This roundup provides consolidates video regarding Charles Clinton discusses Opportunity Zones, Opportunity Funds, and the substantial tax incentives now available to real estate investors established by the Investing in Opportunity Act, part of last year’s tax reform.
For more on Opportunity Zone Investing, please refer to our Resource Page.
Full Transcript – Intro to Opportunity Zones
So, what are Opportunities Zones and why are they important?
They’re one of the most exciting developments for new real estate investors in decades. Certainly in my career in real estate. Broadly speaking, it was a program that was created by two thousand seventeen tax reform and is now slowly being implemented into practice. It creates a set of powerful tax incentives for individual investors, family offices and small institutions to take their unrealized capital gains and invest them into real estate, particularly into historically underinvested areas.
This is significant, in part because there are over six trillion dollars of unrealized capital gains in the market. And if this program can tap in to even a fraction of that, this will be one of the largest economic development programs in history.
So, the next question is where are Opportunities Zones?
Real estate is a location business, obviously. So, you know, the locations of the zones are extremely important. You know, these zones were named in combination of the federal government picking census tracks all over the country and then working with state governments to actually determine where the specific zones are in each state. The good news is that these zones are literally everywhere, there’s 8,700 of them across the country, in suburban areas, in rural areas and in urban areas. And if you look in any major or secondary market in the country, you’re bound to come across an Opportunity Zone.
So, the question that’s probably on your mind if you’re a potential investor into Opportunity Zones and Opportunity Funds, is what exactly are these taxes incentives, and how do they apply to me?
We think of them as having three core tax incentives: D.R.E. Defer, reduce, eliminate.
The deferral is about taking existing gains from a recent sale. Could be stocks, it could be other property — really, almost any kind of investment qualifies. If you take those gains and you roll them into an Opportunity Fund then you defer paying the capital gains tax until 2027. So really a long period of deferral, and that allows you to invest substantially higher amount of money at the beginning of the program rather than paying tax and reducing less.
The second benefit — reduction — is if you hold the investment for at least seven years, then you can take that tax bill that you owe in 2027 and actually reduce that by as much as fifteen percent.
The final benefit, which is probably the most important one, is the ability to pay as little as zero in capital gains on the opportunities own investment itself. So if you hold the fund investment for at least ten years, whatever kind of appreciation occurs during that term, hopefully substantial, you will pay no new capital gains tax on that.
So, taken together, this really has an extremely beneficial effect on R.O.I. and equity multiple. So, for investors who are interested in real estate, anyway, who have gains in say their stock portfolio that they may want to move into a different part of the market, they really should be looking at this program as a unique way of getting into real estate and realizing some really unprecedented tax benefits.
So you may be thinking, how is EquityMultiple involved in Opportunity Funds?
Right now, the rules and regulations are still being finalized by the irs. We’re hard at work talking to first lawyers and accountants to make sure that we can set this up correctly so investors can realize the tax benefits that, you know, i talked about a little bit earlier, but just as importantly, we are focused on finding good partners, sponsors, developers and good deals. These are very long duration investments ten year plus time horizon, so it’s extra important to find a good partner who has a long established track record in real estate. If you are going to be in bed with someone for ten years, so to speak, you want to make sure that they’re have good experience, good track record and they’re trustworthy, just as importantly, are the deals itself, so, you know, Opportunity Zones are slices of markets. So even for developers who say work in New York city, it’s a different thing to work in Lower Manhattan versus work in the South Bronx and finding sponsors who have worked in these areas before who are familiar with local conditions and really can source projects that are good investments, regardless of tax incentives that i think is the key to successfully investing in Opportunity Zones. So for us, every investment that we’re going to offer an Opportunity Zone, whether it’s, individual investment or through a fund, you know, the focus is the same. Find a deal. It is a good deal on its face, regardless of tax incentives, and then layer on those tax benefits. So, you know, you really come up with a compelling tax advantage vehicle for investors.”
Opportunity Zone Investing – Hypothetical After-Tax Returns
In this video, Head of Investor Relations Rada Milenovici walks through hypothetical tax treatment of an Opportunity Zone investment.
This numerical example shows the potential gain in net, take-home return that an Opportunity Zone investor may be able to achieve over the lifetime of a Opportunity Zone or Opportunity Fund investment versus a non-tax-advantaged investment.
This example shows hypothetical enhancements to total yield, IRR, and equity multiple.
- The Opportunity Zone investment’s profit is entirely tax free, once held for 10 years.
- This hypothetical Opportunity Zone investment would yield 34% more after-tax profit than a non-OZ investment.
- Gains realized through the Opportunity Zone mechanism involve deferment, reduction, and elimination.
Phoenix Metro Opportunity Zone Investment – Sponsor Q&A
In this video, Foundation Capital Partners – the Sponsor on our first opportunity zone investment in the Metro Phoenix area – illuminates some of the pillars of this specific investment thesis, as well as key considerations for the asset as an opportunity zone target and some recap of the opportunity zone program.
While this investment is no longer available to EquityMultiple investors, the Sponsor’s insights and perspective on identifying Opportunity Zone investments may be instructive for investors looking to better understand the program and how institutional real estate investment firms are thinking about the program.
For any other questions regarding Opportunity Zone investing, please contact our Investor Relations Team at firstname.lastname@example.org.