My name is Bernie Wolfsdorf. I am the managing partner of the Wolfsdorf Rosenthal immigration law firm with seven offices. I am in the Los Angeles office today. The topic for today is EB5. What is the difference between direct and I’m going to pitch this at all levels. That would be I will pitch this both at the advanced and the entry level. So I apologize to experienced EB5 practitioners. This is going to include some basic information. But the purpose is to provide you with a framework of how this exactly works.
How does direct EB5 work and why am I not dealing with the regional center program? Well, because the regional center program expired on June 30. I am expecting it to be renewed. But I can’t tell you when it could be weeks, it could even be months.
What I’m personally expecting in terms of the regional center program is that we will get an extension up until September 30, during which time Congress will debate a substantive bill. But I am also hopeful because I know that there is a bill ready besides the Grassley bill that could in fact be enacted very soon. This talk about attaching it to the infrastructure bill was a spending bill.
Blog post incorporated from a video interview with Patrick Findaro (Managing Partner of Visa Franchise) and Bernard Wolfsdorf (Immigration Attorney)
EB5 Visa Requirements
But for today’s topic, we are going to deal with EB5. I’m going to explain the program and then Patrick is gonna very kindly provide us with some potential EB5 products.
I need to make this clear that while I know Patrick, well, I consider him a good friend, Patrick and WR immigrationare in fact, separate entities. I encourage everyone to do due diligence. Before you make any investment, you really need to apply all necessary and required due diligence framework.
We are not involved in making the selection in terms of investment because we are not Investment Advisors. And so I’m going to just deal with the law here today.
Okay, so a little bit about our firm, we claim to be a top rated firm. The proof, of course, is in the results. So let’s move on. And there we have Patrick, managing partner of visa franchise, Visa franchise.com. UI think Patrick is probably the most seasoned guy in the industry today, and he is extremely well established, but he will present separately after me.
As soon as I’ve gone through this standard legal disclaimer with a typo in there. I should have fixed that.
James, this is not legal advice. If you need legal advice, you need to consult with a specialist, briefly explaining for the beginners what the EB5 process is. The first thing is to prepare the source of funds, select the appropriate project and file your I 526 petition. The bad news is those are taking two to three years to adjudicate. Then you land with your green card. And you have a conditional Green Card 21 months later after landing, you get to file your 829 which is the removal of conditions. And it’s at this final stage that you have to prove that the jobs were timely created and that the capital was committed. But you need to commit the capital at the time of filing the 526 How long does all This take assuming you’re not from a backlog country.
Realistically, minimum five to six years from start to finish. If you are from a backlog country, you can add as many years as necessary. Because currently, wait time estimates are running several years for Chinese. India hasn’t been hit yet. Vietnam has. But that number, I’m not going to get into any depth on waiting lines today. Other than those numbers will change and do change every year, the Chinese waiting line first emerged in 2015, and has been a huge headache. for persons born in China. The Vietnam wedding line we’re going to talk about has actually moved quite nicely.
But currently, we have a cutoff of April 2020 for Vietnam, which is really quite reasonable. And the Vietnamese market is getting strong again together with the Indian market, which has not yet seen the backlog, but will um, why am I talking about that in this chart?
It says in small print underneath the 526 wait for the priority date to become current. And there are those three countries India, Vietnam and China that become a significant issue.
So why am I talking about EB5 direct? I’m talking about EB5 directly because there is no regional center filing as of today. I expect this to change within a matter of weeks. But if somebody instructs me to file an EB 5 526 today, I cannot file unless it is a direct EB5 .
What is the difference between direct and regional centers?
There’s one critical difference. Direct means 10 full time jobs 35 hours a week, full time employees, US workers, primarily citizens and us residents. For indirect Eb five. You can use indirect jobs based on economic models. So we don’t have 10 actual employees. We basically have an expenditure model that if you spend a certain amount of money that is deemed to be the equivalent of at least one job. So for obvious reasons, over 95% of EB5 has been a regional center.
But that program, which was first started in 1992 has been a temporary program requiring extensions, and we’ve had 17 or 18. Sorry, I lost count. So we’ve had extensions for over 30 years. Congress went on vacation without extending this year. As this happened before, yes, in 2018. How nervous am I about the extension? Well, I’m nervous about everything. But I am convinced that 10 to $20 billion was invested in the regional center program. Congress is not going to let this program die. And there has been a debate over the Grassley bill.
Some people, including myself, feel that the bill does not solve the problems. In EB5 , we all support immigration reform. We understand the need to reform the program. That’s not the problem. The problem was the Grassley bill as it doesn’t provide solutions. All right, let’s dive into some EB5 basics here. The program was created in 1990 10,000 visas a year 500,000 investment or $1 million? Well, let’s turn it around, it’s $1 million reduced to 500,000.
If you are in a targeted employment area, you create 10 full time jobs and the investment has to be sustained. I explained that already. So let’s jump on easiyo general requirements you have to engage in a new commercial enterprise. This is not a word or phrase. It’s important. When you invest in an existing business. It’s a completely different framework. And inevitably, there will be problems.
History of franchising in the us
So one of the reasons I invited Patrick to this is Patrick specializes in franchise in new businesses. So whenever we have a new commercial enterprise, when you franchise you’re in good shape. If you buy an existing one the jobs will already be there so it starts to get complicated for creating new jobs.
The only exception is if you’re buying a troubled business and in which instance you can save the 10 jobs, but even that’s problematic. My advice is always start a new business from the beginning, there are no jobs to start off with. And now you can show your 10 full time us workers 35 hours a week. So very heavy emphasis on a new petition.
Patrick’s a good guy. He’s worked with his brothers. And they are all very knowledgeable in this arena. But again, I always use the word due diligence, do due diligence. And then when you’re done, do more due diligence, do due diligence on your lawyers, see who you’re working with, check out their track record, and individually, make sure that your investment is safe, because one of the requirements for the EB5 program is that the investment must be at risk. You cannot make a passive investment.
Everybody wants to get into real estate. Real estate is good. I understand that. But where are you creating the 10 jobs? How are you creating 10 full time jobs from a $500,000 real estate investment? I don’t see it. But I want to be open minded and hope that I’m wrong. I like to be proven wrong. All right. So what else I 526 possession petitions I mentioned that we need 10 full time jobs, investment has to be at risk actually need to go back to this. The investments also engaged in the management of the enterprise. So one of the big differences between regional Santa is limited engagements. For a direct we do need You more hands on we want to show that you’re qualified to manage the business and be that you are managing the business.
So I want to focus on that a little bit. Does this person speak English? They don’t speak English, how they’re going to manage the business. Are they going to work for a manager? etc, etc, etc. But we do have a stronger management, hands on management requirements for the EB5 , correct. Moving forward. The current investment amount is a million dollars. It’s always been a million dollars. It was $7 million in 1990.
EB5 Direct Investor Green Card
What has happened which is why we are doing this webinar is that a regional center by the name of Baron b h r i n g sued the government on the November 2019 regs which Trump enacted increasing the minimum investment amount from 1 million to 1.8. And for regional center and direct ci a down to 500,000. The rents had pushed them to 900,000. So what’s the bottom line here? The bottom line is a month ago, the minimum amount for EB5 investment was 900,000. Today, the minimum investment amount for me five is 500,000.
When Has it ever happened that a government program reduces the amount of the investment? Buy what is 80%. And the bottom line is we have a window of opportunity to file EB5 direct tomorrow or today at 500,000. We don’t know how long this is going to last. In fact, you can be sure that the government, either through regulation or statute is going to push the number back up.
Why? How do I know that? Because the early my orcas are DHS secretary has already put a statement into the court saying that he feels it should be at the higher amounts. They tried to fight to support the Trump regulation. But they lost. They might appeal. How long will the $500,000 last? Nobody knows. Is the $500,000 investment available today? Yes. Will it be available tomorrow? I think so. How about next week? Probably. How about next month? I don’t know. How about the month after? Nobody knows. So what I do know, is we have a heavily discounted program as of today, which is why I’m doing this webinar.
Because there are clients out there and investors out there who want the discounted price, how long will it be available? And I’ve really tried to answer that. Will it be available next year? I doubt it? Will it be available in October? I doubt it in September, maybe. But we have a narrow window. So if you have investors, I would love to tell them to hold on for the regional center program enactment. But I don’t know if they’re going to be able to get that in 500. I do know that they can get the direct program and 500,000. There aren’t a lot of products available right now. even talking to Patrick, they’ve had to put some product together.
But since they’ve been very active in the E2 arena, they pretty much already set up and we will hear what he has to offer. I have no idea what Patrick’s gonna tell us today. So I’m also interested in listening and learning targeted employment areas.
The best option to invest
So I normally describe it as a high unemployment area. The countryside is quite difficult, you think overruled? 20,000? Well, there’s a second leg, it also has to be outside the Metropolitan Statistical commuting area. So the combination of under 20,000 also requires outside an MSA. And that really limits the number of rural options available. But if you’re in a rural area, then it’s 500,000. And really, it’s pretty different between the states, right, like I’ve seen in Florida, for some clients it would be pretty easy where Texas is kind of a pain.
You got it right, Patrick? I’m basically one of the things that happened in the November 2019 regulations. The government took away the ability of states and local authorities to determine a TA that’s been knocked down. So right now, the state of California is back in the business of defining the TA. They haven’t actually retooled yet, they’re not officially issuing them.
But we have a pretty good idea where the TA saw there are good ta markets, scratch that there are t good ta maps, we can point you to, um, give us the address, give us the tract number. And we can usually tell you whether or not there’s a T that’s a TA or not. And if you’re in a TA, that means you have a high unemployment rate 150% of the national average, your investment amount is 500,000. I normally describe them as bad areas. They’re not necessarily that bad.
A test is to submit a letter from the state agency. And as Patrick correctly pointed out, some states are very good at this. Some are not. That’s not your problem. Getting the TA letter. I’ll connect you with the right people. That’s part of our job. We will work on that and resolve that for you. I see questions are coming in. Please keep them short, so we can answer all of them. But the bottom line again is to reduce from a million dollars down to 500,000 unique BNF TA.
I mentioned at this point the investment must be at risk, you can’t put it in a bank account, you have to deploy it into job creating activities. It must be an equity investment. And it must be personal funds if your corporation makes the investment. There are situations where we can handle loans. We prefer gifts, unsecured loans. I know there’s the Jane case, the Jane case was our case. But we’re still going conservative on this, invest your own money. Or if you’re going to use a loan, make sure you secured it with your own personal assets. I already spoke about buying a business or starting a new business. The 10 employees must be two employees and generally should be citizens or permanent residents. Yes, we can take asylees and refugees. No, we cannot take their kids.
So if I’m doing the EB5 direct, I want every single I nine, that’s the form you complete when you hire someone, I want you to send it to me, I want to verify it’s done correctly. Because I have a friend who filed an EB five with 11 people, two of them were undocumented, and the case was denied. I mentioned the regional center program Sunset on June 30. I think they are going to extend it soon. But I can’t say when the direct program does not expire. It is permanent. And we are open for business today. For that reason, direct is popular as of today, okay, lawful source of funds.
This isn’t a one hour topic, so I’m going to keep it short. We prefer business earning salary, gifts, and secured loans. We like personal tax returns, we like audited financial statements, nobody has them, of course. But we work with you. In terms of preparing the source of federal furniture like a secured loan, if someone doesn’t want to sell their stock and Apple, they can take a loan against that stock and use it for Eb5.
I’m going to basically say I’m not going to give clear answers to any loan situations right now, I’m going to ask you to send in your proposal and we’ll have a look at it and study it. My partner, Vivian Xu is the guru in this area. Basically, what happened is in the Jain case, the court said cash is cash. But there is still a negative attitude towards unsecured loans. You’re talking about a potentially secured loan on stocks that’s kind of rather than a mortgage, what is the value of your stock? If your stock drops below the value of the loan, then we have a problem here? What if your stocks are 1/3 only worth 100,000, they’re not adequately secured. So I’m having a problem with that.
So I don’t want to go into the weeds on that. But um, let’s dive into some of the more basic issues and job creation. I have two tax returns. The big question is when we found the 526. I do like to have two or three employees. The way this works, however, is that if you don’t have 10 employees at the time you fell, you must have a whole business plan. Matter of how the business plan is critical.
Your case will be denied if you don’t submit one. And the bottom line with the matter of home visitors’ plan is that it shows that the project will have a need for at least 10 minimum employees. But you have to also show the approximate dates of when you are going to hire these employees. So here’s what happens in the real world. You found 526 petitions that the government sits on for two years. They issue an RFP and then they say show me the jobs. And you’re like well wait a second, my God, can’t come in with a green card until he’s landed. How do you expect them to have jobs? Well, they’re not sympathetic. So their attitude is hiring managers to hire the employees. We don’t care that you couldn’t come in. So there’s the government being mean to us.
But I’m telling you to make sure you have those jobs. So the business must describe the current employment levels and the projected new jobs. We need details of the jobs, the job title and job description. I probably won’t get into this in too much depth. But for those of you who want to do EB5 , read item 13, slide 13. Very, very important. This is another important slide on the characteristics of direct investments by 100% parents.
So if the job creating entity has a parent company, and their parent company only owns 70% of the jce, you’ve got a problem. So the structure has to be very simple. If you’re gonna have a parent company, it has to be a 100% owner of the job creating entity. So the new commercial enterprise, let’s call it the holding company, has to have 100% ownership of the job creating entity, the entity that actually hires the individuals. Moving on to the advantages.
Well, simplicity is definitely there. The regional centers, we’ve had situations where regional centers have gone bust. We’ve had situations where regional centers involve fraud. What happened to the poor investor? Well, they got kicked in the pants, that’s what happened. How long does it take to set up a regional center, try a year, year and a half, maybe two years. So one of the advantages of direct is simplicity. You basically set up a company, you invest a million or half a million, you’re hired 10, full time workers, US workers, and you get your green card. If the business fails, you’re in trouble. So make sure the business doesn’t fail. In terms of geographic diversity, well, the only issue you have is if you want to be at the lower amount of 500,000, you have to be in a TA.
But since it’s your money, maybe you’ll invest a million dollars anyway. Because it’s going to be very hard to create 10 jobs with 500,000. And you don’t have to go into a high unemployment or rural area. So you can choose your area. But in that instance, it’s a million. You say, Well, Betty, what’s the big deal? I get a million dollar investment. Why is it? Why are you doing this webinar? Well as if two weeks ago, it was 1.8 million. So the million dollars is a huge discount. For those who are not as high net worth. It’s reduced from 900 down to 500. But for the regular ed five, it was 1.8 million being reduced down or back to 1 million. So it seems like a pretty good deal. Now cool, direct investment. This is absolutely permissible.
Here we have a situation where maybe five people put a million bucks each. We have to create 50 jobs, maybe one of them doesn’t want to greencard. We only need 40 jobs with 5 million. So this is where a group of investors gets together. And obviously, you have more leverage in terms of what you can do. Some businesses million dollars are going to be a small business, simple direct investment is potentially problematic.
What about using a pooled investment to buy a troubled business?
When I say potentially problematic, potentially viable. So what about using a pooled investment to buy a troubled business? Again, the number one issue is has this business lost 20% of its net income during the preceding two years? Well, how many businesses have lost 20% of net income during the preceding two years? Is that 50% of American businesses? For those of you who are entrepreneurial, look at the opportunities yet. There are so many troubled businesses, then again, do your due diligence. I mean, who wants to invest in a troubled business? I don’t know. But driving around Santa Monica yesterday, I saw tons of businesses that have closed down .
So the potential to invest in troubled businesses is tremendous. And here, we don’t have to hire 10 new workers, we are merely securing the jobs of the previous employees saving jobs. I spoke a little bit about these management concepts. Some people will argue that it’s the same as a regional center. I feel that individuals have to be a little bit more hands-on. But a limited partnership will work.
From a structural point of view, are there strategies? Well, this is more complicated. But until such time as the a 29, or Removal of Conditions has been approved. I would caution against exiting or seeking to exit. As for providing a new commercial enterprise. If you look at the rules, they say if you buy an existing business, and you expand the net worth or number of employees by 40%, you’re okay. Not true. The regulations have a terrible 40% expansion does not mean you’re safe. You have to basically create 10 new jobs in addition to the 40% expansion, and you have to reorganize and restructure the business such that there’s a new business.
This is the biggest headache I have when direct people call me and say I just bought a business. And I say, Well, are you going to reorganize, restructure and create a new business? They say, of course I am. But they don’t. So you really have to change the fundamental nature. I am very nervous about touching any EB5 case where people are purchasing existing businesses. So proving that it’s new is huge.
This is the problem of multiple t as the business has to be principally located within the framework of the TA already mentioned that they cannot sell or refinance prematurely, that can impact the business. The other thing about EB5 , which is kind of stupid, is that until the individual has their green card, meaning that until they’ve landed with the green card, material changes are not allowed. So you have a business plan. And business, we always make changes to accommodate the needs of our clients in the economy, but they don’t allow that. Just kind of stupid.
You can chance the business once you have your green card. But this kind of silly rule. But you better follow it. These are the issues you need to be aware of the amount of the investment, is it a million isn’t half a million? Have you got adequate jobs to create? What is the future of theEB5 program? Well, for direct, it’s simple. For regional center, we need to wait for the enactment when to file. Well, that’s the issue of Have you invested the full amounts. I would consider a partial investment, but only if the funds have been identified and we are seeking to transfer them.
Invest: real times
So if for example, the money is coming out of India, and we can only bring out a certain amount every year. But we’ve got it in the bank account. And it’s bad for currency regulations, the full amount would have been invested. But there’s there’s danger that the case would be denied or rejected because the full amount hasn’t been invested. What about quota regret retrogression? Well, for Chinese we definitely have a big problem. Multiple years wait. For Vietnamese, it’s got a little bit better for India, it’s still gonna hit us on the head. What about processing times at the moment, the government’s taking over two years to get a 526 petition approved another six to 12 months before you get into view.
So realistically from the time you start until you land based on current processing times close to three years. Then you’ve got a two year wait. Now we have two five Yes. And then you find your 829 those also taking two or three years, now you’re up to seven or eight years. So this is a huge commitment. In almost every instance, your money is going to be irrevocably committed for a long, lengthy period of time, usually at least eight years or longer. You need to be managing the business, you need to be qualified to manage the business. How long will it take for conditions to be removed? redeployment mainly applies in the regional center context. Now. Patrick, does about 10 or 12 E’s every month.
Patrick is very well established. Now, one of the big questions when you do an E is is that lawyer thinking about EB5 ? Is the lawyer thinking about tax issues? Do they have adequate sources of funds? This is the problem. People come to me with an E and say I invested five years ago and I’m like, Alright, let’s do the source of funds. We can’t prove where the money came from.
Well, the money came from a corporation not from an individual, no, EB5 , in which case, I’ll tell them sorry, we can’t convert that e.g. to EB5 , we have to start a new business. So did the money come from the individual? Or did it come from the company, we have the issue of the business plan where the jobs are already created. By the time you put the money in?
Starting a new company versus acquisition of a new company I’ve already answered. I would like to start a new company. So the importance of consular processing on Form I 526. That’s a minor technical issue. But it’s an important one. Because the E2 is a temporary visa. So I get this question all the time. If I am found for EB5 , can I renew my E2? Well, it depends, you still have to show that you have an unreleased domiciled abroad for an E2, provided you don’t indicate that you plan to adjust in the US. In almost every case, I believe we can show temporariness on an E two, even though we filed for an EB5 .
So there’s quite a few tricks to converting an E two to an EB5 . There’s quite a few rules that need to be followed. purchasing a troubled business, I mentioned that I think there’s potential yet. How do you find the trouble business?
I can’t say I’m going to recommend any Business Brokers. It takes one to two years, according to Harvard Business Review, to find and do due diligence on the right business. Well, I got an existing business. There you go. And it takes less time to sell on average, you sell a business in less than six months, but to buy an existing business one to two years.
And I would say that that is really good advice, Patrick and do due diligence people buy existing businesses, and then they find it doesn’t work. But if you do qualify, and you can find one, we had a loss of 20% the net worth prior to the loss, so 20% decrease in the net worth, I think that there are a lot that’s going to qualify but finding a good one, and must maintain no less than the pre investment level of employee.
So if you had 15, you got to keep 15 if you had nine, I don’t think you’re gonna qualify. So purchasing a troubled business, maybe an option. Think I’m gonna pass on those rules for the employees. Now there are not allowing job sharing You need to have clear contracts. But two part time jobs doesn’t equal a full time job earning what you said sounds inconsistent. I know that we can structure it such that job sharing is permissible, but part time jobs are not.
When do the jobs have to be created? Well, that’s not ever quite clear. Do the jobs have to exist for five years? No. Possibly two years. Here’s what I can tell you at the time we filed the 829 I must have 10 full time employees finished, I must have 10 full time employees as verified by nines w tos tax returns, etc. At the time we file the removal of conditions, which is three or four years down the road. Do we need to have 10 at the time we follow 526? No. Would it be nice? Yes. Do we need to have two or three? I like to see some employees initially. All right.
Some of the other problems if the individuals in the US in Ibiza can’t really manage the business they can set up the business. If they have an E two country, passport 81 countries I believe, then they can do it on an E two. And if they don’t, we can talk about acquiring a second passport. The Grenada passport is very popular. The Turkish passport is also about 250,000, Grenada, passports cheaper. And with those passports you can get an E two. And then that would allow you to come in within a few months. Look at the tax issues. Investors are always shocked when they discover that if you have a green card you’re taxable on worldwide income tax planning is required.