Opportunity zones pros and cons?

Question

Hello everyone,

My question is about the pros and cons of investing in an opportunity zones. Could someone sprinkle a little bit on this topic?

Thank you so much in advance.

James Wise · Answer

Pro - Cheap

Con - Hardcore Ghetto

Nathan K. · Answer

The episode that @Alex Gunnerson shared is exactly what got me onto this topic, so I delved deep into it. It sounded too good to be true and, unfortunately, I still think it is. I can provide you the contact information of the lead Opportunity Zone planner for the State of Virginia if you'd like. He's super cool and was the one that pushed our legislation so I'm very confident he can answer any question you may have, regardless of state as this is a Federal incentive. From my own research last year:

Pros:

1) No taxes if selling after 10 years

2) Not all opportunity zones are actually bad/really need improving. If I remember correctly, it's a 10-15 year old initiative so most places aren't as bad as they were then

3) Sadly, that's about it. Great for tax incentives which is why it was implemented. But, unsurprisingly, there are a LOT of hoops/legal requirements

Cons:

1) You need to set up and fund a separate organization (that ONLY invests in opportunity zones) from which to do business. There are rules on that money which I don't remember, but I remembered it was an annoying hoop to jump through.

2) The biggest things are "substantial improvement" and "primary business"

Substantial improvement is doubling the value of the property. So you can buy a SFH home but then need to double it in value. Or buy a plot of land and build a home. These are both considered "substantial improvements". I use quotes because that's their legal jargon. That was my big turn off. Why would I buy a $300k house, double it's value, and then sit on a $600k house in a $400k neighborhood? May be different in your area.

3) The OZ must be your place of primary business. So the fund that you set up must hold a majority of its assets (90% I think?) in that opportunity zone and must be the primary place of your business.

Hopefully some of this helps but if you're fine with the legal and admin side of this game of hopscotch then the tax benefits are probably worthwhile. Again, lmk if you want the contact information for Virginia's lead OZ guy.

Patricia Steiner · Answer

I haven't found "opportunity" zones to be the best investments. As a former wealth banker, the Opporunity Zone Funds surfaced right after the legislation was enacted and were highly sought-after and then dumped by investors for the lackluster performance and risk. Here's what CNBC reported: "Opportunity zone funds are more about hype than substance when it comes to tax planning." It was also found that the economic benefits touted for the community itself were not realized. Investors who took the leap of faith - attracted by the tax savings - found themselves in markets that were not economically increasing thereby impacting appreciation, rent price demand, and tenant quality. There's a ton written on subject online; I recommend looking at "the cons of investing in opportunity zones" before moving forward.

Just my experience...hope it helps.

Bob S. · Answer

If you have a team in place that knows what they are doing its great, DO NOT try and go it alone, it will not end well

Good luck

Matthew Irish-Jones · Answer

@Gabriel Sanabria most of the pro’s are tied up in the differed Capital gains and the potential to eliminate a portion of Capital gains depending on how long you hold.

The cons are red tape and location.  Most opportunity zones are in rough areas.

Gabriel Sanabria · Answer

Thank you so much @Julio Gonzalez

Gabriel Sanabria · Answer

Hi @Jaron Walling

Yes, it makes sense what you're saying.

Gabriel Sanabria · Answer

Thank you so much for your input @Bob Stevens

Gabriel Sanabria · Answer

Hi@Alex Gunnerson really much appreciated for your contribution. Thank you for the time you dedicated to answer.

Carlos Ptriawan · Answer

LOL , need to bring gun to such "opportunity" zone development location, sometimes, just paying the tax is way way better.

Opportunity zones pros and cons?

Most Popular Reply