Why do EB-5 investment projects offer such low returns to investors?
EB-5 investors are placing a large amount of capital, at minimum $500,000, at risk into an EB-5 investment project, so why are the returns depressingly low? This is a common question that many potential investors ask after their initial look into the EB-5 Program.
Here are the 3 main reasons why EB-5 investment projects offer low returns:
1. The lower the risk of the project the lower the returns.EB-5 investor's primary goal is to obtain lawful permanent residency for themselves, their spouses, and their unmarried children under the age of 21 years. This typically means that they want as little risk as possible in their investment so that they can obtain U.S. green cards. To qualify for EB-5, however, an investor must invest in an "at-risk" project. Competition arises over the less risky projects, meaning that EB-5 developers can find EB-5 investors even while offering low returns because a low risk means an EB-5 investor may have a better chance at securing a green card and then ultimately U.S. citizenship for their family. 2. Traditional financing can compete with EB-5 investments.During the 2008 recession, developers had a tougher time landing traditional financing for their large construction projects. As a result, they turned to the EB-5 Program as an alternative method for raising capital. In the recent years, however, traditional financing has become an option again and many developers have been able to obtain competitive loan rates. Even with traditionally financing, many developers often utilize, in part, 30% or less EB-5 financing.Developers who are knowledgeable about the EB-5 Program take advantage of EB-5 financing, which is still a very desirable rate.3. Learning how to obtain EB-5 capital and then pursing EB-5 capital takes time and money.EB-5 is a specialized market. There are over 700 regional centers and hundreds of projects competing against each other for a small amount of investors. It may become even more competitive as it has been in the news lately and the program visa capacity has not been raised to accommodate the increasing interest. What can make EB-5 capital costly? It takes time to learn about the program requirements. It takes money to pay the fees for the finders, the marketing and the documentation. Due to these costs and other factors, most EB-5 investors often only receive a tiny return on their investments. Developers who understand the EB-5 Regional Center Program may have an advantage over competitors due to the low return EB-5 investors have come to expect.
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