A lucrative alternative to the H-1B visa program, the EB-5 Visa program has gained immense popularity among foreign nationals seeking to invest in the US real estate market. The EB-5 program requires an investor to invest either $900,000 or $1.8 million, along with the obligation to generate at least 10 permanent jobs for Americans in two years. Following the completion of the program, EB-5 investors along with their single children aged below 21 and spouse are allowed to live permanently and obtain a profession in the USA.
The US real estate vertical offers profitable returns to the investors, however, they are often left with a dilemma – should they select direct investments or choose the Regional Center Program, popularly known as the Pilot Program.
The complexity of these programs is often incomprehensible for the investors without appropriate knowledge, however, an informed decision provides security and profit to their capital in the long run.
Comparison of Direct Investment and Regional Center Program
Foreign nationals who are seeking to invest in the EB-5 program are left with two possible avenues of investment – Direct Investment and Regional Center Program.
In direct investment, the investors are allowed to set up a business or acquire one, directly. In this avenue, they are also allowed to manage the operations of the business themselves without the need for third-party interference.
Statistically, 2%-5% of the total EB-5 appeals are produced through this option. In 2018, almost 250 applicants selected the direct investment program for their application. Investors with access to large amounts of capital often end up choosing this avenue.
On the other hand, investors who do not have access to significant funds stack their capital in funds of a particular regional centre that focuses on economic development. This process empowers them to make up the necessary funds needed to invest in the US markets and create the requisite number of jobs. Almost 95% of total applicants choose this module of investment to receive permanent residency and added benefits. These two funds remain hugely different from each other and are often tailor-made for foreign nationals of different economic statuses.
In direct investment, the investors need to maintain a continuous influence on their business. In comparison, the regional centre investors do not hold as much power over their investment projects and are restricted in their collaboration. They do not also hold managerial supervision powers but do not need to spend any time in the US. Meanwhile, direct investors are often required to spend a considerable time in the United States since they need to authenticate their active status in managing the business.
Direct investment also offers less flexibility regarding residence to its benefactors. Investors who decide to opt for direct investment, are required to live in the metropolitan where their business is located.
However, this is not the case for the investors opting for Regional Centers, who can live anywhere of their choice. This also indirectly impacts the finances of the direct investors, who have to bear the cost of regulatory compliance and any other supplementary fees. In comparison, the regional centre program benefactors do not have to bear the fees, as the centres manage those details by themselves.
USCIS approvals and filings are an important part of the process for direct investors hoping to benefit from the EB-5 program. In contrast, the investors going through the regional centres do not have to worry about these, since they enjoy exemplar approval that simplifies the application process.
While there are more advantages and disadvantages of both these EB-5 investment options, investors must consider other aspects before deciding as well. To be considered for direct investment, an investor’s active participation in the management of their business is required, parallel to a limited partner as described in the Uniform Partnership Act.
Direct investment often offers greater returns to the investors but comes with heightened risks, regulatory difficulties, time and other issues for many. At the same time, regional centres offer flexibility and a greater welcoming rate to permanent residency but offer lower returns. This calls for an informed decision for every potential investor, since it is a pivotal decision for a successful candidature.