The Benefits of Targeting Second-Tier Cities for EB-5 Investment

The EB-5 program allows interested foreign nationals to invest in an approved project in exchange for U.S. permanent residency. Within the industry, real estate remains the most popular avenue for EB-5 investment.

Real estate investors typically prefer major cities with well-developed real estate markets because they offer higher financial returns on investment. However, investing in first-tier cities may not be the best option for EB-5 investors.

This is because while profit is the main goal in traditional real estate investments, a U.S. Green Card is the primary goal of an EB-5 investment. And investing in second-tier cities or towns may offer more immigration benefits to EB-5 investors.

In this article, we’ll discuss the benefits of targeting second-tier cities for EB-5 investment.

What Are Second-Tier Cities in Terms of EB-5 Investment?

The real estate market is conventionally divided into three categories: tiers I, II, and III. This categorization is based on the level of development of the real estate market in the cities that make up each tier.

• Tier I: Highly developed cities and major economic hubs like Los Angeles and New York City. These are places with high demand for real estate. Real estate is the most expensive in tier-I markets.
• Tier II: Cities with developing real estate markets with increasing demand and opportunities for new investments. These cities have some real estate investments but have not reached their peak. Real estate is less expensive here than in tier-I markets.
• Tier III: Cities with lower populations and more underdeveloped real estate markets. The real estate market here may be undeveloped. There’s little demand, and real estate is relatively inexpensive in tier-III markets.

The real estate market tier where an EB-5 project is located can determine the profitability of the project and its ability to repay EB-5 investment capital. It can also determine how fast an EB-5 investor obtains their Green Card.

Why Should EB-5 Investors Target These Cities?

Although tier-I markets are typically the most profitable in terms of investment returns, they’re often not the best option for EB-5 real estate investments. Because first-tier cities are major development hubs with dense populations and established infrastructure, they do not qualify as targeted employment areas (TEAs). As a result, if you invest in projects in these cities, your investment amount will be the full $1,050,000.

EB-5 real estate projects in first-tier cities also face the danger of a market bubble. This happens when market prices become so high that few people can afford to purchase real estate. This reduced demand will cause prices to fall sharply, resulting in losses for developers and investors.

Additionally, besides projects around tourist destinations or local attractions, EB-5 projects in third- or fourth-tier cities are often higher risk because there’s little to no demand for real estate. The low demand means that, even if completed, the project may not achieve profitability and may fail to create the required jobs for EB-5 investors. Therefore, investing in a low-tier city can lead to a higher risk of losing your investment capital and immigration status.

Conversely, EB-5 projects in second-tier cities may offer more benefits to EB-5 investors. The developing market and increasing demand mean these cities may be more likely to achieve profitability early. And the growing demand for real estate makes it easier for developers to obtain senior loans, further securing the project’s financial base.

Secured funding and high demand can mean early profitability, project completion, and EB-5 capital repayment. These projects are also more likely to be able to create the required jobs for EB-5 investors. Thus, investors may receive their Green Cards and get back their capital in time without roadblocks.

Benefits of Investing in Second-Tier Cities

Projects in second-tier cities offer several immigration and financial benefits to EB-5 investors. Below are some of these benefits.

Reduced Investment Amount

The EB-5 program requires a reduced investment for projects located within TEAs. Many second-tier cities or towns count as TEAs, as long as they fulfill the requirements for rural TEAs (not have more than 20,000 residents, not border a city or town with a population of 20,000 or more, and not be located within a metropolitan statistical area) or high-unemployment TEAs (average unemployment rate of 150% above the national average). This means investors will benefit from a reduced investment of $800,000 instead of the regular $1,050,000.

Set-Aside Visas

The EB-5 Reform and Integrity Act (RIA) of 2022 reserves 32% of the annual EB-5 allocation as set-aside visas for EB-5 projects in TEAs. Of this 32%, 20% is reserved for rural TEA projects, 10% for high-unemployment areas, and 2% for infrastructure projects.

Since many second-tier cities qualify as TEAs, EB-5 investors who invest in these cities may benefit from the set-aside visa categories. This is particularly beneficial for investors from high-demand countries like India and China, places that face heavy backlogs and prolonged wait times in the unreserved category.

Priority Processing

RIA also requires the United States Citizenship and Immigration Services (USCIS) to prioritize processing rural EB-5 investments. This means the I-526E petitions of rural TEA investors will receive faster adjudication than those of urban TEA and non-TEA investors. As a result, rural EB-5 investors are eligible to receive their EB-5 Green Cards in months instead of years.

Processing times for I-526E petitions for rural TEA investments are now significantly faster than before the RIA. Many rural EB-5 investors have received I-526E approval within 9 to 12 months.

Choosing the Right EB-5 Project

Despite the many advantages of rural TEA projects, investing in one does not guarantee you will receive an EB-5 Green Card or get your money back. Choosing the right project is the key to truly enjoying these benefits.

Look for EB-5 projects with secured funding from senior lenders and significant developer equity. You should also ensure that EB-5 investments do not constitute a large percentage of the project’s capital. The lack of a senior loan and developer equity indicates higher risk. This means that the project may fail if it does not receive sufficient EB-5 investments, and if the project fails, it will not create the jobs that investors need to qualify for the removal of their Green Card conditions.

We recommend that investors go for projects with ongoing construction and significant capital expenditure. Such projects would have already created many EB-5 jobs and may already be profitable. Investing in such a project makes you more likely to meet the requirements for removing your Green Card conditions. You’re also more likely to get back your capital.

You should also look for projects with guaranties and protections that secure investor funds. Check the offering documents for an I-526E denial refund guaranty, project completion guaranty, and repayment guaranty. You should also evaluate the regional center and the developer’s reputation to see if they’ve followed through with these guaranties in the past.

EB5AN Offers Low-Risk EB-5 Projects

Investing in a second-tier city, especially one that qualifies as a rural TEA, offers EB-5 investors a clear and fast pathway to obtaining U.S. permanent residency. If they choose the right project, EB-5 applicants can benefit from set-aside visas and priority processing, accelerating their immigration process. This is where the help of EB-5 experts comes in.

EB5AN offers first-rate, low-risk EB-5 regional center projects with a 100% USCIS approval rate to date. We’ve helped over 2,300 families from 60+ nationalities obtain U.S. permanent resident status through the EB-5 program.

Book a free one-on-one call with our EB-5 experts today to learn more about EB-5 investments.