How safe is an EB-5 investment?
I am wondering how safe it is to make an EB-5 investment? I would not want to lose out on $500,000 if something went wrong in the project. Would my EB-5 investment be protected in any way? Would it be safer to make a direct investment over a regional center investment?
It's like investing in any business: there is risk to it. The key is finding a ggod team and ideally to work with marketers who are very picky about the deals they represent.
There are two categories of risk to consider: risk to your capital and risk of attaining a visa.
The capital risk has to do with the success of the business (look for experienced teams, a good feasibility study, look at who else is investing and look at how much capital project owners are risking alongside yours. Also, is there bridge loan financing to make sure the project goes ahead regardless?
The risk of attaining your visa has to do with rules compliance and the likelihood of job creation. You can mitigate risk of job creation by looking for projects that have bridge financing in place and ideally, as a result, ones that have already spent much of the money that has been used as inputs into the economic model. Once this money is spent, the jobs associated with those amounts of spending are (effectively) created, although you still have to wait the requisite amount of time before filing the I-829.
The risk of attaining your visa is something you control directly (to a point). The risk that the US eliminates this program are slight, so if you follow the EB5 guidelines, you will have no problems getting your Visa.
As for the capital portion of the EB5 investment, there are substantial risks. There are economic, direct investment risk, business risk, and to some extent, fraud risk. The economic risk, is that you invest in a great business, and create the jobs you need to create, but the economy sours, and those jobs are lost, as well as the business. This is no fault of the business, but it becomes a victim of the business cycle. The direct investment risk, is equal to the type of investment and the group of investors/promotors you are working with. Different types of businesses have different types of risk. You can't compare the risks between building a hotel, vs starting an app company in the US. They each have different risk profiles.
Fraud can happen at many levels, and I am not talking about outright theft of funds, but the mis-characterization of the economic viability of a project etc, so that it does not perform as expected (outside the bounds of the economic cycle)
It is hard to say depending on how you will invest your money and your own circumstances. All the EB-5 projects are required to be at risk, but you can try to reduce the risk by having more understanding about the projects or deciding to invest in your own project.
The law requires that your money has to be at risk. Unlike some might claim, fixed income investments, for example, do not qualify as EB-5 eligible investments. The investment needs to be equity. That is why, in the Regional Center model, you have the NCE, referred to as the new commercial entity, most often making a loan to the JCE, the job-creating entity. The EB-5 investors are typically preferred stockholders of the NCE. They do not, they cannot lend the EB-5 funds to the NCE. Technically speaking, the NCE has no obligation to return the funds to the EB-5 investor either. The EB-5 investors through their collective investment in preferred stock receive some coupon payment but if that coupon payment is not paid, it is not considered as default by the NCE. That said, all of the reputable regional centers are expected to do their best to redeem the EB-5 investors' capital contribution once their I-829 is adjudicated. If all of this makes you uncomfortable, you could certainly go the direct investment route but that is not such a safe bet either because now you would have a direct responsibility to create the requisite jobs while trying your best to protect your capital. You might find out, like many before you did, that these two objectives are not so easy to achieve simultaneously.
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