Immigration: how to use real estate

 

 

DISCLAIMER: Brokers are not allowed to practice law.
Therefore, nothing in this article should be construed as legal advice.

WARNING:
Many unethical people are posing as professionals.
Applicants should proceed with great caution, as incorrect reporting can jeopardize, and even cause permanent ineligibility, of their application.
Only contract services with a recognized professional.

Introduction

 

The truth is that legal immigration to the U.S. is difficult.
Laws are continuously being revised to make it even more difficult.

Visas can be classified into two broad types:

  1. Non-immigrant
  2. Immigrant

According to the Department of State: "There are more than 20 nonimmigrant visa types for people traveling to the United States temporarily.
There are many more types of immigrant visas for those coming to live permanently in the United States.
The type of visa you need is determined by the purpose of your intended travel." travel.state.gov/

Furthermore, immigrant visas can be subdivided into two main categories:

  1. Family sponsored
  2. Business-related

A resident alien (green card holder) or a U.S. citizen are both considered to be "U.S. persons".
Now, investment in real property is not the only way to acquire the U.S. person status.
There are others, for example a petition from a close relative who is a U.S. person, this would fall under the family-sponsored visa type.
Likewise, a qualified foreign employee or manager can become sponsored for immigration by a U.S. company, this would be an example of business-related visa.

This is not a comprehensive treatise on immigration, we will only deal specifically with how to leverage a purchase in real estate to achieve legal residence in the U.S.
For those interested, the most comprehensive resource is the one found in the above mentioned website.

Investment-related immigration visa

 

The only true investment-related immigration visa is the EB-5, which stands for Employment-Based fifth preference.
The previous preferences are for skilled laborers, graduates, foreigners who served in the U.S. Armed Forces, etc.

The EB-5 Visa Program was created in 1990 under section 203(b)(5) of the Immigration and Nationality Act (INA), with the purpose of stimulating the economy and creating employment.
Basically, it provides a path for obtaining resident alien status, and eventually citizenship, by investing in the USA.
Like all visas, EB-5 is regulated by USCIS (United States Citizenship and Immigration Services), formerly INS (Immigration and Naturalization Services).

Requirements for an EB-5 are difficult.
The foreign investor must invest the following minimum amounts:

  1. $1,000,000 in a qualifying commercial enterprise.
  2. $500,000 in a "targeted employment area" (TEA)

The investor has to understand that his investment is entirely at risk.
There are no guarantees that he will get his money back, or the U.S. person status if the investment fails.
Also, the granting of a visa does not guarantee admittance into the U.S.
It only allows the alien to travel to a U.S. POE (Point of Entry), and the final decision rests with the immigration officer.
This is why investment money is generally placed in an escrow account and only disbursed upon the granting of a conditional visa.

A conditional visa is only valid for two years in which the investor has to show that the firm is in good standing and the jobs have been created.
Conditional visas as permanent residents can also be issued to the investor's spouse and children under 21.
If everything is according to regulations, the investor and his family will receive the U.S. person status as a permanent resident alien in two years.
After five years of complying with all regulations, the investor and his family can apply for U.S. citizenship and can petition to bring the rest of their family to their country.

$1,000,000 investment

 

In the first case ($1,000,000) the investor has to invest in a new business or an existing one.

New commercial enterprises are lawful for-profit entities that can take one of many different business structures.
Such business structures include corporations, limited or general partnerships, sole proprietorships, business trusts, or other privately or publicly owned business structures.
All new commercial enterprises must have been established after November 29, 1990.
However, older commercial enterprises may qualify if the investment leads to a 40% increase in the number of employees or net worth, or if an older business is restructured to such a degree that a new commercial enterprise results.

The firm has to create employment for at least 10 full-time workers.
These workers cannot be related to the investor, spouse and children are excluded.
Only persons legally authorized to work in the U.S. can be hired, undocumented illegal aliens cannot be counted.
Foreign investors may also choose to invest funds in a troubled business.
A troubled business is an enterprise that has been in existence for at least two years and has incurred a net loss during a 12 or 24-month period.
The loss for this period must be at least 20% of the troubled business’ net worth prior to the loss.
In such case, foreign investors have the obligation of preserving the existing ten full-time jobs instead of being responsible for direct creation of them.
This case is unusual as investors will hardly want to invest in a troubled business.

The firm has to be managed exclusively by the investor, if in a partnership, the investor must show that he/she has the controlling share.
It is not mandatory that the $1,000,000 be cash: it can also be inventory, equipment, loans where the collateral is a property owned by the investor, tangible property, or cash equivalents valuated on a U.S. dollar fair market value.
The investor has to document that funds for the capital investment were obtained legally, and produce a business plan showing how the U.S. economy will benefit from the investment and how job creation will be maintained over time.

In the next section we will deal with the second case.

Targeted employment areas

 

$500K+investment

The minimum amount of capital required for the EB-5 visa program may be decreased from $1,000,000 to $500,000 if the investment is made in a commercial entity that is located in a targeted employment area (TEA).
The EB-5 project must either be in a rural area or in an area that has high unemployment in order to qualify for TEA designation.

High unemployment areas are geographic locations with an unemployment rate that is at least 150% of the national unemployment rate at the time of the EB-5 investment.
Rural areas are geographic regions that are on the outskirts of a city with a population of 20,000 or more as determined by the U.S. census.
A rural area can also be outside a geographic region that the U.S. Office of Management and Budget has designated as Metropolitan Statistical Areas.

How to get a TEA designation

The EB-5 visa applicant must provide sufficient evidence that their project is located within a rural or high unemployment area.
There are several forms of evidence that can be used to prove that the EB-5 investment will be administered within a TEA.
Some tips for acquiring sufficient TEA designation evidence include:

  1. Contacting the U.S. Bureau of Labor Statistic’s Local Area Unemployment Statistics (LAUS) office to obtain published technical bulletins.
  2. Getting a letter from a state government body to provide rural area or high unemployment area evidence.
  3. Providing other statistical documentation.

TEA designation can be pursued in one of two ways:

  1. TEA designation through USCIS: Requires the applicant to submit a letter with evidence (examples given above).
  2. TEA designation by a state government: The applicant has to submit a letter from an authorized state government body stating that the location of the new commercial enterprise has been designated a high unemployment or rural area.

Some states provide a certified list of TEAs, nevertheless EB-5 visas are still issued on an individual basis.
As explained before, all visas are issued by United States Citizenship and Immigration Service (USCIS), but this agency does not have the infrastructure to monitor all the applications for EB-5 on a TEA-basis, so they generally rely on the states for that.
Anyway, all this process is handled by immigration attorneys, the above is for informational purposes only, and is a very brief description of a complex area of law.

Next we are going to deal with the EB-5 Pilot Program, which, in our opinion, is the most interesting of them all.

 

EB-5 Pilot Program

 

The Immigrant Investor Pilot Program was created by Section 610 of Public Law 102-395 (October 6,1992).

EB-5 requirements for an investor under the Pilot Program are essentially the same as in the basic EB-5 investor program, except the Pilot Program provides for investments that are affiliated with an economic unit known as a Regional Center.
Regional Centers have several advantages over the previously described options.

  1. Less restrictive job creation requirement allowing for the creation of indirect jobs

    Indirect jobs result from the economic impact of the investment, instead of being full-time employment opportunities created by the investment.
    For example, indirect jobs can be considered increased purchases in gas stations, restaurants, retail stores, etc. leading to more employment.

  2. Less restrictive management requirements

    The investor need not manage them and can even reside in his home country for a period of time.
    Most of the time Regional centers collect an administrative fee for management.

  3. Less burden of proof

    The investor need not provide any documentation, the investment is made in an already approved Regional Center, which has already taken care of that.

Regional Centers are created by a variety of experts that submit several documents to USCIS: business plans, feasibility analysis, etc.
At the moment of this writing, USCIS had approved 745 Regional Centers in several states, however this does not mean that it endorses them, the investment is always at risk. See here.

Of course, Regional Centers fail and some indulge in fraud, investors must very carefully analyze each Regional Center.
Nevertheless, there is a way to protect the investment and that is what we will explain in the next section.

Conclusions

 

The truth is that Regional Centers can fail and be terminated by USCIS.
Investors may not use an investment within a terminated regional center as a basis to establish eligibility for immigrant status under the Immigrant Investor Program. See here

USCIS can only issue 10,000 EB-5 program visas annually, of which 3,000 are reserved for the Pilot Program.
However, the Pilot Program can go beyond the 3,000 reserved visas, at present it accounts  for over 90% of visa applications per year.
Considering that applicants may also request a visa for spouse and children under 21, new applicants are now in queue for the next year.

Congress is now analyzing 3 bills related to the EB-5 program, with different proposals: increasing the number of visas, increasing investment amounts, a stricter oversight, etc.

For the moment, the EB-5 program has been extended without modifications until December 11th, 2015, we will keep you posted of what happens after that.

Regarding security, an investor can take some measures to protect himself:

  1. Insist that his investment be put in escrow until the Regional Center is approved by USCIS and he receives his conditional visa.
  2. Carefully scrutinize the Regional Center for feasibility, economic indicators, controlling privileges, payback schedule, etc.

We are aware that many hyped Regional Centers are pushing for projects that demand much greater expenditure than what can be reasonably raised with the EB-5 program.
In our opinion, investors should look at a project with a high probability of success.

There are still in the real estate market lots of distressed and abandoned properties in specific areas.
These properties are a burden for cities: tall grass and unkempt buildings get fines which remain unpaid and pile up, without mentioning property taxes.
Some cities are open to negotiation with buyers, waive some or all fines, and even help with grants toward the purchases.

A very reasonable Regional Center can be projected in such areas, bear in mind that $500,000 is not such a big investment in the U.S., it may not even suffice to buy two homes.
Those homes have to be renovated, the Regional Center will have to contract builders, and pay for permits, that involves hiring and creation of jobs.
After the homes are completed and sold or leased, property management work will have to be performed, thus creating permanent jobs.
After the depressed area is renovated there will be economic stimulus for the creation of indirect jobs.

Such a project has a high probability of being approved by the state, and subsequently by USCIS.
It offers a high degree of reliability, a very interesting rate of return and endless possibilities of growth: Regional Centers can expand and buy more properties, there are no constraints on the number of investors that can be accepted.
To allay security concerns, prospective investors will be encouraged to submit their suggestions while the contract is drafted.

We are now in the process of building such a Regional Center with specialized attorneys.

If interested, contact [email protected]

An alternative to the EB-5

 

This is an excerpt from a recent newsletter from attorney Don Gonzalez.
Comments added by broker in red.

 

Recently, we received a request for information (from yours truly) on how an individual who has an E-2 Treaty Investor Visa to the United States can convert this to the status of a Legal Permanent Resident.  There are basically only two avenues by which to achieve permanent residency through the business eligibility side of U.S. immigration.

 

If, for whatever reason, the investment being made by the E-2 Treaty Investor were to reach approximately $1 million, or $500,000, and if the investment is made in an area classified as a Targeted Employment Area (TEA), and if the company being operated employs at least ten U.S. workers, this investor could be converted into a Permanent Residency by petitioning for an EB-5 Immigrant Investor Visa. (obviously this would be the same as what has been explained before).

 
The second process, which we use more regularly, depends if the E-2 Treaty Investor also has an ongoing business in their country of origin.  For example, should I have a client who is an investor from Colombia, we normally use the E-2 Treaty Investor Visa because it is the most likely to obtain.  If that same investor has an ongoing company or affiliated company in their homeland, then this individual would then qualify for classification under what is called the EB-1 Priority Worker Visa, which is an employment based residency category. The EB-1 category has a subcategory for "Multinational Managers and Executives". We typically apply for this specification while simultaneously applying for permanent residency status for the individual.  Should the classification be approved, then this individual will have obtained his permanent residency to the United States.

 

Let's explain this further, most probably the prospective immigrant will not have a business in the US, but, if he has the means, he can create it: the business could be a multifamily property managed by a local property management company owned by a Limited Liability Company (LLC), a corporation, a trust, etc.
Those are examples of legal entities that could own and manage the property.

The immigrant will have to document that the income from that property would suffice to provide for the needs of his family and himself; however, there is an allowance: the applicant has five years to develop the business and prove this requirement, because five years is the waiting period for a permanent resident to apply for citizenship.
He would also have a to show that he is a manager or that he owns a commanding share of the company.

In this case, there is no TEA, $500,000 threshold, employment creation requirement, etc.
The only requirement would be that the above company be in its turn owned by a company in the immigrant's country of origin, or be a subsidiary, in short, it would have to be a two-tiered ownership.
There is more than one way to do this, the above is an example of how a purchase of real estate can be used for immigration purposes.
As we have explained earlier, the permanent residency status is a pathway to citizenship.

More information from these official links:

E-2 Treaty Investors

Treaty Countries

Understanding E-2 requirements

E-2 Visa - Wikipedia

Acknowledgements

 

  1. Attorney Don Gonzalez. His e-book on immigration can be downloaded from his website (in Spanish)
  2. USCIS
  3. eb5investors
  4. Zhang & Associates
  5. Department of State, travel department