All Forum Posts by: Scott Krone

@Dan Shelhamer  There are.  From the realization of the capital gains it is 180 days.  Once in the fund, there is time they have to be placed.  

@Mike Jacobson An Opportunity Fund does not generate a ROI. The Opportunity Fund is similar to an Self Directed IRA. The Fund is an investment vehicle. The ROI is generated based upon the entity the Fund invests. The longer the investment stays in the Fund, the more tax benefit the beneficiary receives. If funds are pulled out, then the tax credits are forfeited.

@Ian Russell  Have you considered an Opportunity Fund?   You can use 1031 Exchange proceeds in the Fund?  It will also allow you time to identify an entity for you, so you don't make a haste decision.

@John Casmon runs a great BP network

There is a meet up in Lake Forest tomorrow night if you look on Meetup

@Jimmy Klein @Lien Vuong @Jeffrey Holst @Russell Brazil - A few items to clarify.  First, I am not a lawyer nor a CPA.  That being said, I have spent a good number of hours on the phone with the IRS discussing this program.  A few points I have taken away from those conversations:

1.  The zones were created by the State and local authorities.  They are not necessarily "high risk" areas.  They are areas where the governing authorities wanted to encourage economic development.  They literally can ebb and flow from one street to the next in a city or region.

2.  The zone is not the investment vehicle.  It is the Fund.  The Fund has to invest 90% of its holdings into businesses or properties in designated zones.  The investment can be in any zone.  There is a minimum investment for establishing the Fund.  Opportunity Zones have gotten the news lingo, but the key is the Opportunity Fund.

3.  The investment into the Fund has to be from capital gains - any type of capital gains.  You have 180 from the realization of the gains to investment in the Fund.

4. As with Self Directed IRA's a disqualified investor is a major concern for the program. You can't create a fund and then buy your own property. Let's call the Investor "A". Investor A is interested in a development by Developer "C". Investor "A" can invest in a Fund by Fund Manager "B". A invests in B, and then B invests in C. It has to be an arms length transaction. A can not directly invest in C, nor can A say they have a fund and invest in A's own property.

Please keep in mind when I began the conversation with the IRS there were only 2 pages of tax code written at the time.  There has been more published, and the laws will continue to develop.  Is it a useful tool for real estate - 100% absolutely.  Does it fit every investment - no it does not.  However, it would be foolish to overlook it.

@Jim S. @Amul Sutaria  @Curtis Robbins

I have fortunate enough to know a lot of people who are starting off in real estate.  It is exciting and overwhelming at the same time.  I know them through a large real estate investment group that focuses on education.  I am not their coach or work for the company.  That being said, the vast majority of people believe or feel they "have to" start with wholesaling or flipping.  My question to them is simple - Why?  The most common response is, "Well, I thought that is where everyone starts".

My suggestion to them is this - what do you want to do?  The three of you appear to be blessed that you have the ability to start doing what you want to do.  So, what are you good at doing.  How can you take that skill and translate that to your real estate career.  Build off those skills.  Why go into something that you don't like because you felt you had to.  There are so many areas of real estate that most people don't even consider.  

Just this week, I met with a "newbie" for breakfast.  He was from out of state, and was in my city for a convention.  He asked if we could meet about self storage (which is our specialty).  We began the breakfast with him telling me how he wanted to do wholesaling so he could get into low income housing.  Like you, I was totally confused by the direction of the conversation.  I asked him 2 questions, "Why" and "What did he do before real estate".  Turns out he was a financial risk adviser for a national brokerage and worked with high net worth families.  He went on to say how he really enjoyed that but was getting to old and expensive so he was forced into retirement.  He is apart of the same community I spoke of earlier.  I suggested the community could really use a person like him to assess the risk in deals and connect them with high end investors - as both are major concerns for both parties.  Newbies typically don't realize risk well enough, and investors need to know deals have been properly vetted.   It appears he is now moving his business in that direction.

Hope the story and feed back helps.  Best of luck to each of you.

@Eric Furst  I do appreciate @Jay Hinrichs assessment of "there" set up.  That being said, without knowing "there" development, it is hard to speculate as to what are appropriate rate of returns.  New developments typically yield a better rate of return due to the higher risk.  The terms you are suggesting appear to be for an existing development that may be re-positioned.  In either situation, it is important to assess the associated risk and time frame.  Jay makes a great point regarding rising interest rates.  With MF there is also the rising concern of over saturation.

@Brian H. Having three investors is not an issue for lenders. It does not necessarily mean three loans. The lender will most likely look at all three investors, or if one is larger than the others, that person. They have to review anyone with more than 20% ownership. So it depends how you structure your LLC.

Your second question would/could pose the issue. If all three are members in your LLC you won't have an issue. This is the syndication model. If you try to structure them with PML than the lender will most likely not be comfortable. If they are an investor than they share in the profits/revenue of the company with you. You first need to determine what structure you want to offer your potential investors.

@Brian H. First, the bank is going to lend on actual not projected. Does the owner have solid accounting and taxes? If the numbers you are stating are accurate, most lenders will look at DCR to exceed 1.25. You should have enough equity without syndication/other investors to make it work based upon its own performance. That being said, the apartment market is contracting due to market conditions. Banks are evaluating number of units in the market place, rising interest rates, etc. Their proposals are based upon their assessment of the risk of the market not just your product.

Keep looking for other loan options, but make sure your underwriting is solid in your presentation.

@Patrick Philip  We sold all our apartments.  We do own self storage (apartments without toilets).  We hire one of the largest operators in the country to manage our facilities.  They are responsible within the contract and budget to do the minor maintenance.  Big ticket items need to be presented to us for approval.