Historically, private investments in real estate have been reserved for the wealthy for generations — by design.
Prior to the stock market crash in 1929 that led to the Great Depression, the securities market was largely unregulated by the federal government.
As a result of the hardships most Americans faced during the Great Depression, the Securities Act of 1933 was introduced to protect investors by enforcing full disclosure and anti-fraud for public offerings.
Later in 1982, the Securities and Exchange Commission (also known as the SEC) adopted a new set of rules called Regulation D.
Regulation D was designed to simplify and facilitate capital formation for companies — particularly startups and small businesses — by providing a “safe harbor” for issuing securities through private placements.
As a result of Regulation D, more investments — and therefore more business formation and economic impact — were possible. But investing through this regulation was still reserved for more affluent individuals.
This means that for the vast majority of U.S. investors, access to asset classes such as real estate, art, rare collectibles, angel investing, venture capital and private equity were off the table.
However, in 2012, through the JOBS Act, two new regulations were introduced that have had a profound impact on investing in the U.S.
Driven by regulatory changes designed to democratize access to private markets — and fuel capital into more businesses — Regulation A and Regulation Crowdfunding (also known as Reg A and Reg CF) were introduced.
Put into effect in 2015 and 2016 respectively, Reg A and Reg CF are pivotal examples under the Securities Act of 1933 that have emerged as investing game changers — particularly when contrasted with the traditional limitations of Regulation D.
Let’s explore their impact.
Navigating the Public vs. Private Markets
Let’s start by reviewing Regulation D, and what private investments in the U.S. looked like prior to 2015.
As we shared earlier, the SEC adopted a new set of rules called Regulation D in 1982. Rule 506 within Reg D allows companies to raise potentially unlimited amounts of capital without full SEC registration, provided they file a simple notice (Form D) and adhere to certain requirements, most notably the focus on accredited investors.
This emphasis on accredited investors — those deemed financially sophisticated enough to withstand the risk of private, illiquid investments — has made a profound impact on traditional investing vehicles.
Regulation D therefore established a bifurcated market.
The Public Market: Fully registered and opened to all investors.
The Private Market: Traditionally, an exclusive domain of the wealthy.
For traditional investment vehicles like venture capital, private equity, and commercial real estate syndications, Regulation D (specifically Rule 506) became the de facto operating standard, enabling these private funds and issuers to rapidly raise significant capital from a select pool of investors.
From Exclusivity to Inclusivity
For generations, the bulk of private capital formation was governed by Regulation D, specifically for its Rule 506 exemptions. While providing a streamlined path for businesses to raise unlimited capital, Regulation D generally focuses on accredited investors.
An accredited investor is typically classified as an individual with a net worth of over $1 million (excluding their primary residence) or an annual income exceeding $200,000 (or $300,000 with a spouse).
This focus on high-net worth individuals — while offering a clear regulatory path for issuers — created a significant hurdle for the average American investor. It essentially barred the vast majority of the U.S. population from participating in potentially lucrative private opportunities, including commercial real estate deals that require substantial capital commitments.
But for everyday investors, participation in these types of investing was still out of reach. This is why the JOBS Act was so monumental, largely due to the fact that Reg A and Reg CF were introduced.
Introducing Reg A and Reg CF
Regulation A and Regulation CF — which were designed specifically to lower the barriers to both capital formation for small businesses (e.g. real estate property investments), and investment participation for the general public (meaning non-accredited, everyday or retail investors) — have proven to be game changers in the world of investing.
Comparing Reg A, Reg CF and Reg D
Feature | Regulation | Regulation Crowdfunding | Regulation D |
Primary Investor | Non-Accredited & Accredited | Non-Accredited & Accredited | Accredited Investors (Unlimited) |
Maximum Capital Raise | Tier 1: $20M Tier 2: $75M | $5 Million | Unlimited |
Non-Accredited Investors | Unlimited | Unlimited | Rule 506(b): Up to 35 Sophisticated Non-Accredited Investors. Rule 506(c): None permitted. |
Non-Accredited Investment Limit | Tier 1: None Tier 2: Limited to 10% of annual income or net worth (whichever is greater). | Yes, limited based on the greater of their income or net worth (annual rolling limit). | None |
General Solicitation | Yes, permitted. | Yes, permitted. | Rule 506(b): No Rule 506 (c): Yes, permitted. |
Required Intermediary | No | Yes, must use an SEC-registered Funding Portal or Broker-Dealer. | No |
SEC Filing / Qualification | Form 1-A | Form C No SEC review. | Form D No SEC review. |
Ongoing Reporting | Tier 1: Semi-annual financials. Tier 2: Annual, semi-annual, and current event reporting. | Annual reporting with the SEC (Form Annual Report) required until certain thresholds are met. | Minimal/None |
Exploring Fractional Real Estate Investing with Forte
Forte is an example of a platform that leverages these new rules to bridge the gap between a historically inaccessible asset class and investors seeking a simple, transparent way to participate in real estate. And our experts manage the entire investment journey — from sourcing and evaluating properties, to handling transactions, overseeing development, and guiding each asset to disposition.
The investment world continues to move toward greater transparency and inclusion, fostering innovation and expanding participation in potential wealth-creating opportunities for a wider range of investors.
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