In the beginning of the EB-5 Immigrant Investor Program, all projects involved direct investments because the regional center option did not appear until several years later. The arrival of the regional center option saw a dramatic move away from direct investments and toward this new investment vehicle. Many EB-5 advisors believe foreign nationals are overlooking the many options and benefits that accrue from the direct investment route.
Investors regularly overlook the fact that regional centers require regular reauthorization to remain part of the EB-5 program, whereas the direct investment option is a permanent feature of this valuable program. Even though the regional center option has been successfully renewed in the past and near-future prospects show no indication of this changing, regional centers remain an impermanent opportunity that is subject to change or elimination.
The Difference Between Passive and Active Investments
The main difference between regional centers and direct investments is the amount of control an investor has in each type. With a regional center, the foreign investors are limited partners who supply the cash but are not involved in the daily operations of the project. While this suits many EB-5 investors and is a popular option, it also means investors have little input beyond the opportunity to vote with other limited partners on certain issues, making them passive investors.
In comparison, direct investors enjoy full control over their projects. While they can relinquish or pass control to other employees or officers of the commercial enterprise, they still can control major decisions that affect the future of the business. Obviously, this form of investment calls for greater involvement on the part of the investor, but some people thrive in such hands-on efforts, making them perfect active investors. Even for investors who are reluctant to commit to such intense involvement, there are direct investment choices that function as passive investments, meaning fewer operating decisions, but still leave full control in the hands of the EB-5 investor.
Franchises: An Ideal Blend of Passive and Active Investments
The franchise industry is ideally suited for EB-5 direct investments. Franchise investments are available in many industries, and the benefits of investing in a franchise include fuller disclosure requirements, public recognition and popularity, and an existing customer base that gives a new investor a running start on their EB-5 project. Another valuable aspect of franchises is their proven history and the existing regulations and oversight by both federal and state authorities. Compared to regional centers, franchises are subject to more rigorous and regular governmental review.
On top of governmental supervision, the franchises themselves usually perform their own audits and updates for their licensed franchise owners, giving each individual investor the opportunity to compare their performance against other franchisees and the general industry. While franchise owners are subject to the internal rules and regulations of the franchise license, these investors retain greater control over a franchise than they would by passively investing in a regional center.
Of course, no investment is perfect and each type of investment, passive or active, has its own benefits and drawbacks. The informed investor will work with qualified and experienced EB-5 consultants and advisors to evaluate as many realistic EB-5 investment options as possible. Only by such thorough and extensive research can the foreign investor reach an educated conclusion that will result in the best possible results for their preferred EB-5 investment.
