How Safe Is EB-5 Investment

This blog is for all of you that are wondering how safe is Eb5 investment.  The E-5 Visa, or EB-5 Immigrant Investor Visa Program, was created in 1990. It allows foreign investors an opportunity to acquire an authentic green card via secured legal processes by investing in one or more of the US businesses registered under the program. The business then creates employments for Americans. These jobs benefit the economy. There are many different types of EB-5 investments. Some approved projects include:

• Real Estate
• Hospital
• Office Space
• Film Studios

Before delving into the risks of this investment and answering the question “How safe is EB-5 Investment?” it is important to consider what is needed to obtain this.

Call us at 407-910-4770 or email us at [email protected]  for any immigration needs you may have.

Requirements for Applying For an EB-5 Visa

1. $500,000 (U.S. Dollars) to invest.
2. Should be able to prove that the source of the money available is lawful.
3. Should be able to pay fees to the different service providers including immigration attorney, the Regional Center Sponsor, the USCIS, etc. Discounts are sometimes available depending on the case.
4. Willingness to wait about a year and a half to get I-526 approval and a further 6 months to get the green card.
5. Should be able to pass the normal government background checks for political, financial or criminal activities in your personal history.
6. Should have accredited investor status.

For potential investors, putting such a large amount of money at risk in a foreign economy and then have their citizenship determined by the business’s long-term success is a risky decision and requires calculation. The program’s requirement regarding the investment being “at-risk” is what makes most people question the safety of this type of investment.

The EB-5 investor cannot receive a guaranteed return on investment due to the at-risk factor. There are two main categories of risk: the risk of capital and the risk of attaining a visa. The former has to do with the success of the businesses and the latter has to do with rules of compliance and the likelihood of job creation. You can lessen the risk of job creation by seeking projects that have bridge financing. Seeking immigration legal advice or that of an attorney is also a good idea. There is also another category of risk which is explained below:

Risk of High Debt

• Be mindful of cases where there is just 30% EB-5 on the project. That investment may be sitting behind a first mortgage loan of 50-60%, placing the EB-5 investment at the end of the capital stack.
• It is important to look at the project’s total debt and not just the EB-5 debt. The first mortgage needs to be fully repaid before the EB-5 investor sees any money.
• Where the total leverage is 80% which happens a lot in this industry, it is tougher for the developer to refinance because they need to refinance the whole debt. In addition, the project has to support the current interest burden and should also support a higher level of interest as it is almost impossible to be able to get the EB-5 portion refinanced at future EB-5.
• EB-5 GLOBAL, in their debt projects, ensures alignment of financial incentives by making it a requirement that the first mortgage loan is the EB-5 loan and limiting the amount of total debt to 34% on the project. This gives developers the incentive to refinance quickly and protects EB-5 investors.

When considering the risks, you also need to take into account the additional amount of money you will be investing which includes:

I-526 Petition Filing Fee

This form is perhaps the most crucial and the first component of the EB-5. It shows you how ready you are to invest in this program. As an EB-5 entrepreneur, you can file an I-526 and petition to the USCIS for U.S. immigrant status.

The form is for anyone who has invested or is investing the necessary $1,000,000 or $50,000 EB-5 amount of investment. The fee for filing the I-526 is about $3,700.

The I-485 to Adjust Status

This form is for EB-5 immigrant investors already residing within the U.S. to allow them to adjust their status to conditional permanent residents. The main applicant (you) and all dependents should file this after the approval of your I-526 petition. Your immigration attorney can file this for you as well.

This form allows USCIS to determine whether you are eligible for permanent resident status. There, you are required to provide supporting documents like your criminal history, a copy of your non-immigrant visa and passport page, certificates of marriage, divorce (if applicable) and birth, medical examination report, and a recent photo of yourself. Evidence of eligibility, fingerprints, and biographic information might also be required.

USCIS Biometrics Fee

USCIS normally requires biometric evidence of visa applicants to run the required background security checks and confirm identity. Your fingerprints, photograph, and signature will be collected. The biometrics fee for an applicant is $85 and you must pay the same for each of your dependents.

I-829, Petition for Condition Removal

The EB-5 process requires you to file a petition using an I-829 to remove your permanent residency status conditions. This can be filed two months prior to your current conditional permanent residency status’ expiry and has a validity period of two years.

Immigration Attorney Fees

Hiring an attorney is not necessary. However, given how complex the EB-5 visa investment and processing are, doing it yourself is not a smart idea either. An immigration attorney can help file your EB-5 case and give you any advice you require. The visa petition might be short, but it has many supporting questions and documents where expert help could avoid mistakes which will cost you a lot.

Administrative Fee

You might not need to pay this fee if you engage in direct investment. The EB-5 investment for the regional center requires payment. The fee varies from one regional center to another and is usually dependent on your EB-5 project and its nature. Some services of this fee will include payment to the consultants such as the economist, lawyers, business brokers, and other experts who deal with the marketing and compliance bits of the EB-5 project.

However, it can be very safe if done properly and with the right amount of research. For those wondering “How safe is EB-5 investment?” here are some ways to minimize the risk associated with EB-5 investments:

• Select several interesting EB-5 projects and conduct thorough and intensive research of the project, the sponsor, and the regional center.
• Take the time to fully understand and feel comfortable with the history, the business model, the job creation methodology, the exit strategy, the track record, and the financial analysis.
• Ask yourself whether you are comfortable with the nature and location of the business.
• Ask the regional center about past investors and their references.
• Learn about the success rate of the regional center. However, always remember that past success doesn’t guarantee or determine future success.
• Consult with a knowledgeable EB-5 immigration attorney and get all the required documents reviewed. Ask for advice on the projects as well.

Here are some things to look out for in EB-5 investments:

• Fraud
• Question of ethics
• Security violations
• Failure to create sufficient jobs
• Conflicts of interest

Another problem is that the EB-5 program is overseen by the U.S. Citizenship and Immigration Services (USCIS), which is a part of the Department of Homeland Security and not by a financial regulator. The USCIS is not well-equipped to review job-creation studies, business plans, and securities offerings as it is only accustomed to conducting immigrant background checks and processing visas. The SEC retains the power with regards to police fraud. This means the agency has no mechanism to find out about a problem until it becomes big, and then it can only clean the mess up.

Debunking Myths

There are some myths regarding this program which need to be addressed when wondering about the safety of this program:

Myth – the EB-5 Program is a loophole for Criminals

Fact – After the screening of the initial application, the individual is given a conditional green card. The investor’s funds and its source are also investigated to ensure that it is lawful. The U.S. Department of Homeland Security (DHS) and other government agencies conduct background checks.

Myth – Background Checks for Everyone is Inadequate

Fact – The program requires a person’s background to be checked twice throughout the process. It first happens when obtaining a conditional green card and a second before the permanent green card is issued. The investment project is also reviewed to ensure all regulatory requirements are met.

Myth – The EB-5 Program Allows Wealthy People to “Buy” a Green Card

Fact – The EB-5 program is highly regulated and takes years to complete. The process requires specific proof of a qualified project which the applicant will be investing in. It also requires evidence of an investment of 500,000 dollars or 1 million dollars and the creation of at least ten jobs for workers in the United States.

If you are worried about any of the above, at least you know there is no risk on that front. However, like any other business investment, there is risk associated with this program as well so you cannot say it is 100% safe but it’s important to know the myths regarding it.

What Constitutes a Good EB-5 Investment Deal

• Quality of deals: During the initial days of EB-5, there was a lack of sophistication regarding available projects. The quality of deals has improved in the last 3 years; however, this doesn’t make it safer for EB-5 investors necessarily.
• A good deal constitutes financial interests aligning: this means what is beneficial for the EB-5 investor is also good for the developer, either from the likelihood of getting their capital back at the right time or the income they receive.
• Misalignment of interest: It’s important that investors examine how the Regional Center makes its money. In cases of a debt project, the Regional Center makes money through the spread between the interest amount the investor is receiving and the interest amount the developer is paying. A Regional Center generates revenue until the loan is outstanding. So the EB-5 investor wants their capital back swiftly, but it is in the interest of the Regional Center to keep the loan outstanding for a long period of time – this demonstrates a classic case of misalignment of interests.

If you have paid attention to all the details above, done your research, and asked for legal advice, you now know how safe your EB-5 investment is. Scrutiny of the EB-5 investment has increased to lessen fraud and risk. Perhaps it’s time to go for it or perhaps it’s time to invest elsewhere. Regardless, be aware of the risks before you put too much of your money into something. You don’t want your money to go to waste because you need to remember this investment is not without great risk and should be treated with the right amount of caution. There’s no guarantee that it will not fail.

Discuss your concerns with an attorney and hope for the best but don’t dive into the investment unprepared and without expert advice. A safe EB-5 project should not only be able to deliver the green card promised but it should also allow you to walk away with your $50,000. Investments vary from project to project so see which project and investment fit your needs. For good and safe projects, you must do due diligence. Given that there is no guarantee, you should always be prepared for a loss. If you don’t understand the risks, then EB-5 investment might not be for you. 

Call us at 407-910-4770 or email us at [email protected]  for any immigration needs you may have.