship” with your investors.
#2. Regulation D, Rule 506(c)
- Only accredited investors allowed.
- General solicitation is permitted (you can advertise and market publicly).
- You must verify investors’ accredited status (not just take their word for it).
#3. Regulation A+ and Others
- These are less common for real estate syndications due to higher costs and complexity, but they can allow you to raise money from non-accredited investors with some public marketing.
What Your Attorney Handles (and What You Should Know)
Your attorney will:
- Draft your Private Placement Memorandum (PPM), subscription agreements, and entity documents.
- Advise you on which exemption to use.
- Handle state “blue sky” filings and SEC Form D.
You should:
- Understand which exemption you’re using and why.
- Know who you can market to, and how.
- Be able to explain the basics to investors—this builds credibility and trust.
Learn more about legal structures and compliance in this guide.
Common Compliance Mistakes (and How to Avoid Them)
- General Solicitation Mistakes: Advertising a 506(b) offering is a major violation.
- Improper Investor Verification: For 506(c), you must verify accredited status with documentation, not just an investor questionnaire.
- Inadequate Disclosures: Your PPM must fully disclose risks—cutting corners here is risky and unprofessional.
- Poor Record-Keeping: Keep thorough records of all communications and investor documents.
Why Staying Compliant Builds Your Brand
Investors want to know their money is safe—not just in a good deal, but in a deal that follows the rules. Being transparent and proactive with SEC compliance enhances your reputation and encourages repeat investment.
See how experienced fund managers approach compliance in my free on-demand training.
Conclusion
SEC regulations might seem daunting, but understanding the basics puts you in control and helps you build a lasting, trustworthy business. Partner with a great syndication attorney, stay informed, and always put investor protection first.
Ready to master the legal and compliance side of real estate funds and syndications?
Register for my free on-demand training and learn the step-by-step process to launch your fund the right way.