Opportunity Zones are the Investment of a Lifetime
1 Jan 2020
Opportunity Zones are the Investment of a Lifetime This Type of Legislation Will Never Come Again
When President Trump signed opportunity zone funds into law at the end of 2017, I was not particularly aware of them. In early 2018, however, they made a $3-million (4 times total) difference on the price of a piece of land we were selling, so I had to do a little investigating!
Here's the "back story": My company was selling just over half an acre of land in San Pedro, California. The land was located in the middle of a block, and was not a particularly attractive property. We were planning to ask for $1 million and settle for about $750,000, but then my attorney son put it in escrow for $3.5 million! It turned out the developer buying the land flipped it to an opportunity zone aggregator, a company buying up land to be developed in opportunity zones for a nice profit. We made the sale, and everyone was happy.
I then studied this incredible legislation. Qualified Opportunity Zone (QOZ) Funds are nothing short of a holiday gift, a birthday gift, and an investor's bonanza all wrapped up in one. All investors can benefit from this legislation because self-directed investments tend to come with large capital gain taxes. Opportunity zones are a way to ameliorate the taxes you would otherwise pay for a big win in all asset classes like stocks, bonds, or private business equity, art, cars, etc.
Clarifying the Capital Gains Angle
The opportunity zone legislation is a "magic" combination of intriguing and confusing policy. As far as the tax benefits associated with investing in these funds go, people tend to get very excited when they hear "deferred and discounted". After all, who doesn't like delaying taxes and paying less taxes
However, the most exciting benefit is the final gift: "federal tax-free status". After 10 years in the fund, your gains accumulated from your investment including the appreciation, depreciation, and income earned in the opportunity zone fund come to you federally tax-free when sold. That is the largest benefit by far when it comes to opportunity zone investments in income property, and it makes these assets what my company refers to as "the IDEAL™ Investment".
Why Legislation Like This Will Not Pass Again
Some people are surprised when I say it is unlikely that there will ever be another law like the opportunity zone program. With the current polarization it seems pretty unlikely that the two sides of the aisle are going to come together on much of anything any time soon. This QOZ bipartisan legislation is one thing that they can point to and tell their constituents, "I did something good for you taxpayers and the country," because there are 8700 opportunity zones in every state.
That is also the reason I am not worried about any changes to the existing laws that would put restrictions on how opportunity zones work. Since it was passed by both parties, even if the political landscape changes in 2020, it is pretty unlikely a majority of both houses will make major changes. This is a gift that will keep on giving.
Case Study: West Palm Beach Acquisition
If you've been wondering just what can be accomplished in an opportunity zone, here is an example from our company. Our first qualified opportunity zone purchase was 10 acres in West Palm Beach, Florida for $10 million. It is adjacent to a freeway and off-ramp, has water frontage, is two miles from the ocean, about eight miles from Mar-a Lago, is close to the speed rail, and is surrounded by medical and educational facilities.
Our fund will build a 374-unit multifamily residential complex on the acreage. Additionally, we will likely build a hotel or a self-storage facility on excess land. The hotel is an attractive concept because it would provide people with a place to stay when their loved ones are getting treatment at the medical facilities, and the self-storage option is also appealing because many of the residents in this area are retired and have moved from New Jersey or New York. (They still have belongings they may wish to store.) This retired population is in a QOZ and also advantageous to our investors because they tend to show relatively low incomes but have wealth and stability.
by Fred Hameetman
Fred Hameetman is the chairman of The American Group, which is now organizing a second QOF based on investor feedback and the unique features their investors requested. Learn more about this fund, the AAAmerican Opportunity Fund, and its focus on properties in Florida, Texas, and Arizona by visiting www.AmericanGroup.us.