As Robert Arnott once said, “in investing, what is comfortable is rarely profitable.” And this could not be further from the truth regarding opportunity zones. While they’re an attractive investment opportunity, they require patience. Unlike other investments that offer quick returns on investment, opportunity zones need time. You must follow a particular process, research the best options, and do the work. However, when the returns start trickling, you’ll realize it’s the best decision you have ever made. To understand this better here’s more on how to invest in opportunity zones and how it sparks future opportunities.
How to Invest in Opportunity Zones
Opportunity zones are an investment plan offered by the United States federal government to encourage investors to invest in economically distressed areas. It’s a win-win situation because it spurs development in low-income areas while the investors enjoy tax cuts. There are two primary routes you can use to invest in opportunity zones. These include:
Direct Investment Through Opportunity Zone Funds
A QOF (qualified opportunity fund) is an investment vehicle formed as a partnership or corporation. Therefore, investors can invest through it either in real estate or in business. However, the fund must hold at least 90% of its financial assets in the QOZ (qualified opportunity zone area). Usually, large investment funds manage the QOF and invite investors to join. But it requires a minimum investment.
Investment Through Opportunity Zones Real Estate Investment Trust (REIT)
Opportunity zone REIT is a company that owns and operates real estate investment. With this investment plan, you invest indirectly in real estate by buying stock. The good thing about this investment is that it has a lower upfront investment requirement. For instance, you only need to buy one share of stock, hence the best investment for individuals who don’t have a lot to invest. Other benefits of investing with opportunity zone REIT include:
- The investment can spread through several opportunity zones, diversifying your portfolio while reducing the risk.
- Unlike opportunity zone funds, some opportunity zone REITs are liquid, allowing you to withdraw your funds anytime. However, withdrawing your funds means you won’t qualify for any tax cuts in the future.
What Opportunity Zones Hold for Your Future
- Deferred capital gains: this means your capital gains will be deferred when you invest in opportunity zones. Also, you’ll enjoy capital gain tax cuts if you keep the investment in opportunity zones for several years, usually ten to fifteen years.
- You Have Numerous Options: there are numerous opportunity zones and funds to choose from. Hence you can choose the best for your investment plans. However, ensure you research many of them to get the most convenient.
- You help develop distressed communities: opportunity zones are more like charity but benefits. You help develop economically distressed communities while benefiting from it.
Opportunity zones offer a chase to uplift economically struggling neighborhoods while enjoying tax cuts. This is the best way to enjoy capital gains referral. You can invest through qualified opportunity funds or opportunity zone REITs, depending on your investment plans. However, ensure you research many zones to get the most convenient.