Single-Family Home Projects Can Be a Great Fit for Rural EB-5 Investment, But Do Your Diligence

If you are an EB-5 investor looking for a project, you want to be confident that the project you invest in is the best option. Every EB-5 project is different, even those within the same asset class.

At EB5AN, one of our primary goals is to give you the information you need to have confidence in your EB-5 investment. After reading this article, you will be able to effectively diligence single-family home EB-5 development projects.

First, we will explain why single-family home developments can be excellent EB-5 investment projects. Then, we will look at how single-family home projects are a good fit for rural targeted employment area (TEA) projects. Finally, we will examine the key differences between great single-family home EB-5 projects and those that are less suited for EB-5.

Single-Family Home Developments Can Be Excellent EB-5 Projects

The EB-5 market today offers many types of projects. Some of these projects are related to hospitality, like hotels and resorts. Others are residential projects, like condominium, multifamily, and single-family home developments. And some are related to manufacturing, like plants and factories.

While not all of these project types are good fits for EB-5 investments, single-family home projects tend to be great options. These types of projects fit well with EB-5 investments for two primary reasons: they are easy to understand and often have ongoing revenue while being built.

Easy to Understand

It may seem obvious, but simpler investments are easier to understand. And when an investment is easy to understand, it is easier to assess for risk. Few real estate project types are as straightforward as single-family home developments.

A single-family home community project involves building houses for individual buyers. Some work, however, must be done before houses can be built. The developer will split undeveloped land into individual lots for sale. Then, the developer must do some initial infrastructure work: installing sewers, running electric, gas, and water services, building roads, etc.

Then, lots are sold and houses are built one by one, with each sale bringing in revenue. If all goes according to plan, these home sales will pay for construction costs and yield a profit. The profit from these sales may then be recycled back into the project or used to pay investors.

This investment type is simple because it is easy to see how invested funds will be spent and repaid. Because the investment is easy to understand, it is easy to assess for risk. You can examine the project’s details and see how likely it is to sell homes and earn a profit.

We will look at how to assess a single-family home project in detail in the last section of this article.

Ongoing Revenue through Sales

Relative to most other project types, single-family home developments require less outside financing to complete, especially as a percentage of the total project cost. At first, funding is needed to acquire the land, install some infrastructure, build model homes, and start work on amenities. This initial funding may come from developer equity, loans, and other investments.

But once homes start to sell, the proceeds from these sales can be put back into the project for further development. As a result, financing can be repaid or reused, meaning additional debt is not typically needed for further progress.

To make this clear, consider the contrast between a manufacturing plant and a single-family home development.

For a manufacturing plant, no revenue will be earned until the plant is operational after construction is complete. Funding must all be in place and spent before any revenue is brought in. While some of the funding will be developer equity, most will be debt. Because of this, once the plant is open and operational, a large proportion of its revenue will be used to service its debt until the debt is fully repaid.

A single-family home development project, on the other hand, will earn revenue with each home it sells. Such a project will be funded in part by developer equity and may have a loan or revolving line of credit, but debt will likely make up only a small part of the funding for the project. The vast majority of the funding will be recycled over the course of development. For example, $350,000 may be drawn from a line of credit to build a home, but once the sale is finalized, the debt can be repaid and redrawn for the next house.

Single-Family Home Developments Tend to Be a Great Fit for Rural TEA Projects

As discussed above, single-family home projects are often good options for EB-5 investments. While some types of projects are best suited to urban settings, others make sense in rural areas. Single-family home projects, in particular, tend to be well-suited to rural TEAs.

High Demand for Single-Family Homes

Demand for homes in many rural areas has been on the rise, especially since the COVID-19 pandemic. And supply has not been able to keep up. With high demand and low supply, the market for single-family homes in these rural areas is strong.

In rural markets with an under-supply of homes, single-family home projects can be an exceptional option for EB-5 investors. A well-placed rural project built by an experienced developer could find tremendous success. And when a project succeeds, its EB-5 investors face less financial and immigration risk.

Not All Single-Family Home EB-5 Projects Are the Same

In the prior sections, we have established what makes single-family home developments a good fit for EB-5 investments generally and for rural TEA projects specifically. Now, we will examine what differentiates single-family home projects from one another. Not all single-family home developments are the same—some are high quality and low risk, but others may be neither.

If you choose a low-quality, high-risk project, you could lose your invested money and your Green Card. Careful due diligence is essential to ensure this doesn’t happen.

Track Record of the Developer

Perhaps the single most important factor for any project is the track record of its developer. If the developer has years of experience showing that it always completes its projects, the current project is more likely to be completed. Likewise, if the developer has a record of always repaying its debts on time, your investment is more likely to be repaid on time as well.

Developers with limited experience—or little experience building single-family home communities—present a higher risk to investors. If you cannot look back and see a record of success, you have to trust the developer’s word and hope the project is a success. A record that shows success is always better than a prediction.

Profitability

Another factor that sets lower-risk projects apart from higher-risk ones is whether the project is already profitable. Strong single-family home projects have sales. If a single-family home project is already profitable, it is much more likely to be completed as planned and to repay its investors.

Projects that do not have sales and are not yet profitable present a higher risk to EB-5 investors. The project may not sell as expected. If the project’s sales forecasts turn out to be wrong and it’s not as profitable as predicted, you may not be repaid on time—or at all.

Current Construction of Homes and Amenities

Construction progress is generally a good indicator of risk. If a project has not started construction, it poses a higher risk to investors. A project that is nearly complete, on the other hand, is much less risky because the project has less to do and a record you can assess.

For EB-5 investors, construction progress is especially important because it produces the jobs needed to meet the requirements of the EB-5 program. As a result, construction progress is not just an indicator of financial risk—it reflects immigration risk, too.

A single-family home development that is already under construction with many homes built and amenities in process or complete poses much less risk than one with little or no construction complete.

Proximity to a Major Urban Area

Location is highly important for rural projects. While a rural location could be hours from the nearest major city, it does not have to be. A project can be designated as rural under the EB-5 program and still be within a short drive of a major metropolitan area.

Many people who want to live in a rural area do not want to give up the convenience of nearby services, shopping, medical facilities, and transportation hubs. They want the best of both worlds. Consequently, if a rural single-family home community is not near a major urban center, it may have a harder time selling houses.

Favorable Demographics

Not everyone is moving out of urban areas in favor of rural communities. If a project targets a certain demographic, it needs to be a substantial group of people with proven interest and sufficient wealth.

Any single-family home project that targets a specific demographic needs proof that demand is high enough among that population to make the project a success. When a project shrinks its target market, it faces a much higher risk that sales will not materialize. This is common sense: if fewer people are interested in a product, fewer people will buy that product.

However, focusing on a specific population segment can sometimes create a strong niche market. For example, one top demographic for rural single-family homes is retirees. A growing number of retirees are moving into quiet, age-restricted communities. Retirees have spent their lives accumulating wealth, and they often are able to leverage the equity in their prior home to purchase a new home and are thus less impacted by rising interest rates.

Validation of the Market with Comparable Sales

If a project is too early in its development to have sales, it needs to have a market feasibility study with plenty of comparable sales to validate its projections. This validation needs to come from an independent third party to guarantee this analysis is objective.

If other single-family homes in the local market are not selling—or are selling for less than the houses that will be offered by the project—this is cause for concern. A lower-risk project can point to unmet demand despite strong new home sales in the local market.

Independent Appraisal of Developer-Contributed Land

Any land contributed by the developer to the project should have an independent third-party appraisal. Unfortunately, a common tactic used by some EB-5 projects is to inflate the value of the land. They do this to make it appear that the developer invested more of its own equity than it actually did.

For example, a developer might have bought land for $10 million in 2019 but values it at $40 million in 2024. They may believe the land is currently worth that much, but without having that value independently verified, this is just an opinion.

To clarify how much equity the developer contributes, the land must be appraised at the time it is contributed to the project. This independent third-party appraisal should be completed by a professional. This appraiser will conduct a market survey to determine the true value of the land.

Questions to Ask

How many homes has the developer successfully built and sold to date?

• If the developer has little or no experience building single-family homes, this project is higher risk.

Has the developer ever failed to complete a project?

• If the developer has failed to complete a project in the past, this project is higher risk.

How much debt has the developer borrowed and successfully repaid in similar projects?

• If the developer has not successfully repaid debt in many similar projects, this project is higher risk.

Has the developer ever failed to repay its debts on time?

• If the developer has failed to repay its debts on time in the past, this project is higher risk.

Does the project have any sales?

• If the project has few or no sales to date, it is higher risk.

Is the project profitable?

• If the project is not already profitable, it is higher risk.

Is construction underway?

• If construction has not yet begun, this project is higher risk.

How many jobs have already been created for EB-5 investors?

• If the project has not already created a significant number of jobs eligible for EB-5, it is higher risk.

How close is the project site to the nearest major city?

• If the project is not within a short drive of a major city, it is higher risk.

If the project is targeting a particular demographic, what evidence is available that shows strong demand for the project among the target demographic?

• If the project is targeting a specific demographic group but cannot offer clear evidence showing demand for the project among that group, this project is higher risk.

Does the project have a third-party market feasibility study validating its financial projections?

• If the project has no third-party validation of its sales forecasts, this project is higher risk.

Does the project have a third-party appraisal confirming the value of any land contributed by the developer to verify the developer’s equity commitment?

• If the project has no third-party appraisal of contributed land, then the developer equity is likely inflated, and this project is higher risk.

EB5AN Offers High-Quality, Low-Risk Single-Family Home Projects

EB5AN is pleased to offer EB-5 investors two best-in-class single-family home projects in rural TEAs: Twin Lakes Georgia and Wohali Utah.

Twin Lakes Georgia is a single-family home community near Atlanta, Georgia. The project consists of 1,300 homes and many top amenities. As of February 2024, more than 600 homes have already been sold, with nearly 500 of those already delivered to buyers. Over 3,000 EB-5-eligible jobs have already been created as of January 2024. Twin Lakes Georgia is being developed by The Kolter Group, one of the top 20 private home builders in the United States. Kolter has successfully repaid billions of dollars of loans over 25 years and has never failed to repay a single loan or to complete a project. Kolter also has an extensive track record, with over $29 billion of in-process and realized real estate development, including over 29,000 single-family homes.

Wohali Utah is a single-family home community near Park City, Utah, a top U.S. destination. The project consists of 428 homes, top amenities, and a golf course designed by an award-winning designer. Construction is underway, with significant progress on the golf course, manor house, and land lot development. The Wohali team has over 30 years of experience in construction and real estate development, including building luxury homes and golf courses. As of December 2023, 690 EB-5-eligible jobs have been created.

If you would like to learn more about investing in a single-family home project, please schedule a one-on-one call today.