Opportunity Zone Investing has enormous tax advantages but unfortunately, too few real estate investors are capitalizing on this incredible incentive! Why? It's been around for more than 2 years. What's the hold up? One major reason is so few actually understand how it works or how they can apply it to their personal investment plans. The following will simplify Opportunity Zone Investing for you so that you can begin getting this gigantic tax break for yourself. And I am purposely NOT going to go into every little nuance. If you want complication, just read the IRS Opportunity Zone Publication on the matter. And by the way, I own real estate in Qualified Opportunity Zones, so I practice exactly what I preach. But I do have to give the following lame disclosure before I start... that I am not giving you tax or legal advice in this training because I am not an attorney or a CPA. Before attempting the following, consult your tax advisor.
Why Opportunity Zone Investing?
No Capital Gains
This kind of investment opportunity is one that I believe is so great because of no capital gains (after 10 years)! Whatever your goal is, whether that is to build long term wealth or save up for your kids to go to college, you will thank yourself 10 years down the road. It may not seem exciting right now, but it will be worth it.
Deferring Capital Gains
I consider this similar to a 1031 exchange, but on steroids! If there is any capital gain, as long as it is built within 180 days, you get to defer those assets.
How Does Opportunity Investing Work?
Qualified Opportunity Zone (QOZ)
First and foremost, the property MUST be located in a Qualified Opportunity Zone. There is an official map for this that I have linked in this article. There are a lot of great opportunities available in QOZ's. What happens if you find out you already own a property in a QOZ? That brings us to the next step.
Qualified Opportunity Fund
Do not be scared by this title. It is very simple. All you have to do is establish an entity that will own the property, through an LLC, not under your personal name. I have a free training on the Best Legal Entity for Real Estate Investing. Your LLC will then be taxed when you file a tax return. Some LLC's are taxed as a sole proprietorship, where the tax return flows back to you. By speaking to your accountant, they can have it changed to be taxed as an S corporation. You will need to remember to include Form 8949 in that tax return, as you are self determining that this is a qualified opportunity fund.
What Should You Do With the Benefits?
Now that you you know the benefits of investing in an opportunity zone property, what should you do?
Long Term Hold and High ROI
Remember, this will be a long term hold of at least 10 years! I have a video on 3 Ways to Turn a House into a Cash Flowing Machine, which is one of the ways that you can keep money coming in. Keep in mind the importance of a high return on investment with a constraint such as this. Operate in deals that make a lot of money that will allow you to withstand the future financial decisions you make in the next 10 years. A high return on investment is subjective. I have received 40% returns, but many beginners are ecstatic with even a 10% return.
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Phil, do I need a partner i found $120,000 property in Wisconsin that supposedly is collecting $1,300 a month rent I have a potential buyer who would want to live there but with the tenant paying $1,300 a month rent it why not keep it? I guess because I have no credit. can you help or direct me
That’s not a good deal. Those are a dime a dozen.
In order to avoid the capital gains, do you need to reinvest the entire proceeds from the sale of the asset or just the profit/appreciation portion?
The gains
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Thanks Phil, informative as always. I bought a 3 bed 1 bath house for cash of $72,000. Repairs & improvements cost $30,000. My renters want rent to buy. How do I do this. Their rent is $600. Ipsy taxes, home warranty & home insurance.
How much money does that Tenant Buyer have to put down to pay for an Option from You?
Hey Phil, Your book was the first one I bought, now I’ve got 3 rental under my belt! Thanks for the help and advice in your book and also in your vids…
my question: i took a look at the map and I see that the legend shows not only “opportunity zones” but also “NMTC qualified tracts”. Does that type of designation also qualify for some tax benefits as well? I couldn’t tell from the link i was sent to.
The last house I have done a BRRR appears to be in one of these NMTC qualified tract areas! Thanks so much for all your great content, your sense of humor, and your energy!
That’s the New Markets Tax Credit program that was established in the year 2000.
Thanks Phil. So if my house is in this new markets tax credit area, it sounds like I can get some tax credit for that as well, if it’s not in an opportunity zone area. I’m going to check with my CPA. Thanks again Phil!
Hello Phil, while I am not new to real estate investment, I learned a valuable lesson during the 08 market crash. I crashed along with it and had to go bankrupt. My question is that I have some funds to invest now and what would be your guidance to obtaining my first property. If there is anything you can recommend what would it be? Like your videos very informative. By the way, my market right now is in Fort Pierce Fl, this is where I want to start
Thanks.
I am buying a property in Ft Pierce in the next few weeks 🙂
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