Opportunity zones were created to ensure proper development of the low-income communities out there. They are in a position to spur economic development as well as job growth. This would provide an incentive to the investors and tempt them to go ahead with developing markets.
Do you have plans to go ahead and invest on opportunity zone property? Then you must be wondering whether it is something that you should do or not. The idea of investing in opportunity zone property is generally a good idea because of the profitable returns that can come on your way. Keep on reading and we will share more details to you about the process of investing your money on opportunity zone property.
- There are over 8,700 opportunity zone properties in the countries for you to select from
One of the best things about opportunity zone property investments is the total number of opportunity zones that are available for you to consider. In general, there is a total number of 8,700 opportunity zone properties available out there to consider. Therefore, you will not end up with any opportunities to invest your money on.
It is possible for you to locate opportunity zones in all 50 states of the country as well. On the other hand, it is possible to find opportunity zones in the five U.S. Territories and the District of Columbia as well. You can explore the opportunity zones and pick the best investments available out there. The program is supposed to stimulate economic growth covering the entire country. Hence, you will be able to secure getting into a long-term investment that matches with your preferences.
- There are three benefits you can experience with opportunity zone investments
After you go ahead with investing on opportunity zone property, you can expect to receive three prominent benefits. In fact, any individual or business who goes ahead with opportunity zone property investments will be able to get tax benefits on the unrealized capital gains that exist within the opportunity zones.
The very first benefit you can experience would be the payment of tax on the previously earned capital gains, which have been invested in a property located within the opportunity zone. This will be deferred up until the year 2026. If you sell the asset before 2026, you can experience the benefit until that.
The second benefit is that it would deliver you the chance to increase the original investment in the opportunity zone property by 10%. You just need to make sure that you are holding the opportunity zone property for a period of at least five years.
Last but not least, you can make sure that all the additional capital gains that are produced from the opportunity that you have in the opportunity zone investment will be completely excluded from capital gains tax if you can hold that for a duration of 10 years.
- Understand the terms before you invest
Before you go ahead with opportunity zone property investments, you need to understand few key terms. With this understanding, you can ensure that you are receiving the best return out of investment at the end of the day as well.
QOZ, which standards for Qualified Opportunity Zone is one of the most prominent terms that you need to understand. QOF refers to a low income community census, which will be determined by the territory or state. The federal government will approve it.
QOF, which refers to Qualified Opportunity Fund, will be a partnership or a corporation that will be developed with the objective of expressing the purpose of investment equity. This would be done based on the basics of Qualified Opportunity Zone Property.
The next term you should understand is QOZP, which refers to Qualified Opportunity Zone Property. This can be a business property or real estate, which locates within a QOZ. It can even be a partnership interest or a corporate stock.
- You don’t have to pay for capital gains tax
One of the key benefits that come along with opportunity zone property investments is that it will provide you the chance to refrain from making payments for the capital gains tax. If you are a long-term investor, you will be able to get the best out of opportunity zone property investment after a period of 10 years. That’s because you will be holding that for a time duration of 10 years. After that, the investment would step up to a reasonable market value as well. Hence, you can go ahead and sold that with the appreciation without having to pay any capital gains tax.
For example, assume that you go for an opportunity zone property worth $400,000. After a period of 10 years, your investment would appreciate up to $800,000. In other words, you can receive a profit of $400,000 from the property investment you do. The total amount that you can gain out of this would be a tax free gain. However, it is also important to keep in mind that the property value would vary depending on numerous factors for the period of 10 years. it would not be guaranteed. The return out of your investment would vary depending on the normal economic cycles and the exact investment that you do.
- Any person can go ahead with investing on opportunity zone property
You don’t need to fulfill any special criteria to invest your money on opportunity zone property. That’s because it is an open investment opportunity available for everyone. One of the biggest concerns that real estate investors out there in the world have to face is paying capital gains tax. When you go ahead with investing on opportunity zone property, you can make sure that you don’t have to pay too much of money on the opportunity zone property taxes.
Anyone will be able to consider opportunity zone property investments as a lucrative investment opportunity available. You will be able to overcome the capital gains tax, which can offer amazing returns out of your investment.
The process of opportunity zone property investing is relatively easy. Even this is the very first time that you are going for an investment, you may take a look at this method of investing money. That’s because land investments are relatively safe, and you are guaranteed to get a decent return out of them. On the other hand, you can also make sure that you will not be risking anything as you go ahead with your investment on opportunity zone property. This will help you to get amazing results out of your investment at all times.
- It will be similar to Turbocharged 1031
When you deep dive and take a look at the opportunity zone property investments, you will notice that some of the investors are considering it as a 1031 exchange. However, it will not just be an ordinary 1031 exchange, but something that is turbocharged. That’s because you will be able to get amazing returns out of your opportunity zone property.
For example, you will only have to invest the capital gains portion out of your investment sale on the qualified opportunity fund. Then you will be able to receive the tax benefit that comes along with it. This will be a more convenient investment opportunity available out there for you to consider.
On top of that, all the real estate investors will be provided with a duration of 180 days to go ahead and identify the replacement qualified opportunity zone investment replacement. However, you will be only provided with an identification period of just 45 days when it comes to the 1031 tax deferred exchange. If you are keen to get a faster return out of investment, this will be a great opportunity to consider.
- You can simplify the diversification of your investment portfolio
As an investor, it is important for you to be equipped with a diversified investment portfolio. It will be simplified as you go ahead with investing your money on opportunity zone property. This is another key benefit that you shouldn’t ignore as you proceed with the opportunity zone property investments.
In the month of August last year, the Council of Economic Advisers went ahead and published a report under the title, “The Impact of Opportunity Zones: An Initial Assessment”. This report contained information with related to the benefits that people can get along with opportunity zone investments, when compared to the other investments offered to them by the federal economic development programs. On top of that, it had information with related to the characteristics that could be found in over 8,700 different low income communities, which were planned within the opportunity zones as well.
According to recent studies, it was identified that 45% of all the qualified opportunity funds are belonging to the category of pooled investment funds. These funds belong to numerous industries as well. On the other hand, 22% of the investments are focusing on real estate classes that belong into multiple categories. 18% of the investors who invest on opportunity zone property are investing on commercial real estate. If you have the preference to go ahead with commercial real estate investments, it will be a good decision to consider. On the other hand, 9% are investing in other assets, including infrastructure and businesses. Moreover, 6% are investing on residential real estate.
- Designation of the opportunity zone would increase asset value
You should also understand that the overall designation of the opportunity zone would result in the overall increase of asset value. This is something that you will need to keep in mind as you go ahead with opportunity zone property investments.
According to the expert real estate agents, the housing value associated with opportunity zones is estimated to increase by around $11 billion in the upcoming years. Therefore, people who have invested on opportunity zone property will be able to receive amazing returns out of their investments. This will deliver some prominent benefits to all the opportunity zone investors out there.
For example, the growth in the development site acquisitions are increasing by around 50% per year within the opportunity zones. When you compare that with the rest of the country, you will figure out that the opportunity zones are having a higher potential. On the other hand, the prices associated with the redevelopment properties that are located within the opportunity zones would increase by around 14%. Another important thing to keep in mind about opportunity zone is that the prices associated with all the vacant development sites that you can find within the opportunity zones would increase by around 20%.
- Post covid-19 recovery is boosting opportunity zone property
Along with the covid-19 pandemic, the real estate industry had to experience a hit. However, we will be able to see how this is recovering along with time. The biggest impact in terms of recovery will be on the opportunity zone property. This is something that you will need to keep in your mind as you proceed with the investments as well.
Along with the pandemic, we could see how massive selloffs were taking place in the stock market. As a result, a massive amount of capital gains were generated as well. Those investors are looking forward to investing on opportunity zone property because it will be possible for them to secure capital gains tax deferments. This would be another great reason to focus on the opportunity zone property. The future with your opportunity zone property investments look good. You just need to ensure that you go ahead with the right investment, and experience all the benefits that come along with it.
Now you have a clear overall understanding on the opportunity zone property investments that are taking place out there. You will be able to take a look at these reasons and decide on why you should be getting your hands on one of the opportunity zone property investments.