One of the main challenges when getting started with multifamily investing is knowing where to look for deals.
You may have heard of opportunity zones.
What is an opportunity zone in commercial real estate?
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Under the Tax Cuts and Jobs Act of 2017, the concept of opportunity zones was created to encourage economic growth and create jobs.
These are economically distressed communities that will be revitalized by investment. These low-income areas are defined by population census, and state governors can nominate a limited number of these neighborhoods for official designation.
Opportunity zones are characterized by a high rate of poverty, low median family income, and high rate of unemployment.
There are currently around 8,764 opportunity zones in the U.S. Many of these opportunity zones have been ignored by investors for decades.
The intention of the Tax Cuts and Jobs Act was to encourage long-term investment in low-income communities by providing tax incentives for investors. As an investor, the longer you hold on to an opportunity zone investment, the greater the reward will be.
Less government oversight for these properties means that investors in a variety of industries can use the tax incentives to be responsive to the needs of various communities.
This sounds good, but the legislation does not define specific outcomes to help determine whether the investments have lead to real change, nor does it include a requirement for data reporting.
For these reasons, some analysts fear the lack of oversight can lead to minimal improvements.
I’ve shared the benefits and risks of investing in different housing classes.
Opportunity zones investments would fall under Class C, buildings that sit in less-desirable locations and lower-income neighborhoods.
Those who live here normally do so because it’s the only affordable solution.
In most cases, Class C properties are older than 20 years, so you can expect most of them to be rundown and in need of extensive renovation. Some Class Cs have no amenity package and their interior/exterior is dated or ugly. The majority of appliances are original, meaning they need to be replaced. Most of the risk of investing in Class C buildings centers around the quality of the tenant pool. These tenants typically have lower incomes and are at the highest risk of not paying rent.
Choosing where you invest in commercial real estate is no small task.
In this article, I describe HOW to go about picking the best areas for multifamily deals and give you three resources to help you.
The more you educate yourself about investment opportunities, the better. The more you know about active investing, the better prepared you will be to make life-altering decisions.