Risk evaluation in an eb-5 project versus risk evaluation for a traditional financial investment

Posted by USFC Team on Jun 11, 2019 4:39:29 AM

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What are EB-5 investments?

The EB-5 Investor Visa Program was established by the US Congress in 1990 to facilitate the economic growth through foreign investment in the country and award the investor with US Green Cards. The investment amount is $500,000 in an approved regional center. Five years after receiving the Green Card, the investor and his family member can apply for U.S. citizenship.

What are traditional financial investments?

Traditional financial investments include stocks, bonds (fixed deposit), real estate etc. Investing in stocks means buying an ownership in corporation. Whereas, a bond is a loan an investor makes to an organization in return for interest payments over a specified term in addition to repayment of principal at the bond’s maturity date. Though real estate is not a pure financial instrument, still Real Estate Investment trusts and Real Estate funds are becoming commonplace in the Indian context.

Investment risk: It refers to possibility of losing money invested or the investment will yield lesser profit than anticipated.

Key factors for evaluating traditional financial investments

The investor must consider many factors while evaluating risk for investment or an investment portfolio.

  1. The investor ability to tolerate risk
  2. Entry price
  3. Expected time horizon for holding an investment and;
  4. The role of the investment in the portfolio.

Key factors for evaluating an EB-5 investment:

Key factors in EB-5 investment analysis include:

  1. PPM (Private placement memorandum): It is a document containing primary source of information about the investment, potential financial risks in the investment etc.
  2. Repayment in case of refusal: Many EB-5 offers come with a refund guarantee, in case the first application I-526 is denied.
  3. Amount to be invested in the project
  4. Job creation parameters
  5. Utilization of funds
  6. Duration of the project

Key differentiators: Priority of financial return vs. immigration

Key difference between traditional financial investments and immigration is the purpose/goal of these investments.

  • Traditional financial investments are made to earn profits. Risk and return are directly related. High-risk investments yields higher return but also have a greater risk of loss.
  • EB-5 INVESTOR VISA PROGRAM: The purpose of the EB-5 investment visa is to get permanent residency in the US by contributing to the economic development of their economy.

Process/Steps involved in risk evaluation of an EB-5 project Versus Traditional Financial investment

Step1: PROJECT APPROVAL BY THE UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (USCIS).

  • EB-5 project must be approved by USCIS so as to provide legitimacy to the project.

STEP 2: LOCATION OF THE PROJECT

  • The project location should be identified under the TEA (targeted employment area).

STEP 3: EXPERTISE OF THE PROJECT DEVELOPER

  • Understanding the experience of the project developer will help the investor in anticipate the time taken for project completion and application of financial resources effectively.

STEP 4: ROLE OF REGIONAL CENTERS AND PROJECT DEVELOPERS IN THE EB-5 PROJECT

  • Regional centers and project developer’s efficiency play a key role in the success of an EB-5 project. Their efficiency defines the level of risk for the investor.

STEP 5: ROLE OF INVESTOR IN THE EB-5 PROJECT

  • EB-5 investment can be structured directly/indirectly as both equity and or loan. If the investor has invested in a pure equity vehicle, the repayment is not guaranteed whereas a loan model has a repayment provision.

STEP 6: FINANCIAL EVALUATION

  • To evaluate the feasibility of the project, the investor should study the financial model of the regional center.

STEP 7: EXIT PLAN

  • All EB-5 projects do not assure that the investment will be repaid after five years. Before investing in any EB-5 project, an investor should carefully study how will the center liquidate the original investment and return funds to the investor.

Steps for evaluation of a traditional financial investment

Assessing risk is critical for ensuring the financial health of your investments.

1. Financial goals: The first step is to identify the financial goals of the investor. Is it for a short-term goal, do you need a lump sum for a house or is it for your retirement. All these factors will help in deciding how and where you invest.

2. Investor risk tolerance: The second step is to understand the investor risk tolerance. The risk tolerance is highly subjective and depends on various factors like investor’s age, stage in life, investment experience etc.

3. Investment horizon: Longer holding period offers ample time for investing aggressively whereas short tenure requirement necessitates that the investment is kept in relatively liquid options.

The investment selection depends on investor’s financial goals, investment preferences, and risk tolerance. Risk evaluation is an important step for both EB-5 project and traditional financial investments. The basic difference in EB-5 and traditional financial investment is of the ultimate goal of the investment. The EB-5 Immigrant Investor Program is a popular and viable option for investor who want to migrate to the U.S. whereas the traditional financial investment is uni-dimensional with a core focus on profitability. An EB-5 investment with a good regional center gives the advantage of stellar returns along with the benefit of a green card for the entire family.

US Freedom Capital is an investment manager offering US real estate investments to global investors. The offerings are structured either for financial return or for immigration by investment utilizing the EB-5 Investor Visa. The company operates worldwide from offices in Dallas, Dubai, Mumbai, São Paulo, and Washington DC. The leadership of US Freedom Capital include both the former Director and Acting Director of Immigration and real estate executives with over $3 billion of real estate investment experience.

Topics: EB-5, EB-5 Investor Visa Program, US Green Cards, EB-5 Investment, EB-5 Investment Visa

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