The Main Objective Foreign investors continue to seek opportunities in the U.S. markets. As they develop their market opportunities, many foreign investors desire to live in the U.S. One method of achieving this objective is the E2 visa, which is a nonimmigrant visa for foreign investors of certain treaty countries who have invested or are actively in the process of investing a substantial amount of capital in a bona fide enterprise in the U.S. in any industry.
One common and mature industry that attracts the attention of many foreign investors is the real estate industry; and therefore, it is the focus of this report.
Importantly, the regulations require foreign investors to actively direct and develop the enterprise. Accordingly, through a carefully structured business model that shows the foreign investor as an active director and developer of the company will allow the foreign investor to make a viable case for an E2 visa through a real estate company. The Trends for 2019 Increasing Insurance Costs. In 2018 the U.S. experienced many natural disasters to include floods, hurricanes, and wild fires. Given the large sums of money that insurance companies had to pay out, it is likely that they will want to recover financial losses in 2019 and beyond. Consequently, property owners will likely notice insurance costs rise, which will impact operating expenses, and thus net incomes.
Tight Labor Force. The U.S. labor market is experiencing significant changes as the country has been maintaining extremely low unemployment levels. As a result, labor supply is becoming unavailable especially since organic population growth is diminishing. Traditionally, the U.S. grew through liberal immigration policies, but the Trump Administration has tightened immigration policies, which will impact population trend lines. The bottom-line is that labor is becoming scarcer and more expensive. This increased cost will impact real estate investors as the real estate industry is vulnerable to restrictionist immigration policies because much of the traditional labor force in the construction industry is composed of Mexican undocumented workers. Moreover, real estate building projects may slow down in completion times for the above stated reasons.
Real Estate Marketing Costs. Real estate owners will continue to benefit from downward price pressure on marketing services. As the industry has almost fully adopted digital marketing strategies, real estate owners have benefitted from increased exposure of their properties at the regional, national, and international levels, and at the same time have benefited from reduced costs as many digital marketing companies have reduced their pricing as they leverage online technologies.
Japan, Canada, and Mexico Lead in the Numbers. The U.S. government starts its fiscal year in October. Thus, for fiscal year 2019 there are already a few months of reporting, and the numbers suggest that Japan, Canada, and Mexico are leading the E2 category. This pattern is not surprising given that both Japan and Canada have historically been top investors of U.S. real estate. In Mexico’s case, a newly elected president, Andres Manuel Lopez Obrador, has some members of the business community a bit anxious given his left-leaning political rhetoric. Consequently, many Mexican business owners are searching for diversification and hedging through real estate assets in the U.S. markets. The Strategies Buy and Rent
Managing rental property as a business strategy is an active and risky endeavor. But, where there is risk, there is opportunity and a potential for favorable investment returns. Nevertheless, many foreign investors gravitate toward real estate given its relatively stable investment attributes as compared to other investment classes. Furthermore, foreign investors appreciate the simple and direct business model of buying and renting properties. In recent years, market trends have rewarded this class of investor.
Through a well prepared presentation, the U.S. government will consider an E-2 visa packet based on a company dedicated to buying and renting properties.
Before pursuing this strategy foreign investors must do their due diligence and compare local market trends because all real estate is local.
VERDIN lawyers will generally advise the acquisition of two or more properties through a holding company. If the investor will acquire a significant number of properties, the prudent approach is to create two companies: a holding company that owns the properties; and a management company that leases the properties to tenants. This structure should create an extra layer of liability protection for the investor.
The term “flipping” refers to the acquisition of real estate property, a value-add, and then quick sale of the property. This strategy requires timing and coordination with many independent contractors. This strategy tends to favor experienced investors, but the government will consider an E2 visa packet based on a company dedicated to flipping properties.
A prudent strategy is to combine both buy/lease and flipping strategies. This dual pronged approach will diversify the strategies to best exploit market conditions. Again, the U.S. government will also consider a well-planned E2 visa packet based on a Hybrid Strategy.
Under all of the three stated strategies it is strategic to also reserve the ability to conduct consultancy services to allow the foreign investor the ability to pivot to ancillary business services.
VERDIN lawyers are experienced in multiple E2 visa strategies involving real estate projects throughout the United States. The Benefits The E2 visa has key advantages. Foreign investors should consider some of the following benefits:
• Allows the investor to indefinitely renew his or her E2 visa.
• Spouses may obtain employment authorization.
• Children under 21 can also obtain E2 visa as dependents and attend public or private schools.
• Rapid processing at the US Embassies or Consulates.
• Allows access to real estate markets to actively operate and expand real estate related companies.
• Permits E2 visa investors to sponsor other foreign national executives with the same nationality as the investor owner.
• Although the E2 visa is a nonimmigrant visa, there are some pathways to residency, if carefully planned.