How long does it take to get the money out of the EB-5 investment?
One of the top questions in the mind of every prospective EB-5 investor is “How long does it take to get my money out of the EB-5 investment?” To answer that question, we have to examine that question from three primary perspectives: 1) immigration legal requirements for how long the investment must be maintained; 2) contractual legal restrictions; and 3) market, economic obstacles to cashing out of the investment.
USCIS requires that the $900,000 of investment funds and the program fee charged by the regional center be paid either into escrow, pending the approval or denial of the I-526 petition, or paid directly into the EB-5 enterprise before the I-526 petition can be filed. Since USCIS's processing times for the I-526 petition have gone well over a years, sometimes in excess of 2 years, regional centers have abandoned the practice of holding the investment funds in escrow. Now, they are generally paid directly into the project. On the positive side, this means that the funds are loaned out to the project deveoper sooner, which also means that the project developer has to pay back the loan funds sooner, and so it becomes possible for the EB-5 investment limited partnership to repay the investors soon, if all the other legal requirements are met.
The EB-5 investors' funds must be invested throughout the period that the I-526 petition is pending, which is about 2+ years, the period that it takes for adjustment of status (app. 9 months) or consular processing of an immigrant visa (4-6 months), and the two-year conditional residence period. That comes out to the funds needing to be tied up for about 5+ years. However, if the EB-5 investor is from a country that is subject to a quota backlog, such as China (5 years), Vietnam (3 years), or India (1.3 years), then you have to add on the period of the backlog waiting time, and so the funds must be tied up for a total of 6.5 to 10 years.
Just to clarify what I mean by “backlog” is that each green card category is subject to a quota, and when there are more applicants (and they count not just the principal applicant, but also each member of the immigrant’s family separately) than there are green cards available in that category, then a waiting list forms, which is referred to as a backlog. The backlog becomes important at the second stage of the process, when it comes time to apply for the immigrant visa through the U.S. consulate in the applicants country of residence or through USCIS in the U.S., if the person is currently residing in the U.S. under a long-term visa. Applicants can process to the second step only once their priority date (the date when they filed the first-stage I-526 petition) is approximately within 6 months of reaching the front of the backlog waiting line.
It is important to note that, since July 2018, USCIS has a policy of accepting that the EB-5 investor can remove the investment funds after reaching the end of the two-year conditional permanent residence period, when it is time to file the I-829 petition. This a change from USCIS's previous policy of requiring the EB-5 investor to maintin the investment through the approval of the I-829 petition.
In addition to the immigration legal requirements, the investment funds are tied up due to contractual obligations and sometimes also market forces. EB-5 investments can typically be categorized as loan-based or equity-based. “Loan-based” means that the EB-5 investor invests the $900,000 into an entity such as a limited partnership or a limited liability company, and that entity loans the funds out to a project developer that spends the money on carrying out a project that has the effect of creating jobs. The EB-5 investors own the lending entity, but they have no ownership interest in the project business (viewed by USCIS as the Job Creating Enterprise), although the lending entity might have a security interest in an asset, typically real estate, owned by the project business. “Equity-based” means that the entity, in which the EB-5 investor invests, actually owns the project business, or the commercial building where the project business (Job Creating Enterprise) operates.
In loan-based projects, the investment funds are tied up for the duration of the loan’s term, which determines the deadline for the borrower to repay the loan. Loan-based EB-5 projects typically involve loans with terms ranging from 4 to 6 years. It is important to note that, as the EB-5 program has backlogged for investors from China, Vietnam, and India, it has become necessary for the funds of investors from the backloggd countries to remain invested for longer, since the backlog delays the beginning of the two-year conditional permanent residence period. Since Chinese investors' backlog has delayed the time frame of them completing the two-year conditional residence period beyond the original loan period, many regional centers are now "redeploying" the investment funds into making bridge loans to other projects so that the EB-5 investors' funds still qualify as "at risk".
With an equity-based project, the EB-5 investor typically owns a share in an entity that owns a large commercial property or owns a functioning business with production equipment and possibly business premises. Where a commercial property is involved, it is typically necessary for the property to be sold in order for the investors to cash out, and so the time frame for selling the commercial property will be open-ended. Alternatively, with production facilities and equipment, the EB-5 investors’ shares might be subject to transfer restrictions for a minimum holding period during which the shares cannot be sold. In addition, once the transfer restriction period passes, the investors will still have to wait whatever time it takes in order to find a buyer for individual shares or for the business in its entirety.
The time frame for cashing out the EB-5 investment depends on the time period for completing the EB-5 immigration process, the time restrictions imposed on the investor by contract, and, in the case of equity-based investments, the time that it takes to sell the property or business. In general, the shortest possible time frame for cashing out from the investment would be after app. 5 years, which is the time frame for completing the EB-5 immigration process, if the EB-5 investor is not from a backlogged country. If the EB-5 investor is from a backlogged country, then the capital could be tied up for in excess of 6.5, 8, or 10 years. Loan-based projects, provided that the loans are repaid on time, have the greatest potential for repayment in the shortest period of time, since they offer a specific repayment date, typically after a loan term of 5-6 years. Equity-based programs typically have open-ended time frames for cashing out, and so they should be entered into only by those investors who are able and willing to make a longer-term investment.