506(b) vs. 506(c): Which Syndication Model Is Getting More Investors?

[Robert Ellis]

How are you structuring your real estate syndications to attract investors in today’s market? Are you using preferred returns, profit splits, or another strategy to stay competitive?

For those actively raising capital, what strategies are working best to bring in high-net-worth investors and LPs for your syndications? Are you relying on 506(b) private networks or going the 506(c) route with public marketing?

Also, how are you structuring equity splits, preferred returns, and waterfall distributions to stay competitive while still making deals pencil out? With rising construction and financing costs, are you adjusting your target IRR or cash-on-cash returns to keep investors interested?

[Brian Burke]

I took a 3-1/2 year break from raising capital for investments because raising money for multifamily, our core business, made no sense in a rapidly declining market.  But I just launched a new fund last week, so it's good to be back in the saddle.  But it's not for multifamily--I still think that sector is almost un-investable and just has a bit more of a struggle before recovery.  Maybe next year...

I always used 506(b) up until 2020.  In 2020 I switched to 506(c) not because I had any plans to advertise, but because my book was published by BiggerPockets and I wanted to eliminate any risk that the SEC could interpret my book launch to be a general solicitation and find me in violation of 506(b) guardrails (even though I think my book is really more of the opposite of a solicitation!).  

Fast forward to 2025 and I think enough time has passed for me to safely go back to 506(b)--but I'm not.  I still have no plans to generally solicit, but I might change my mind and now I'm able to do so.  Plus, I'm somewhat well known and have a presence on BP and 506(c) allows me to be a little less careful about what I say.

What do I give up in exchange?  Two things.  1. I have to verify accreditation of my investors.  That's not hard, and most of my repeat investors will be exempt because of the 5-year rule.  2. I give up the ability to raise from non-accredited investors.  OK--I'm limited to 35 in a 506(b) offering anyway, and if every non-accredited investor committed to $100K that's a max of $3.5 million.  In a $50 million fund, that's not significant enough to move the needle, and if I were to generally solicit I could likely raise much more than the $3.5 million I traded out.

As to your question on splits, prefs and target returns: I think right now investors want four things: 1. Highly competent sponsors. 2. Simplicity--meaning not 100 different categories of fees and hurdle tiers. 3. No financial engineering to manufacture outsized returns. 4. High cash-on-cash returns--meaning none of this 1% cash-on-cash yet 20% IRR stuff where all of the return is speculation on appreciation that never comes. Give investors high CoC day one and throughout the hold. Our fund is targeting 15-16% IRRs but 12-13% cash-on-cash. Only a sliver is speculation-driven IRR. I'm using an 8% pref and 70/30 split--doesn't get much simpler than that.

Finally, to your question about how do I stay competitive while still making deals pencil--that's also easy.  I'm not doing multifamily.  This nonsense of buying 4 caps and financing at a 6 is not rational investing.  If you can't get deals to pencil, it might be your strategy, not your structure...

[Greg Scott]

If you already have a relationship with a large group of investors, raising money through a 506(b) could be very easy.  If you don't, you may need to use a 506(c).

Raising money these days for a syndication is much harder than it was 3-4 years ago.  I'm still seeing $10M+ raises close within 48 hours, but only for those with great track records.  I've seen a lot of other deals languish for weeks, some dying for lack of interest. 

[Brian Burke]

I took a 3-1/2 year break from raising capital for investments because raising money for multifamily, our core business, made no sense in a rapidly declining market.  But I just launched a new fund last week, so it's good to be back in the saddle.  But it's not for multifamily--I still think that sector is almost un-investable and just has a bit more of a struggle before recovery.  Maybe next year...

I always used 506(b) up until 2020.  In 2020 I switched to 506(c) not because I had any plans to advertise, but because my book was published by BiggerPockets and I wanted to eliminate any risk that the SEC could interpret my book launch to be a general solicitation and find me in violation of 506(b) guardrails (even though I think my book is really more of the opposite of a solicitation!).  

Fast forward to 2025 and I think enough time has passed for me to safely go back to 506(b)--but I'm not.  I still have no plans to generally solicit, but I might change my mind and now I'm able to do so.  Plus, I'm somewhat well known and have a presence on BP and 506(c) allows me to be a little less careful about what I say.

What do I give up in exchange?  Two things.  1. I have to verify accreditation of my investors.  That's not hard, and most of my repeat investors will be exempt because of the 5-year rule.  2. I give up the ability to raise from non-accredited investors.  OK--I'm limited to 35 in a 506(b) offering anyway, and if every non-accredited investor committed to $100K that's a max of $3.5 million.  In a $50 million fund, that's not significant enough to move the needle, and if I were to generally solicit I could likely raise much more than the $3.5 million I traded out.

As to your question on splits, prefs and target returns: I think right now investors want four things: 1. Highly competent sponsors. 2. Simplicity--meaning not 100 different categories of fees and hurdle tiers. 3. No financial engineering to manufacture outsized returns. 4. High cash-on-cash returns--meaning none of this 1% cash-on-cash yet 20% IRR stuff where all of the return is speculation on appreciation that never comes. Give investors high CoC day one and throughout the hold. Our fund is targeting 15-16% IRRs but 12-13% cash-on-cash. Only a sliver is speculation-driven IRR. I'm using an 8% pref and 70/30 split--doesn't get much simpler than that.

Finally, to your question about how do I stay competitive while still making deals pencil--that's also easy.  I'm not doing multifamily.  This nonsense of buying 4 caps and financing at a 6 is not rational investing.  If you can't get deals to pencil, it might be your strategy, not your structure...

[Chris Seveney]

Quote from @Robert Ellis:

How are you structuring your real estate syndications to attract investors in today’s market? Are you using preferred returns, profit splits, or another strategy to stay competitive?

For those actively raising capital, what strategies are working best to bring in high-net-worth investors and LPs for your syndications? Are you relying on 506(b) private networks or going the 506(c) route with public marketing?

Also, how are you structuring equity splits, preferred returns, and waterfall distributions to stay competitive while still making deals pencil out? With rising construction and financing costs, are you adjusting your target IRR or cash-on-cash returns to keep investors interested?

Every sponsor will structure it differently - we have a regulation a+ offering so we can raise from accredited and non accredited but also it costs us an extra $100k than a 506c, so if you cannot raise $10M from non accredited investors I would say its not worth it. 

 Returns go with risk, how are you managing the risk - our returns are going to be much lower than others because we are unlevered - so there is no way we can compete. We have seen some note funds offer mid teen returns like Norada and you can see what happened to them. If everyone is offering a range and someone is 1.5x that range - people should take caution.

As BRian mentioned, you want to keep it very simple for investors to understand, if you have multiple fee structures and waterfalls - investors will not want to go through the mental gymnastics - you have to keep it simple.