While the term “Opportunity Zones” may sound familiar now, it’s a relatively new term, and plenty of investors still know little about what they are and how to use them to their benefit.
On the other hand, Opportunity Zone investments are attractive to nontraditional investors like high-net-worth individuals, family offices and endowments and others.
The core of the program is to encourage investors to reinvest capital gains, which can come from any investment — including stocks, bonds, real estate and partnership interests — into these zones.
Investors are able to invest in qualified Opportunity Zones through an investment called an Opportunity Fund.
The Opportunity Fund provides both temporary and long-term tax deferrals for eligible investors.
While investors can benefit by investing in Opportunity Funds, the communities can benefit as well.
One of the requirements of earning a designation as an Opportunity Zone is that the area includes a poverty rate of at least 20%.
Investors who participate in an Opportunity Fund are joining a privately managed investment that’s created as a partnership or as a corporation for the main purpose of investing in qualified Opportunity Zone properties.
If you’re planning to invest in an Opportunity Zone, be sure you question whether your investment will perform in light of a worst-case scenario.
Bear in mind that many Opportunity Zone areas are in low-income communities, where there is economic distress.
One way to analyze investment potential in a worst-case scenario is to convert different possibilities into hard numbers.
You need to have profit to enjoy special tax incentives, like those that the Opportunity Zone program offers.
If the opportunity is not profitable, then you are seeing losses and the tax breaks from the Opportunity Zone program are not as great an incentive or as helpful at that point.
Smart investors realize that, as with other areas that undergo refurbishing and renovation, the properties surrounding the Qualified Opportunity Zones may present attractive investment opportunities as well.
An investment in a bad neighborhood will not make it a great investment just because it is eligible for Opportunity Zone tax incentives.
The interest in Qualified Opportunity Zone investments has been increasing lately, as the program could be attractive to many investors.
Don’t be tempted to invest in an Opportunity Zone deal without checking the fundamentals of the deal, as you would with any other real estate investment.
If the deal makes sense even without the tax breaks from the Opportunity Zone program, then investing in an Opportunity Zone fund might be a lucrative investment.
Originally Published on January 3, 2019 at 11:58AM
Article published originally via “opportunity zones” – Google News https://www.forbes.com/sites/forbesrealestatecouncil/2019/01/03/how-investors-can-ensure-their-opportunity-zone-investment-is-a-smart-deal/