Regulation A vs Regulation D

Regulation A and Regulation D are two separate SEC exemptions that allow companies to raise capital without filing a full IPO. Regulation A opens to all investors but requires more disclosure; Regulation D is limited to accredited investors but has lighter regulatory burden. Real estate platforms choose one or both based on their market strategy.

Key takeaways

• Regulation A ("mini-IPO") allows up to $75 million in annual raises, open to all investors, with SEC-filed offering circulars and annual audits
• Regulation D (primarily Rule 506c) allows unlimited raises, limited to accredited investors, with lighter disclosure and no SEC filing
• A platform using Regulation A incurs higher compliance costs but reaches a broader investor base; Regulation D is cheaper but excludes non-accredited investors
• Some platforms (Fundrise, Arrived) operate both Reg A and Reg D offerings simultaneously
• The choice between them fundamentally shapes investor access and platform economics

Regulation D: The accredited-only path

Regulation D is a broad exemption from SEC registration, created in 1982 to enable private capital raises without the burden of public-market disclosure requirements. Within Regulation D, Rule 506c is the most common for real estate.

Key features of Rule 506c:

• Unlimited capital raise per offering (you can raise $100M if demand supports it)
• Limited to accredited investors (income >$200k, net worth >$1M excluding home, or specific professionals)
• No limit on number of investors (unlike Rule 506b, which limits non-accredited investors)
• Must verify accreditation (via tax returns, net-worth statements, or other methods)
• No mandated SEC filing; however, you must file a Form D within 15 days of first sale
• Limited disclosure requirements; offering documents are not SEC-reviewed
• No ongoing reporting; founders can operate in privacy

Platforms using Rule 506c exclusively:

• Yieldstreet
• RealtyMogul
• Most traditional private REIT sponsors

The economics of Rule 506c are favorable for sponsors. Compliance costs are modest (legal fees to draft offering documents, accounting for accreditation verification). This allows platforms to keep fees lower and retain more profits. For investors, the downside is that disclosure is lighter—there's no SEC review, and the offering document is marketing material created by the sponsor.

Regulation A: The mini-IPO path

Regulation A, created by the JOBS Act of 2012, is designed to be a lighter-weight alternative to a full IPO. It allows companies to raise up to $75 million per year (increased from $50 million in 2023) and explicitly permits non-accredited investors. The trade-off is more regulatory compliance.

Key features of Regulation A:

• Up to $75 million annual raise
• Open to all investors, no accreditation requirement
• Must file an offering circular with the SEC and receive clearance before raising
• Audited financial statements required annually
• Ongoing SEC reporting (similar to a public company but less onerous)
• Advertisements and offering documents are reviewed by SEC staff
• Higher compliance costs (audits, SEC review, ongoing reporting)

Platforms using Regulation A:

• Fundrise (both Reg A and Reg D offerings)
• Arrived Homes (Reg A primary offering structure)

The economics are different. Reg A compliance is expensive—expect $100,000–$500,000 in annual accounting and legal costs depending on scale. This cost is borne by the platform and ultimately passed to investors via higher fees or lower net returns. However, the platform gains access to a much larger investor base (all retail investors, not just accredited).

Why platforms choose one or both

Fundrise's strategy (both Reg A and Reg D):

Fundrise operates Regulation A offerings (eREIT and eFund, open to all investors) and Regulation D offerings (Fundrise Flagship, accredited only). The Reg A offerings have higher operating costs (audits, SEC reporting) but reach the mass market. The Reg D offerings have lower costs and can deploy capital more efficiently for accredited investors willing to accept less disclosure.

This dual approach allows Fundrise to capture:

• Non-accredited investors seeking low minimums and broad access
• Accredited investors seeking higher returns and less regulatory overhead

RealtyMogul's strategy (Reg D only):

RealtyMogul operates exclusively under Regulation D, which keeps costs lower and allows it to list individual syndications without SEC vetting. This enables faster deal sourcing and more diverse offerings. However, it excludes non-accredited investors entirely.

Yieldstreet's strategy (Reg D only):

Yieldstreet focuses on accredited investors and avoids the compliance burden of Reg A. This allows it to operate a marketplace of diverse offerings (real estate, credit, equity) without managing separate Reg A versus Reg D tracks.

Disclosure and investor protections

A key difference between the regulations is disclosure quality and SEC oversight.

Regulation D (Rule 506c):

• Offering documents (private placement memorandum or PPM) are drafted by legal counsel but not reviewed by SEC staff
• Disclosures are required (risks, financial information, conflicts of interest) but the level and detail are determined by the sponsor
• No SEC filing before raising capital; Form D filing is post-facto
• Investors receive a PPM that is a marketing document and a legal document simultaneously
• Conflicts of interest may exist (sponsor may control both the offering and management, creating incentive misalignment)

Regulation A:

• Offering circular is filed with the SEC and reviewed by SEC staff before the raise begins
• SEC staff comments on disclosure, risk presentation, and financial information quality
• Financial statements are audited by independent auditors
• Ongoing reporting to SEC (annual updates, quarterly reports if registered as a continuous offering)
• Higher likelihood that disclosure is balanced and material risks are prominent
• SEC review doesn't guarantee the investment is good, but it does mean a third party has vetted the completeness and accuracy of disclosures

In practice, Reg A offerings tend to have more transparent, detailed disclosure than Reg D offerings. This is one reason why non-accredited investors are permitted under Reg A—the SEC assumes the lighter disclosure of Reg D is appropriate only for sophisticated investors.

Cost implications for investors

Regulation A platforms (Fundrise, Arrived):

• Higher annual compliance costs (audits, SEC filing, reporting) → passed to investors via higher fees or lower net returns
• Typical net returns after fees: 3–6% annually (after illiquidity adjustments)
• More transparent reporting and SEC oversight

Regulation D platforms (Yieldstreet, RealtyMogul):

• Lower compliance costs → potentially higher net returns to investors
• Typical net returns after fees: 4–8% annually (depending on deal type)
• Less transparent reporting; more reliance on sponsor integrity

The fee difference is typically 0.5–1.5% per year (Reg A platforms charge higher fees due to compliance costs). Over a 10-year holding period, this compounds significantly: $100,000 growing at 6% (Reg D, lower fees) outperforms $100,000 growing at 4.5% (Reg A, higher fees) by approximately $20,000.

However, this calculation assumes similar investment quality. If Reg A platforms employ more rigorous vetting (due to SEC oversight), actual returns may be more reliable, offsetting the fee drag.

Secondary markets and liquidity

Regulation A secondary market:

Reg A platforms can register their shares for public trading on secondary markets (similar to how small-cap stocks trade). Arrived Homes operates a secondary market where fractional shares trade continuously. Fundrise is considering opening a secondary market but has not yet done so.

Secondary markets provide some liquidity but are generally illiquid compared to public stock exchanges. A Reg A share may trade at par, above par (if the underlying asset appreciated), or below par (if investors are willing to exit at a discount).

Regulation D secondary market:

Reg D offerings have no formal secondary market in most cases. Transfers are bilateral (between investors) and require sponsor approval. This severely restricts liquidity. Most Reg D offerings have defined redemption windows or hold periods, with redemptions at NAV once the holding period expires.

Regulatory risk and compliance burden

Regulation A:

• SEC oversight is ongoing; the platform must maintain compliance with SEC rules
• Changes to SEC rules or interpretation can affect operations (e.g., new disclosure requirements)
• SEC can investigate and issue cease-and-desist orders if violations occur
• Audits are third-party (independent auditors), reducing the risk of fraud

Regulation D:

• Less ongoing SEC oversight; the Form D filing is largely post-hoc
• Compliance risk is borne primarily by sponsors; if a sponsor misrepresents offering terms, SEC enforcement is slower
• Audits are optional and chosen by the sponsor; fraud risk is higher
• However, accredited investors are assumed to have resources to hire advisors and investigate sponsors

For non-accredited investors, Reg A's greater regulatory oversight is a material benefit. For accredited investors comfortable with self-evaluation, Reg D's lighter touch can be acceptable.

Comparison flowchart: Reg A vs Reg D

Related concepts

• Accredited vs Non-Accredited Investors
• Fundrise Overview
• Arrived Homes Overview

Next

Now you understand the two main regulatory paths for private real estate. Within Regulation D, there's another structural choice: between interval funds (registered with the SEC, but operating under Reg D) and traditional non-traded REITs (operating under Reg D Rule 506). These two structures differ in redemption frequency, reporting, and investor protections. The next article explores interval funds and non-traded REITs side by side.