Thoughts on opportunity zone investment - cash vs. loan
Hi,
I found a property in a opportunity zone area for $130K which I am planning offer $100K. Also, I am planning to spend about $40K for rehab. ARV is about $190K and rental is about $1800 to 1950. This is a 3 BD, 1 Bath, yard, and detached 2 garage about 1900 sqft.
My conundrum is following where I need your input.
Scenario 1:
I have the cash to buy and rehab. I want to eventually BRRRR the property. BUT... I want to take advantage of OP long term tax break. This means that I need to buy the property under my LLC. This will make BRRRR a bit difficult because I have to use commercial loan - which mean higher rate and shorter term. I called local CU and banks, but the terms are not that great.
Scenario 2:
Buy under my name and get BRRRR, but I don't get the OP benefits.
Scenario 3:
Buy under LLC with 25% down and get a loan. Take advantage of OP. But I don't have as good leverage to but the property at $100K and loan terms . This option gives me more liquidity since I will holding on my case.
Thoughts? Thanks.
John
Most Popular Reply
@Mike Roy @John Kwon
You do have to substantially improve the property. However, it is not 100% of the purchase price. You can subtract the land value.
So the formula is (Purchase price-land value=substantial improvement amount). It still sounds like the property you have in mind John may not qualify.
You can also only get the benefits if you are investing capital gains.