Since the US economic downturn in 2008, the EB-5 investor visa program has exponentially increased in popularity, from both the immigration applicant side as well as those seeking investment.
While domestic banks and lenders were struggling to approve financing, project developers looked overseas to individuals willing to invest in their projects.
With wealth accumulating in emerging markets and the boom of China’s economy, the EB 5 investor visa became very attractive for wealthy individuals looking to start a new life in the United States.
Fast forward almost ten years, and the EB 5 investor visa has brought in over 16 billion USD in foreign investment and created hundreds of thousands of jobs to the local US economy. The program displays success and provides an investor with alternatives to receiving a green card to the United States.
The EB-5 investor visa is classified as an employment-based visa. Employment visas are quite common, but this visa qualifies the investor through job creation rather than the skills or occupation of the individual. In fact, there are far fewer requirements for an individual to participate in EB-5 than in other visa categories.
It comes down to their investment, job creation of that investment, and passing a personal background check. But how does an investor go about meeting these requirements?
Please keep in mind that the following description of the EB-5 requirements is very basic as to benefit the reader of this article.
- Meet the minimum investment amount
- Pass a background check
- Creation of US Jobs
As of April 2017, the minimum investment requirement to qualify as an EB-5 investment is 500,000 USD.
The next step is the creation of jobs. Every investor in EB-5 must be responsible for creating 10 permanent US jobs through their investment.
Finally, the individual investor and their money most both pass a thorough background check. This is a very time-consuming process and requires a lot of paperwork. Most people do not realize the length and amount of work that goes into the background check, so it is good to keep in mind if an investor is trying to start their EB-5 process as quickly as possible.
The EB-5 Timeline
How long does the EB-5 investment take?
This is a great question and could be a deciding factor for someone looking whether or not to apply.
There are a few important parts in the timeline to consider when looking at the EB-5 process.
To start, your investment must be “at risk” or in the project for the entire immigration process. This is typically estimated to be about 5 years. This is going to be a rough estimate for the majority of the countries. The main difference is going to be a difference for those investing from China. Because of the exponential growth in applicants from China, there has been a growing backlog of visas available for Chinese investors in the EB-5 program. Aside from those coming from China, the total time of investment should be around 5 years.
While your immigration process might take a total of 5 years through the EB-5 program, this does not mean that it will take 5 years to get your green card.
The EB-5 program has a great advantage in this regard because an applicant that meets all the requirements can expect their conditional green card in about 16-18 months.
While there is going to be a year and a half wait from the time of investment to receiving the green card, this has the potential to save some applicants over ten years compared to other employment visas. India, for example, has about a 12-year backlog for the EB-3 visa. Comparing 16-18 months to 12 years seems like quite an advantage for the EB-5 visa.
Now, it is important to take note that, in the paragraph above, investors receive a conditional green card. Conditional green cards have all the benefits and features of a permanent green card, but the conditional green card has an expiration date.
An EB-5 investor will have a conditional green card set to expire two years after it has been issued. Before it expires, an investor will apply to remove the conditions. The government will receive the application to remove conditions and evaluate their EB-5 investment. This is the point where the government will check to see if the required jobs were created and make sure that the investment was utilized as described when the entire process began.
Once the government goes through this evaluation period, and if the investor receives the approval from the government, investors will have their conditions removed from their green card and now be permanent residents of the United States.
How Do I Invest?
What about the investment?
Do I just start a business in the US?
How does it all work?
These are great questions. Let’s dive into how the EB-5 market works.
The first major consideration for an EB-5 investor is whether or not they would like to invest directly into a business or through a regional center.
The far more popular choice is to utilize their investment through the Regional Center Pilot program. In fact, over 95% of all EB-5 investors choose to invest through this program rather than directly into a new or troubled business.
Why is this? Let’s take a look.
Direct investment was the first option that was allowed in the EB-5 industry.
Investing directly into an existing, or new business, has proven to be unpopular for a few reasons. The first is the extra liability that comes with the unstable environment of a new business.
According to the US Department of Labor and Statistics, a new business has a success rate of 56% over a 5 year period. While starting your own business is a wonderful idea and dream, it is not a great idea to have the status of your immigration to be directly tied to the success of a new business. Another major hurdle for direct investment is the additional cost. In order to qualify for EB-5 investment, your direct business investment must create ten new permanent jobs.
If an investor is responsible for the creation and maintaining these new jobs, this can create additional expenses for the investor over the course of their immigration process.
Let’s look at an example for only salary expense for starting a business.
Assuming that your employees have an annual salary of $40,000 USD, you are responsible for paying them as the business owner. This turns into a $400,000 expense per year. Over the course of the estimated 5-year timeline of EB-5, salaries alone could cost an investor $2 million USD. That is extremely expensive for a new business to produce, and keep in mind, this is only one expense.
There are many other expenses when starting a new business. Add into account the sustainability statistic of new businesses being only 56%, it is easy to see why investors might consider an alternative for their investment. This is the reason the Regional Center Program was created.
The Regional Center program solves the problems that were described in the previous paragraph.
Regional centers are able to gather multiple investors and invest in larger, and typically, more stable projects. Regional centers are, also, eligible to utilize indirect and induced job creation, as well as direct job creation.
What does this mean for investors?
Regional centers are allowed to use economic spending models, such as IMPLAN and RIMS II, in order to create jobs without being directly responsible for hiring and maintaining the jobs. This means that instead of directly hiring employees to prove job creation, mathematical formulas are used to satisfy job requirements.
This is a standard practice in EB-5 and has been widely accepted by USCIS for meeting job creation requirements for investors.
With regional center partnerships, investors do not need to manage projects. The regional center will handle the project side as they are partners with the developer of the real estate project. The result is not having that possibility of that additional expense that was mentioned earlier. They only need to worry about their personal immigration case.
The regional center takes care of the jobs, communicates with the developer, and invests the capital from the investors. They will be the ones to gather information and report project information to USCIS in order to have their investors qualify with their EB-5 investments.
How does this work?
Typically, a regional center will form a partnership with a real estate developer in order to receive financing from EB-5 investors. The regional center will then go out and find multiple investors to pool funds in order to offer a loan to the developer. The developer will then pay off the loan or refinance the loan at the end of the EB-5 process for the group of investors. Because regional centers are able to gather multiple investors and gather large amounts of capital, they are able to invest funds in large development projects.
On average, these real estate loans are far more stable than individual business startups. In addition to the stability, these real estate developments are able to create many construction jobs and count the additional jobs the project indirectly creates. These would be jobs created as a result of the finished project. For example, a real estate developer builds a hotel. That hotel creates construction jobs directly to build the physical building. Those jobs are direct jobs. As a result of a new hotel in the area, a coffee shop opens next door and employs 5 new people. These are indirect jobs and were created as a result of the new hotel.
With the benefit of project management, indirect job creation in order to provide more jobs for the investor, and the ability to offer more secure projects, investors have overwhelming made the Regional Center Program the standard for EB-5 applicants in the current market.
Investor Due Diligence
Every EB-5 investor should go through a process of due diligence. This is not only for EB-5 but any time that an individual is looking to invest their own money, it is a good idea to consider all factors regarding that investment. While the information following this paragraph provides some factors to consider during the due diligence period, there are a number of considerations that are not included that may be relevant to an individual EB-5 applicant. Every investor has the power to choose where they would like to invest, but these are just some common factors to consider in order to minimize or assess your risk.
Now that the basics of the EB-5 investor visa have been described, how does someone find a project to invest?
There are a few ways, but from someone who is currently outside of the US, the best source is an immigration agent. These agencies are numerous in China, and there are many popping up in other countries as well. If you are already in the US, the best way to find a project is directly from a regional center. There are over 850 regional centers in the United States as of writing this article in April of 2017. Regional centers, typically, have partnerships with developers in order to offer projects to investors around the country.
The regional center is the connecting entity to bring the investor and the project developer together. The regional center will assist the investor with project management and reporting in order to satisfy project requirements for the USCIS when the time comes.
When evaluating a project, it is a good idea for investors to get a background of the parties involved as well as their history.
While not necessary, past experience is always something to consider. A regional center does not need as much experience as the project developer because the regional center is not the party utilizing and managing the funds. When looking at a regional center, an investor should inquire into the legal team representing the regional center as well as their offering package, which goes over the project itself.
Project evaluation varies case by case.
Investors should take a look at the project’s business plan in order to get a good sense of how their investment will work within the project they are evaluating. There are certain qualities in a project that investors should be looking for. Those that should be evaluated include, but are not limited to, immigration requirements, the financial strategy of the project, risk assessment, and exit strategy.
Investors should always read through a project business plan in order to see if the project has a good strategy and growth model in order to make a profit or even be completed. Business plans are simply projections of the future, but the plan the developer has put together can show how viable the success of the project will be.
To put it simply, the business plan is trying to convince an investor the project is worth putting their money at risk for.
There are a few qualities that EB-5 investors should look for, specifically, when evaluating the business plan.
The first is going to be job creation.
As an EB-5 investor, you have to have the minimum amount of jobs created to meet USCIS’ requirement or else your green card application will be denied. There is not another alternative. Make sure that the number of jobs created will satisfy the job requirements for all of its EB-5 investors.
The other piece about the project itself is its location.
Does the project qualify for the reduced investment amount?
Most projects do qualify but there are some that do not, so investors should make sure that they understand if their project is located in a Target Employment Area or not because this will affect how much they must invest into the project.
Once interested EB-5 investors have seen that a specific project has met the requirements needed for immigration purposes, the next piece is going to be the evaluation of the project business model. A very common strategy for large EB-5 projects is to have investors loan funds to a developer for the purposes of the project.
A majority of EB-5 investments utilize this method, but what may differ is how the developer will pay back the loan. Options include refinancing the loan, payments through income of the project, sale of assets, etc. This is going to be varied greatly between project but it should be a point of interest for investors to pay attention to when deciding on a project. Investors should always look to receive their money back at the end of their investment and immigration process.
One final factor to consider is the risk of the project.
Assessing risk factors are very important for EB-5 investors because, if the project were to go bankrupt during their immigration period, their green card will be denied.
Not only will the investor have been denied for their green card, they will have lost their initial investment of$500,000 or $1 million USD. If investors of the bankrupt project are still interested in the EB-5 investor visa, they will have to start the entire EB-5 process all over again with a separate investment.
Typically, investments offer more return on investment with higher risk. The decision to invest is up to each individual, but minimizing risk is very important. It is important to take note that the priority of an investor in the EB-5 application should not be the return on investment. While capital gains are a bonus, the purpose of EB-5 is permanent residency in the United States.
Keeping the priority of the investment in mind, minimization of risk should always be a priority. Even if the investor only receives their initial investment back with no increase in monetary value, they will have gained the additional value of their US green card for them and their family. That in itself is a high return on investment.
In closing, the EB-5 investor visa is a growing trend for US immigration. It can offer permanent US residency at a faster rate as long as applicants meet the basic requirements of the investor visa program.
Applicants can expect to receive a conditional green card in about a year and a half as long as they meet the minimum investment amount, job creation requirements, and pass a background check. While investors from China are subject to a significant backlog, investors from other countries can expect the entire process to take about five years in total.
As with anything relating to immigration, we suggest consulting an immigration attorney in order to see if EB-5 is the right option for you and your family. If you would like to know more information about the EB-5 investor visa, please visit our website at www.wtc-sf.com or contact us via telephone at (206) 792-7578
Disclaimer: The information in this article is meant for general information purposes only and should not be taken as legal advice. Please consult an immigration attorney for your specific immigration needs.