Multifamily investors have many options to consider in maximizing their capital for higher returns. Of course, they can use the usual value-add improvements.
Recently, however, the Trump administration has rolled a new piece of legislation that aims to benefit commercial investors and revitalize distressed communities.
With the passage of the Tax Cuts and Jobs Act of 2017, multifamily investors can get massive returns when they sell their properties and course the profits toward opportunity zones.
But what are Opportunity Zones?
Simply put, areas that are qualified opportunity zones are described as economically-distressed and low-income communities.
Under the new law, opportunity zones are created to attract investors who have enough equity to establish themselves in these areas. The payoff comes in the form of a tax deferment on capital gains.
Your taxes on your old property are progressively reduced, so long as you hold on to an Opportunity Zone investment.
What could this mean for commercial real estate investors?
Of course, the massive advantage that opportunity zones entail is the 15% reduction on capital gains if you are able re-invest in an Opportunity Zone asset within 180 days of selling your old property.
If you’re able to hold on to your new property for more than a decade, then you are exempted from paying the capital gains entirely! Opportunity Zones are great investment vehicles that can certainly benefit your bottom line.
Of course, to really bring out the best the new law offers, you may have to deal with a lot of factors that may make investing in qualified opportunity zones a challenge.
Here are a few tips to make it less convoluted for you:
1. Do ample research
It pays to know the feasibility of the opportunity zone you have chosen, so make sure you review the fundamentals of the market before you decide your next steps. Your best bet would be to look for communities with healthy social services and education sectors supported with steady job growth.
3. Get the right people to support you
Of course, you won’t be able to maximize the incentives you should be getting without having the right people. You will need the right skills and knowledge to navigate through the complexities of investing in opportunity zones, so make sure you find financial and investment experts to make sense of it all.
2. Wade the waters
After you have done your research about these zones, you may want to determine if the local ecosystem allows for added benefits on top of the tax deferrals you would get from selling and reinvesting.
Opportunity Zones are a new thing indeed. As such, you will have to learn a lot more about how you can take full advantage of this new scheme and make sure you end with the highest possible returns in the long run.
For more investing tips, you can reach out to me so I can give you additional insights on current market conditions and how best to leverage them.
That’s all for now!
Until next time!