According to recent reports, more than 7 million people in the United States are actively investing in real estate at present. Many more are considering this type of venture but aren’t sure of which types of real estate to funnel their money into. After all, numerous options are available, and each one has its own distinct strong suits. While virtually all sectors of the real estate investment market deserve due attention, opportunity zones are rapidly gaining steam. They offer quite a few benefits not only for investors but entire communities.
What Are Opportunity Zones?
Opportunity zones are specific areas throughout the United States that are considered distressed or in need of an economic boost. They’re designed to improve housing and job opportunities for people living in those areas and foster economic development, thereby fueling growth. You can invest in opportunity zones via qualified opportunity zone funds. If this concept appeals to you, it’s important to understand a few key points beforehand.
1) Different Opportunity Zone Investment Options
A few types of opportunity zone investments are available. They include stocks in companies and investments in real estate located within opportunity zones. Other types of investments are also possible.
2) Multiple Investment Opportunities
In addition to different types of investment options being available, various types of areas are eligible for investments. These include industrial areas, urban communities, suburban neighborhoods, and rural areas to name a few.
3) Aids in Portfolio Diversification
One of the key rules of thumb for investing is maintaining a diversified portfolio. Opportunity zone investments can cover this in one fell swoop. Many qualified opportunity zone funds include investments from a wide range of industries and companies, so investors can essentially cover a great deal of ground with a single QOF investment.
4) Tax Benefits to Consider
Numerous tax benefits apply to qualified opportunity zone investments. For one, taxes on capital gains investors decide to reinvest in QOZs can be deferred for several years. Secondly, investors who hold onto OZ property investments for at least 10 years are permanently exempt from capital gains taxes on those properties. Those are only a couple of the key advantages.
5) OZ Investments Can Act as 1031 Exchanges
For quite some time, real estate investors have been taking advantage of 1031 exchanges. Qualified opportunity zone investments can work in much the same way. With QOZ investments, though, you only have to reinvest capital gains in other opportunity zone properties to benefit from tax deferral as opposed to all the profits from sales.
6) Capital Gains Can Cross Over
Investors with capital gains from other types of investments can funnel those gains into OZs to take advantage of tax benefits. If you have capital gains from stocks or gold IRAs (for details, here are the rules for gold IRAs capital gains taxes), you may be able to reduce the amount of capital gains taxes by investing those gains in opportunity funds.
7) Ample Room for Growth
While all investments pose certain risks, OZs are proving to be lucrative for investors. Reports are showing significant appreciation in these areas. This is true of both residential and commercial properties.
8) Extensive Perks
Opportunity zone investments can provide far-reaching advantages. Investors certainly stand to benefit from gains on their investments. Residents in OZs benefit from more job opportunities, better housing, and greater access to much-needed services. Business owners in these areas see greater profits as a result of outside investments as well, and the list goes on.
9) Choose Investments Wisely
Be sure to research OZ investment options thoroughly before investing. Some of these investment opportunities are potentially more lucrative than others. Despite the consistent gains most offer, some can be much riskier than others as well.
10) Plenty of Areas to Choose from
Last, but certainly not least, it’s important to understand the scope of opportunity zones in the United States and the investment options they have to offer. Over 8,000 qualified opportunity zones have been designated by the IRS so far, and each one offers a vast range of investment opportunities.
In a Nutshell
Qualified opportunity zones are receiving a great deal of attention because of all the benefits they have to offer. They give investors a chance to profit significantly while enjoying tax benefits. At the same time, they provide extensive opportunities for people living in the communities being invested in as well as surrounding areas.