Is an investment in a regional center really worth it to get the EB5 visa?

[desionh1b]

I've reviewed 13 regional center programs so far, and none are projecting returns of over 6%, and most are in the 3-5% annual return on investment range. Most importantly, they aren't in compliance with tax laws either if they fail to properly withhold taxes. For the real estate based limited partnerships, the promoter has the exclusive right of sale to sell your real estate shares, which basically means the investor loses around 6% of their capital in sales commission (assuming real estate prices don't fall and erode the capital further). Moreover, the property units are sold at inflated prices to investors to begin with, with absolutely no scope for independent appraisal of the assets to justify the prices investors are paid.

In contrast, when you buy your own business and leverage using a bank's loan, you always have an independent appraisal performed by licensed appraisers to justify the value of assets purchased to the bank's underwriters. Granted, the advantage of using regional centers is that you don't need to manage the business, but you can get the same independence (and also credit for one job created) by hiring a competent manager.

Business assets such as hotels, shops, gas stations, sports clubs, etc. always offer significant revenue upside even if operated only through a professional manager. Many business owners eventually lease out the property and sell the business to make money on both ends.

You only have so much money: Would you like to invest and manage it yourself and get at least 6 times the returns offered by the regional centers or would you like to simply get fleeced?

 

[oddcase]

Dear Mohammed,

1. How many of your clients have had their "conditional" status removed, i.e., actually become unconditional permanent residents?

2. Can an EB5 investor buy an existing Subway / other franchise, or does he have to open a new franchise store location? Because wouldn't buying an existing franchise count as investing in an existing enterprise?

3. How does one Subway create 10 direct full-time jobs? Let's do the math -- most Subways have 2 shifts of 2 full-time workers (1 at the cash register, 1 in the assembly line / inside) + say 1 store manager = 2 x 2 + 1 = 5 jobs at the most.

4. Even if you plan to create 10 jobs via multiple franchises/store locations -- wouldn't you have to buy them all simultaneously right at the beginning (i.e., invest more upfront) rather than buy 1 now and then buy another at the end of say 1 year to be able to show that 10 jobs are being created?

Just a lot of doubts when considering investing in your own business to get EB5.

 

[desionh1b]

1. Each and every one of them has had the conditional status removed and yes, each one of them expanded their businesses too
2. Yes, you may buy an existing franchise location and it does count as an existing business (where the investor needs to increase the number of jobs), but in case of fast food franchises, i.e. Subway, Dunkin, Krispy Kreme, etc. an investor usually need 3-4 locations to begin with, and then gradually expand from there, to a point that at the end of 2 years, the investor has 4-7 locations, and well over the 14 needed jobs. Many investors exit at the end of 3 years or so, and buy bigger businesses such as Hotels, health clubs, bars, etc. to increase their cash flow even more, whereas some investors expand into the traditional Asian business of buying gas stations and convenience stores, and leasing them out to new Asian emigres.
3. I never said a Subway shop creates 10 jobs, so I don't know where you got that from. BTW, busier Subway locations do have 2 in the assembly line and 1 @ the register too.
4. No, you do not have to buy all locations at once and you should not do so, as it is more advisable to first start the 1st location (assuming we're talking fast food locations such as DQ or Subway or Dunkin Donuts), and then get it running for a month or two, before jumping on shop number 2, 3 & 4 at similar intervals (i.e. about 4-5 months between each store opening).

Hopefully, this answers your questions.

 

[oddcase]

Thanks for the reply. Wouldn't it be easier to buy properties (homes/offices) as a corporation and rent them out for income?

 

[desionh1b]

The ROI is abysmally low and in this economy it is common to have loss of capital in rental properties due to falling values coupled with taxes (income, property, etc.). So, to answer your question, it is not easier or more profitable to lease out properties that you own as opposed to going in for your own business.

 

[oddcase]

Perhaps the same can be said about investments in franchise outlets (low economy, low business, low returns). In such a case, expanding to 3 to 5 outlets in a year or two's timeframe just to be able to create the min required jobs for eb5 can lead you into big debts.

Anyway, just trying to search for the most viable alternative...

 

[desionh1b]

A passive investment will NEVER come close to earning as much as an actively managed investment.

My dad taught me that there are 3 types of people in the world:

a) Those who learn from the experience and mistakes of others.
b) Those who learn from their own mistakes and experience.
c) Those who never learn.

With franchise outlets, you get brand recognition and are able to attract clients who rely on expectations of uniform levels of service and quality. For instance, given a choice, would you stay in a no-name hotel or an Embassy Suites / Holiday Inn / Double Tree? Given a choice, would you eat at a roadside taco truck or hot dog cart, or would you prefer to eat at a Taco Bell or Wienerschnitzel?

I agree with you that the economy is in a bad shape, but in this bad economy, your best bet is to go ahead and focus on a brand that not only offers great support (i.e. training, etc.) but also helps you attract a lot more customers. As such, I'd respectfully disagree with you in your assertion that this would be a bad idea. My business is helping my clients succeed, and I don't get repeat business for misleading my clients and furnishing them with bad advice. So far, by the grace of God, NOBODY has ever gone on a forum and said that they lost money based on my advice given to them as their broker and adviser, and that itself should tell you a lot about my abilities as a broker / adviser.

 

[oddcase]

I was just engaging in healthy debate to fully understand the picture. I never said anything bad about you or your ability to help your clients etc. Just trying to learn from you since you seem to be knowing these things and have experience.

Anyway, sorry for any misunderstanding and thanks for sharing your knowledge thus far in answering my qs. Wish you the best in your endeavors.

My dad taught me that there are 3 types of people in the world:

a) Those who learn from the experience and mistakes of others.
b) Those who learn from their own mistakes and experience.
c) Those who never learn.

With franchise outlets, you get brand recognition and are able to attract clients who rely on expectations of uniform levels of service and quality. For instance, given a choice, would you stay in a no-name hotel or an Embassy Suites / Holiday Inn / Double Tree? Given a choice, would you eat at a roadside taco truck or hot dog cart, or would you prefer to eat at a Taco Bell or Wienerschnitzel?

I agree with you that the economy is in a bad shape, but in this bad economy, your best bet is to go ahead and focus on a brand that not only offers great support (i.e. training, etc.) but also helps you attract a lot more customers. As such, I'd respectfully disagree with you in your assertion that this would be a bad idea. My business is helping my clients succeed, and I don't get repeat business for misleading my clients and furnishing them with bad advice. So far, by the grace of God, NOBODY has ever gone on a forum and said that they lost money based on my advice given to them as their broker and adviser, and that itself should tell you a lot about my abilities as a broker / adviser.