Learn about the mistakes that developers make when dealing with the EB-5 Program for the first time.

The EB-5 Program attracts many project developers who see the program as a way to raise free money for their projects. What they don’t see are the challenges involved and due diligence required when working with the EB-5 Program.

Developers flock to Regional Centers because once the Regional Center is USCIS designated and approved they can market and raise EB-5 capital for developers’ projects.

Here are some of the major mistakes that developers make when first entering the EB-5 industry:

1. They trust the regional center and do not conduct due diligence.

Not all Regional Centers are trustworthy or reliable. What a Regional Center may say about itself or write about itself online may not be factual. It’s up the developers and investors to conduct thorough due diligence into the Regional Center’s track record and reputation to discover their true past performance. Regional Centers are not policed; no one will volunteer information, it’s up to the developers to actively research the regional centers.

2. They don’t look into the “professional experts” on the team. Who is behind the Regional Center? What’s each team member’s experience and background with the types of projects they are promoting?

Remember to find out, you must again conduct due diligence. Each member of the team will probably speak with authority and flaunt their “experience”, but unless you have firm proof to back up their claims, you may be teaming up with a person who has no real knowledge and experience. Don’t take resumes and speeches at face value. Check with references to learn more about different professionals.

Don’t let a Regional Center pressure you into paying for “legal experts” they recommend when you have your own that you know and trust.

If you do agree to use a Regional Center’s recommended professional experts, you may spend a lot of money, only to find out that the advice or forms they gave you aren’t useable and you have to start all over.

There are a lot of documents involved in the EB-5 process and having the right professionals to help you with economic models, escrow agreements, and PPMs.

3. They forget that past success does not guarantee future success.

Be wary of Regional Centers that jump into projects that they had no past experience working with. A Regional Center that keeps creating the same types of projects over and over will have a higher chance of successfully completing their projects because they can quickly and efficiently deal with unexpected events and setbacks that may arise during the development process.

4. They don’t take the time to understand the process involved in drafting the documents required for the project and the EB-5 investors.

It’s important to know what every cost and expense is for. Due research and make comparisons to similar EB-5 project deals that occurred in the recent past, so that you can feel confident knowing you’re not being taken advantage of.

Make sure that your EB-5 investors are fully informed and included like a team member. They’re your most important team member.

5. They don’t consider how economic models can make a huge difference on their EB-5 Projects.

Economic models can have a huge impact on your projects. That’s why it’s important to hire an economic planner who has a lot of knowledge and experience with zoning. There are numerous methods to determining zoning and job creation. If economic models are not done correctly, you may not be approved for a TEA, which would mean that you couldn’t lower the EB-5 investment amount to $500,000 from $1 million, thus losing out on possibly dozens or even hundreds of EB-5 investors.

Additionally, if the economic model doesn’t utilize the best method of calculating job creation, it may estimate that the project would create far fewer projects then it actually would, again causing your project to lose out on potential investors. Each EB-5 investor must create 10 jobs for qualified U.S. workers in order to obtain their green card. Therefore, each project is limited by their job creation estimates.

For example, a TEA project that forecasts a job creation estimate of 50 jobs can then only take on five EB-5 investors and therefore only raise $2.5 million in investment capital at most. And that’s why having a well done economic model is so important.