Because its primary objective is to stimulate foreign direct investment in TEAs and commercially-viable enterprises that create jobs for Americans, foreign investors looking to apply for an EB-5 visa can invest directly in new or distressed commercial properties or businesses.
This guide will dive into investing in distressed properties and discuss why they are such good options for investors looking to get an EB-5 visa by making a direct investment.
Introduction to EB-5 Distressed Properties Investing
Distressed properties are properties in or on the verge of foreclosure. Because of their nature, these properties are often discounted and sold below market value, making them great investment options for direct foreign EB-5 investors.
A distressed property may be because of a lack of liquidity for the seller or other factors.
Investing in distressed properties can be challenging because it involves direct negotiations with sellers who may have unrealistic expectations about their current asset value.
However, any foreign direct investor seeking to apply for an EB-5 visa can work with an EB-5 project manager like the EB5 Affiliate Network to find distressed commercial properties that meet the EB-5 visa requirements.
Distressed properties can fall into many different asset categories, including but not limited to the following:
- Real estate foreclosed by a lender and sold at auction.
- Out-of-service commercial real estate, such as office buildings and malls, but still owned by the same entity.
- Residential real estate foreclosed by a lender and sold at auction. The property foreclosure may have been due to a mortgage loan default or non-payment by the borrower.
- Commercial properties that might be in danger of going into foreclosure if not sold quickly enough to meet demands from their current owners or lenders.
Since the main prerequisite to getting an EB-5 green card is investing $500,000-$1000,000 in TEAs or a job-creating enterprise, foreign investors can directly invest in distressed properties that meet the visa criteria.
What Makes Distressed Properties Investing a Lucrative EB-5 Foreign Direct Investment Option?
For many reasons, distressed properties are a great direct investment option for foreign investors.
The first reason is that distressed properties often have lower prices; thus, you can get into this project with only a small amount of money, as low as $500,000 in a Targeted Employment Area.
Moreover, when a foreign investor with hands-on industry knowledge invests in a distressed but also commercially viable property that immediately creates jobs and generates revenue, the property can see quick returns.
For example, investing in EB-5-approved real estate properties that immediately create jobs and rental income, all without involvement in the day-to-day business operations, can result in quick returns.
That makes distressed properties an excellent option for foreign direct investors who want to invest and get the EB-5 green card but aren’t interested in managing the day-to-day operations of their investment property or business.
Finally, there’s no risk involved when investing in these projects because the USCIS or ICE regional centers will have already approved the property.
Factors To Consider When Investing in Distressed Properties
When considering which distressed properties to invest in, consider the following:
- The type of property
For example, commercial properties are usually more lucrative than residential ones because of their ability to provide cash flow and a quick return on investment.
The property’s location will also determine its value. For instance, an apartment building with a steady tenant stream and income is likely to be a costlier direct investment compared to investing in a distressed commercial property in a designated TEA.
- Building structure and condition
The property’s state can also affect its value; thus, it’s essential to weigh distressed commercial properties to find one that gives you a structurally sound commercial property that meets the EB-5 visa requirements.
- How much can you spend?
Select a project based on how much you want to invest and the nature of the distressed property.
As stipulated by the USCIS, EB-5 investors need to invest $800,000 in a TEA, or a minimum investment of $1,050,000.
Things Every EB-5 Foreign Direct Investor Should Remember About Investing In Distressed Properties
The primary thing to remember is that a distressed commercial property must meet the investment and job creation guidelines outlined by the EB-5 visa program.
Additionally, when investing in distressed properties, always remember that:
- The likelihood of getting a return on your investment depends on the type of property you invest in; it depends on market conditions and your investment strategy.
- Buying distressed properties as a foreign investor requires careful planning and execution. You can’t just buy a property and think it will increase in value overnight. You have to do your due diligence before investing in any project, especially when it comes to distressed properties.
- It is best to pay a premium price for good deals, especially when they involve distressed properties or commercial buildings that owners have abandoned.
- You should always check on the project’s status before investing in it to know whether or not it’s worth the risk.
Investing in distressed commercial properties can be profitable for someone with the proper knowledge and expertise.
However, it is essential to understand the various factors that affect such investments before jumping in head first.
Investments in distressed properties are not without risk, but they offer significant upside potential when done correctly and with caution.