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3 Risks and Rewards of Opportunity Zone Investments

Opportunity zone funds could become the hot new investment. These funds provide individuals with the opportunity to invest in communities that are in economic distress and benefit from a tax advantage for doing so. However, investors must remain in the fund for a minimum of five years to receive this benefit. The IRS continues to work on the details, and the funds and zones are completely new. As a result, a person must recognize any money made from the fund likely won’t be available for ten years. As a result, some people might find they need to consider other options.


The Complexity

As with all real estate investments, opportunity zone investments remain complex. Scammers are looking to make their way into this opportunity as well, which means investors must take care when putting their funds in this vehicle. As a result, investors must recognize the level of due diligence required.


Availability in opportunity zone funds remains limited. The IRS has yet to fine-tune rules regarding these funds and recently proposed more regulation. Finding established fund sponsors remains a challenge, and every sponsor must be thoroughly vetted to avoid scams. Nobody wants to learn they invested in an opportunity zone fund that doesn’t qualify for the tax savings.

Some broker-dealers might choose to only grant access to the funds to investors that are accredited. This means their income for the past two years must have exceeded $200,000 each year, and they must have a minimum net worth of $1 million without their residence. For married individuals, the threshold increases to $300,000.


Investors need to find high-quality sponsors. They want someone who has a good track record when it comes to real estate investments while specializing in areas that are undervalued. Successful turnarounds are something else an investor should look for when selecting a sponsor.



A fund must meet specific requirements to qualify for the tax savings. For instance, any fund that wants to offer savings to investors must have a minimum of 90 percent of its assets in property that qualifies as an opportunity zone. Watch for scammers looking to take advantage of investors unaware of this requirement. Individuals who find a legitimate fund find they are rewarded with the knowledge they are helping improve a community for all who live there.


Before investing in one of these funds, the individual must feel completely comfortable knowing they won’t have access to the funds for ten years. Individuals who worry this is too long for their needs must look elsewhere for an investment opportunity. Those who can afford to leave their money in the fund for this period save significantly.

Tax Savings

Investors need to have large amounts of money to benefit from opportunity zone investments. Often, these individuals recently sold a large investment and can roll the money over into a qualified opportunity fund within 180 days. These funds go to a property located within a designated opportunity zone. Any gains invested in the fund won’t be taxed until they choose to sell or December 31, 2026, whichever occurs first. The longer the funds sit in the account, the greater the tax savings.

Individuals who remain in the fund for a minimum of five years will be able to exclude ten percent of the gain they originally deferred. Stay in the fund for at least seven years and the tax savings increase to 15 percent. For individuals who stay invested in the fund for ten years, no taxes will be owed on the fund’s appreciation when they decide to sell.

Investors should work with a reputable CPA to understand fully the fund’s tax implications. They may receive a K-1 or Form 1099 and must know how to handle them. Experts say this isn’t a fund for men and women who do their own taxes.

Knowing the benefits and drawbacks of opportunity zone funds is crucial. Make certain you know where your money is going and how to make the most of the investment. Men and women who do so find they save money while helping an area in need.