Are you an investor who is worried about EB-5 fraud? EB-5 fraud is in the news every few weeks, but this doesn’t mean that the EB-5 Program isn’t a fantastic program to invest in, it just means you have to be extra careful with your due diligence so that you can avoid EB-5 fraud. Â

You can avoid EB-5 fraud fairly easily if you know what to look for!

Here are 4 tips to avoid EB-5 fraud:

1. Choose the developer and regional center with the strongest reputation and has a long history of success.

Don’t invest all your money into a real estate developer’s first ever project. That’s an unnecessary risk. Find an EB-5 project developer and regional center that are not only familiar with the ins-and-outs of the EB-5 Programs (which is a fairly complex program), but also ones with extensive real estate development experience. Speak to professionals who previously worked on previous projects with the developers and regional center team. Find out if the projects were successful and completed on time. Find out if these professionals would work with the developer again.

Choice a developer and regional center that have a history of working on the same projects over and over again. Avoid investing in projects constructed by developers and regional centers that have no experience with the projects industry. Lower your risk by as much as possible by choosing a team that has completed many of the same type of project in the past decade. They will know what to do if the project hits a problem. This is crucial because EB-5 investors are on a strict time-line. EB-5 investors have 2 years to prove that their project created 10 full times jobs for U.S. workers.

2. Don’t choose a project developer that intends to use the money for projects in multiple industries.

There’s been a lot of fraud lately coming from real estate developers who claimed to be using EB-5 capital for multiple projects, when in fact they misspent the funds for personal purchases. If a developer is claiming they will use the EB-5 investment funding for multiple projects that are unrelated to each other, such as restaurants and senior home living apartment buildings, be aware of possible fraud.

EB-5 investors should focus on looking for regional centers and developers that are focused on creating one project. This does not mean that mixed-use projects are bad investments. As long as the projects are in related industries they are usually fine investments. One example of a strong mixed-use project that utilized EB-5 investments is Hudson Yards in New York. Hudson Yards is a mixture of apartments, office spaces, retail spaces, and restaurants.

3. Invest in projects in familiar industries.

Choose a real estate development that you have some knowledge of and experience with so that you can invest more confidently. If your expertise is in multifamily residential buildings, invest in those types of projects. Avoid unfamiliar industries where your lack of knowledge may open you up for fraud.

Developers looking to defraud investors often appear to choose obscure projects such as cancer treatment facilities. While these projects may sound good on the surface, they may not have any plans for executing the projects.  

4. Choose projects located in or near major cities.

The majority of investors want to take advantage of a Targeted Employment Area (TEA) lower investment amount of $500,000. If an investor does not choose a project located in a TEA, then the minimum EB-5 project investment amount is $1,000,000. Investing in a TEA means that the EB-5 project is located in a rural or high unemployment area.

At first glance, it investors may think this means they have to invest in a project that’s located in a rural town in the U.S.A., however, this isn’t true. If the project’s real estate developer has a skilled economist on their team they may be able to build their project anywhere in the country including major cities such as New York, Los Angeles, Miami, and Las Vegas. A skilled economist can take advantage of the part of the definition of a TEA that states that the area must be experiencing unemployment at a rate that is 150% the national average. To get a TEA designated for the EB-5 project, an economist will submit the geographical location of the project to USCIS for approval. As long as part of the area has a high unemployment rate and is located within the geographic boundaries, the rest of the area could be a major city.

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