he EB-5 Reform and Integrity Act of 2022, known as "RIA," is spurring some EB-5 investors' interest in rural America. This bill allows foreign investors to receive priority processing for their immigration petitions if they invest in a qualifying project in a rural area, according to the Congressional Research Service.
Only about 10,000 EB-5 immigrant investor visas are available each year, and to ensure rural areas aren't left behind, this bill sets aside 20% of the annual supply for investments made in rural projects, the CRS also said. In order for an EB-5 investment project to qualify as rural, the business must be located in an area with fewer than 20,000 residents. The business must also be outside of metropolitan statistical areas.
Investing in rural areas, however, can present unique challenges. This is especially true for immigrant investors, who need to mitigate both immigration risk and financial risk. EB-5 investments must be “at risk” for a foreign applicant to be eligible for immigration to the U.S. This means the investment must be open to loss or gain.
But “at risk” does not have to mean “high risk.” Immigrant investors should never make unwise or reckless investments. By following the simple steps outlined below, EB-5 investors can help ensure their business investment and their immigration petition are successful.
Rural economies are often dependent on just one or two major industries. They have a lower population density, which can mean fewer customers and a slower rate of return on investment. Rural locations may also lack important infrastructure such as healthcare, shopping centers, transportation links and other resources. Such factors can impact a project's long-term viability, shrink the pool of potential buyers and lengthen the amount of time before an investor’s capital is returned in full.
In my experience, many rural EB-5 projects are real estate construction endeavors. Commuter suburbs connected to larger cities often qualify (for instance, a large active adult retirement community just outside metro Atlanta funded in part by EB-5 investments). But, rural construction projects can face unexpected issues that affect project costs and timelines as well, such as weather delays or fluctuating material prices. If the construction project is in the early stages, it likely has no revenue stream, which makes it challenging for investors to assess its financial stability.
Smaller markets and higher risks can also make it difficult to attract other investors and might make major banks cautious about providing financial support.
The more potential for job creation, the lower the immigration risk. The goal of the EB-5 investor visa program is to create permanent jobs for U.S. workers and stimulate underserved local economies. To qualify for potential immigration, an investment of $800,000 or more must create at least 10 full-time jobs for U.S. workers lasting a minimum of two years.
When considering a potential investment project, you should always look at the business plan very closely. I recommend making sure the project intends to create more than 10 jobs per investor in case unforeseen problems arise.
Additionally, consider how much the business plan relies on EB-5 funding. If it relies heavily on EB-5 funding and doesn’t attract enough foreign investors, the project could fall through. Projects with a senior bank loan or where the developer commits a higher percentage of capital could help lower this risk.
In general, as with any investment, for a loan to be repaid in full and on time, the borrower's business activity must be economically feasible and actually successful. If you make an investment early in a project that has not yet generated any revenue, it can be hard to determine with a high degree of certainty if the project will ultimately generate revenue and make enough profit to repay investors. Whenever possible, consider investment projects that are already profitable and backed by financial statements demonstrating their continued viability. Think about it in simple terms: If you lend money to a new business and that business is profitable, then the odds of it being able to repay the loan on schedule are high.
It is also important to consider whether the industry you're considering is subsidized by the U.S. government. If an industry is not economically feasible in a normal free market economy, the government may issue subsidies in the form of tax credits and other incentives. These businesses depend on government funds to be feasible, which means the security of your investment could be determined by future government policy.
One potential pitfall to be aware of is project capitalization. The key question you need to ask is, “Is the project fully capitalized without a minimum amount of EB-5 investment?” Projects that are not fully capitalized and depend on a certain minimum amount of total EB-5 investment capital to be successful are at higher risk because a certain number of other EB-5 investors must invest before a project can get off the ground. Understanding the project’s capitalization without EB-5 financing is critical to evaluating its potential for success.
In conclusion, there are significant immigration benefits to selecting an EB-5 project in a rural area, but additional diligence is required. Potential investors should focus on a few basic questions: Is the project dependent on EB-5 capital? Is the project already profitable? Has the project already created thousands of EB-5-eligible jobs? How many projects like this one has the developer completed successfully? Has the developer ever failed to complete a project or repay a loan? In doing so, EB-5 investors can help ensure their investments are a success.