While it may be clear that Opportunity Zones present great benefits to those who invest, it hasn’t always been made entirely clear how to go about making an investment.
The program, which was enacted as part of the December 2017 Tax Cuts and Jobs Act, offers three levels of tax benefits to participating investors and developers (one of which will no longer be attainable for investments made after 2019).
So, to clear the air on investing in Opportunity Zones, below is an 8-step guide describing exactly how to invest in Opportunity Zones across the nation, no matter the asset type you’re looking for or market you’re looking in.
How to Invest in Opportunity Zones
1. Understand how Opportunity Zones work and what the benefits are.
This step may seem obvious, but given the long-term commitment needed to reap the rewards of Opportunity Zones, investors should do the proper due diligence to learn about the program itself. The Opportunity Zone program is quite nuanced, and it’s important to properly understand its policies to the best of your ability.
For starters, investments should be made by December 31, 2019, to receive the full 15% reduction on the original deferred capital gains taxes. You can invest after this date, of course, but in order to maximize returns, investments have to be made within the current calendar year.
Also important to note —the full benefits of the program come to fruition only after holding an investment for 10 years.
An investor must reinvest capital gains within 180 days of the realized exchange date of those gains. That capital must be invested into a Qualified Opportunity Fund—all funds must hold at least 90% of their assets within Opportunity Zones.
Once an investment is made, an investor can defer the taxes on the capital that they’ve reinvested. Those taxes can be deferred until December of 2026 at the latest. If an investment is held beyond 2026, and is held for ten years, investors qualify for full tax exclusion on their Opp Zone investment capital gains, not the original deferred gains.
- After holding an investment for five years, 10% of the original deferred capital gains are excluded from taxation.
- After seven years, 15% of the deferred gains are excluded from taxation.
- After 10 years, 100% of Opportunity Zone Fund investment gains are excluded from taxation.
But again, the original gains can only be deferred until 2026. So, to meet the seven-year benefits, investors must make a play within the 2019 calendar year (tick tock!). But, don’t fret—if you want to reap the five-year benefits, you can invest by the end of 2021.
For a detailed breakdown of the program and its benefits, read our complete Opportunity Zone overview on the blog.
2. Finding Opportunity Zone Properties For Sale
Once you’ve done your due diligence on the Opportunity Zone program, the next step is finding the actual Opportunity Zone properties for sale.
There are a number of Opportunity Zone mapping tools across the U.S., even in non-contiguous states, that show exactly where qualified zones lie across the nation’s 3,000+ counties. Tools like EIG and Novogradac offer a snapshot of each zone, including population totals, poverty rates, census tract numbers, and so on.
For a full list of resources, check out our extensive list of Opportunity Zone mapping tools.
If you want a property-specific approach, however, Reonomy’s powerful Opportunity Zone property search allows you to search for multifamily, land, and all other commercial assets that are located in any of the nation’s Qualified Opportunity Zones. With a few clicks, you can find your perfect Opportunity Zone investment—read steps 3 and 4 to see how.
3. Find your ideal investment property with Reonomy.
Once you’ve done the proper amount of research to understand the Opportunity Zone program and where qualified zones are, you can begin to dive into individual markets to find off-market investment properties.
Let’s say you’re looking for an Opportunity Zone investment property in Alameda County, California.
With Reonomy, you can quickly run an Alameda County property search for any commercial asset, including multifamily and land, as well as sub-classes of each.
Within any state, city, MSA, county, zip code, neighborhood, or on any individual street, you can then filter your search results to only see properties that are located in QOZs.
To do so, find the Building & Lot tab of the search platform. Here, you can simply apply a “Yes” or “No” to search specifically in or outside of Opp Zones.
From there, you can add a multitude of asset class, sales, debt, and ownership filters to make your Opportunity Zone property search more granular.
So, say you’re only looking for multifamily properties in Alameda County Opportunity Zones.
Once you select “Yes” for Opportunity Zone properties, you can move to the Asset Type tab and add filters for multifamily properties and sub-classes of those properties.
Out of Alameda County’s nearly 15,000 properties in Opportunity Zones, 6,800 are classified as multifamily.
From here, you can continue adding certain specifications, such as number of units and square footage, recent sales and mortgages, or who the owner is. The level of granularity for which you search is entirely up to you and can help suss out your ideal Opportunity Investment even further.
4. Get the owner details and contact information for that property with Reonomy.
Once you’ve identified a property or properties of interest and analyze them as opportunities, Reonomy allows you to uncover owner names, mailing addresses and contact information—even if the owner is an LLC.
Once you find an interesting property, click into its property card and check out the Ownership tab. There, you’ll be able to see the reported owner of the property, whether it’s an LLC or an individual.
If the owner is an LLC, Reonomy allows you to pierce the owning entity to uncover true owner names. Simply click Unlock TrueOwner to see the members and holding companies associated with the owning-LLC, along with phone numbers, emails, and mailing addresses to use for direct outreach to decision-makers.
Uncovering true owners and their contact information is arguably one of the most important steps to your Opportunity Zone investment search. It’s this information that will unlock new levels of deal-making.
5. Self-Certify or Locate an Opportunity Zone Fund.
With your eyes set on a target property or properties, you have to make sure you have access to a Qualified Opportunity Zone Fund in that market.
One option is to self-certify as an Opp Zone Fund. That can be done by filing the IRS 8996 form and submitting with your taxes. This form is also used to measure existing QOFs to make sure they met the necessary standards in the previous tax year.
Without establishing an Opportunity Zone Fund yourself, you can turn to a number of different QOFs. While many funds focus on larger markets and multifamily properties, there is a great variety of QOFs across the country.
Investing in established Opportunity Funds may come with a fee as well, however. For more sophisticated investors, self-certifying is a better option for saving on investment fees and having control over what those investments are.
6. Build your pitch.
As long as you have established an LLC or other entity as an Opportunity Fund, and as long as that Opportunity Fund has at least 90% of its assets in Opportunity Zones, the only thing left for you to do is strike a deal.
If you’re sourcing off-market deals on Reonomy, you can do that by building a personalized pitch and reaching out to owners directly, using the knowledge you’ve gained from analyzing their properties and full owner portfolio.
For example, if you see that someone owns a 14-unit multifamily property in Alameda County, you can call and reference that property and its granular details.
You can build a call script that references the size of the building and recent sales. You can also reference other properties in their portfolio to further prove your expertise.
In the case of business-tenant properties, you can also use Reonomy to see the tenants in a building—this can also be used as pertinent information when speaking with property owners.
7. Reach out directly.
Once you’ve built a fine-tuned pitch, you can use the contact information you’ve sourced from Reonomy and reach out directly to the decision-makers behind an Opportunity Zone property.
Not only can you build a more personalized pitch, but you can also forego interactions with any gatekeepers and non-decision-makers.
Whatever information you uncovered before (the more the better!) — use it. The more you know when speaking with an owner, the better prepared you’ll be to make a compelling pitch and show you’ve done your homework. In turn, owners will be more inclined to consider a sale.
Doing all of this off-market lets you interact with a minimal amount of people while still saving money, in-line to even more long-term benefits from the Opportunity Zone itself.
8. Wait 5-10 years and reap the tax benefits.
So, you’ve searched off-market for Opportunity Zone properties in Alameda County, found two that suit your investment strategy, reach out directly to owners and close two deals? Great.
The only thing left to do is wait and hopefully see the rapid growth of the Opportunity Zone you are invested in—and eventually reap the tax benefits of your investment.
With the time for maximum benefit running out, it’s important to make moves sooner rather than later. But even if you don’t make an investment by 2020, you can still reap the benefits of a five year investment—just make sure to do so by 2021.
As time goes on, check back on our blog for more updates on the OZ program, market updates, and more.