The Most Important Question EB-5 Investors Ask: How to Ensure a Safe EB-5 Investment
October 22, 2020
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The Most Important Question EB-5 Investors Ask: How to Ensure a Safe EB-5 Investment
Among the myriad of questions EB-5 investors will ask during their process, one question is of utmost importance. How to ensure a safe EB-5 investment? Naturally, every EB-5 investor wants to make sure that their investment, whether the minimum of $900,000 for TEA zone or $1.8 million for non-TEA zone, will result in a green card and a successful return of their investment.
Risk vs. Safety
USCIS which administers the EB-5 Program requires that the investment must be at risk. So, it is no surprise that investment safety would be the biggest concern. For the capital investment to be considered “at-risk”, there must be a risk of loss and a chance for gain.
Then how could one ensure that their investment at risk is safe enough to obtain the sought-after green card and get their money back?
One of the best ways to mitigate risk of loss is to work with an experienced EB-5 firm that has an alignment of interest. “At LCP we co-invest along with our clients. It doesn’t just mean that we have skin in the game, it means we only succeed when our investors succeed,” explains Francis Lively, President and CEO of The LCP Group, where his firm creates and offers EB-5 investment opportunities, but also invests in its own projects. This only speaks to the level of confidence the firm places in its own projects, a reassuring factor and the ultimate alignment of interest.
Risk vs. Guarantees
It is not uncommon for EB-5 investors to seek guarantees for their EB-5 investment from the regional centers they research. Indeed, most are unaware that certain guarantees are impermissible and compromise the requirement of “investment at-risk”. With that being said, EB-5 investors need to be vigilant of EB-5 firms that provide promises and guarantees of funds or guarantees of return on investment, as these are clear signs of misrepresentation or even fraud. For more information on how to recognize fraud, the United States Securities and Exchange Commission (SEC) has outlined the warning signs of EB-5 investment fraud.
Similarly, there cannot be any promises or guarantees of visa or green card receipt. No EB-5 firm or law firm can provide such promises as no one can guarantee the outcome of an immigration petition. This is why EB-5 investors are advised to carefully select EB-5 partners and examine the investment offerings through due diligence.
While guarantees of return of investment are impermissible, that is not to say that there cannot actually be a return on investment. For some EB-5 investors, the potential for profit or higher return on investment might be the decisive factor in choosing one project over another.
Risk vs. Returns
Historically, EB-5 projects have rarely provided more than a quarter point of returns for the investors. But picture a scenario where at the end of your successful EB-5 process, you not only obtain your green card and initial investment but get back double of what you put in. One such project with a projected two times return is the LCP hotel investment, Hotel Melby in Melbourne, Florida. “Unlike traditional EB-5 projects where investors receive a de minimis fixed return with no upside potential, this particular EB-5 opportunity gives investors the advantage of sharing in the benefits of the project’s success, which will be realized after the sale targeted for year five,” says Francis Lively at The LCP Group, a 45-year-old real estate investment management firm based in New York that specializes in EB-5.
Understanding risk versus return is key not only to identifying a successful project but also to identifying a successful investment strategy that will deliver meaningful returns for the risks one undertakes.
In general, lower risk means lower returns. These types of safer investments are recommended for those with liquidity needs in the short term. If investing for the long term, like five years and above, then higher risk-higher return investments make more sense. And typically, the investment hold period for EB-5 projects spans over five years.
Many EB-5 investors pursue an EB-5 visa motivated by the immigration benefits and the safety of their investment is a top priority. Savvy investors understand the necessary steps to ensure a safe EB-5 investment while not compromising on the potential for better yield. Although the EB-5 program does not allow for certain guarantees, there are still ways to achieve peace of mind and feel confident in your EB-5 investment. Here are four reasons that make us confident to invest in our own EB-5 projects.
Obtain more information on attractive investment projects with potential for a permanent U.S. green card.
