EB-5 Program Options: Advantages And Disadvantages

What are the two different EB-5 Program options?

How do the two EB-5 Programs differ and what are the advantages and disadvantages of each? Find out about the two EB-5 Program options available to foreign investors.

Foreign investors love the EB-5 Program options, which offer them green card status if they invest $500,000 or $1,000,000 in a U.S. new commercial enterprise and create the requisite number of jobs. Compared to other countries, the U.S.'s two EB-5 Program options present many benefits and advantages to investors, but it also has a few issues and disadvantages to think about.

Which EB-5 program option will you choose?

REGULAR EB-5 PROGRAM:

The regular program requires investors to invest in a new commercial enterprise that he or she will actively manage. This is perfect and advantageous for investors who are already seeking to run a business in the U.S. For investors running their own businesses, there may be increased risk involved, but typically there is also the potential for high rate of return on their investment.

Some disadvantages include a higher cost of investment at $1,000,000, a harder job creation requirement, and an active role in day to day management of the enterprise.

For a reduced cost of investment, look into TEAs, which offer a reduced investment amount of $500,000. TEAs or targeted employment areas are rural or high unemployment areas.

Investors in the regular program must create 10 direct jobs for qualified U.S. workers. Direct employment also requires proof of job creation. The regular program is at a disadvantage compared to the Regional Center Program, which can count induced and indirect jobs as well as direct jobs.

Finally, an investor in the regular program is basically running their own business. They must participate in the day to day management of the enterprise, which may be time consuming and require the investor to live near their business. This can be advantageous or not depending on the investor's individual goals.

REGIONAL CENTER PROGRAM:

If that doesn't sound like you, there's an alternative program, called the Regional Center Program. Through this program, investors can typically invest in new commercial enterprises for a reduced investment amount of $500,000, they have an easier job creation requirement, and they don't have to actively participate in management of the business.

Most regional centers sponsor EB-5 projects in areas of high unemployment (areas with unemployment rates that are at least 150% the national average) in order to qualify for the reduced investment amount of $500,000. This may make you weary, but if you investigate further into TEAs, you'll see that many major cities, such as New York City or San Francisco, typically qualify for TEA status, which can be very advantageous to an investor.

While investors in either program must still create 10 jobs for qualified U.S. workers, investors participating in the Regional Center Program can meet the job requirement by creating not only direct jobs, but indirect and induced jobs. This gives investors a much higher chance of fulfilling USCIS's job creation requirements. Indirect and induced jobs can be predicted using economic models and methodologies.

Another huge advantage of the Regional Center Program over the regular program for investors is the management requirement. The regular program requires investors to be actively managing their business on a day to day basis, but because most regional center projects are LLCs, and investors are limited partners, they can fulfill their management requirement by participating in the enterprise's policy making. This means that they don't have any commitments to daily management of the business. This is extremely advantageous to investors who are not looking to actively manage a project. They don't even have to live near the project.

Since the regular program is typically a riskier investment, it has the potential to have a much higher rate of return on the investment that the Regional Center Program. However, many who invest in the Regional Center Program, are more primarily concerned with gaining a green card for themselves and their families, than a high rate of return on their investment. Often, making their initial investment back is more than enough for them.

Which program route will you choose?

 

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