July 27, 2022 Last updated July 27th, 2022 406 Reads share

Considerations for Investors in Rural EB-5 Projects

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The new EB-5 visa rules unveiled in March this year are expected to open the floodgates for one of the most sought-after immigrant investor programs. With over 80,000 applicants each year, competing for just 10,000 spots, you will need more than just money for a shot at the coveted US green card, and as per the new rules and guidelines, rural TEA projects are the preferred option to skip the line.

With 20% of the visas reserved for rural TEAs, or Targeted Employment Areas, which are essentially regions with unemployment rates in excess of 150% of the national average, while having less than 20,000 residents, this provision is ideal for investors looking to get their Green Cards months, or even years before others in the program. 

Investing in rural EB-5 projects is further useful for immigrants from countries with substantial backlogs, such as China, Taiwan, Korea, and India. However, beyond just the speed of processing, there are a few other considerations for investors before they part with their hard-earned money in the hopes of emigrating to the US. In this article, we go over a few of them to best guide potential investors.

 

1) Understand Local Real Estate

Real estate has always been the preferred choice for EB-5 investors, especially with large multi-billion dollar projects the likes of the Hudson Yards in New York qualifying for lower investment thresholds as part of the Targeted Employment Areas program. This, however, has changed as per the latest rules, with the focus remaining predominantly on underdeveloped regions of the country.

With this, investors looking for a lower investment option of $800,000 in a TEA project will have to make do with projects in rural regions, often with depressed local economies, risky propositions, and scant returns on investment. This also requires more due diligence regarding the project, capital structures, and research on the benefits of rural EB-5 projects to ensure the investment isn’t a money pit.

2) Look Beyond Real Estate & Hospitality

The EB-5 market continues to expand by leaps and bounds, but most foreign investors restrict themselves to the tried-and-tested real estate and hospitality markets. This made great sense over the past few decades, but with real estate markets in an effective bubble, and hospitality nearing saturation in the United States, investors can gain substantial value by looking beyond these sectors.

Tech startups and companies remain the most appealing, especially since they are not tied to any one particular location. Such businesses can easily be set up in TEA and even rural regions, helping investors save on their initial outlay, while also jumping the queue. Of course, tech investing is not as straightforward as real estate, and losing the entire investment is a genuine possibility.

3) Consider Exit Strategies 

An exit strategy is a key consideration when picking out an EB-5 fund or project. The exit or maturity date of your investment must coincide with the I-829 filing date, which is essentially a petition to remove the conditional residency restrictions. Investors should ideally consult a lawyer throughout this process before they make the move to remove their “at-risk” capital.

Investors should anticipate a timeline of at least 8 to 9 years before they can get back their capital, and this is especially true for countries such as China and India, which have visa applications in retrogression. However, at the end of this time period, the fund should be able to pay you back, or the market should have sufficient liquidity to help you offload your investment.

Liquidity tends to be thin, especially in rural areas, and this is how EB-5 investments turn into abuse, fraud, and exploitation. Many investors over the past decade are stuck with properties, or investments that are worth significantly less than what they paid for, and provide no meaningful return, and unless you are a multi-millionaire who just wants a green card, this would not be acceptable.

4) Independent Due Diligence

While regional centers have long been the preferred choice for most investors, they merely add value in terms of marketing, showcasing only appealing features of various projects to attract investments. Similarly, immigration experts are far from financial analysts, and certainly lack the independence required to advise clients on critical risks, and drawbacks when necessary.

This makes it necessary for investors to retain independent counsel to provide unbiased and transparent information on the options available to them. Most regional center projects yield a return of just 2% to 3%, significantly lower than inflation, and even CD rates, apart from being a far cry from the 12% to 18% offered by similar non-EB5 investments.

Independent due diligence further helps minimize other significant risks such as the capital structure, under-subscription, and even possibilities of non-competition of the project, putting your immigration status in jeopardy. No matter what your consultant or lawyer advises you, it is best to take an independent opinion from a qualified professional.

 

Final Verdict

Picking out the right EB-5 project to park your money in is critical for immigrant investors. While it may not always be feasible to generate market-beating rates of returns, safeguarding your capital must be the bare minimum. 

Ideally, these are decisions that must be made with the help of trusted advisors, and consultants, preferably with a long track record and reputation in this niche, and can provide independent advice on where to invest, along with other EB-5 visa requirements.

Michael Dunlop

Michael Dunlop

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