Helping Investors Take Advantage of Opportunity Zones

With just days remaining in 2017, Congress passed the largest overhaul of the tax code in three decades through the Tax Cuts and Jobs Act. The bill made waves in the media and garnered lots of debate because it slashed the corporate tax rate from 35 to 21 percent, and also lowered income taxes for individuals and families.

But baked into the bill was a lesser-known provision that created lots of potential upside for investors through mechanisms called qualified opportunity zones, which at their core are economically-distressed communities located around the United States.

Investors that roll their capital gains into investments in these new zones can defer their immediate capital gain taxes owed, while simultaneously reaping some pretty substantial tax benefits, depending on how long they keep their investment intact.

Now, an experienced entrepreneur and longtime investor sees a chance to disrupt the way people invest in these opportunity zones with his new startup, OurZones.

“It’s one-part philanthropy, one-part business,” said Manny Fernandez, co-founder and CEO of the company. “I realized there is a lot of money with capital gains that people don't know where to go to and find places to invest where there are embedded developers.”

OurZones helps solve this problem by building a marketplace that connects accredited investors with local real estate developers raising capital for a project. The company also plans to have its own Regulation A + real estate fund that will enable more average investors to get involved via equity crowdfunding.

Here is how the marketplace works: The OurZones Platform enabled investors to purchase shares in opportunity zones real estate investments, they provided investors access to a range of opportunity zones real estate investment options in opportunity zones areas and allowed users to browse, view, finalize, and manage real estate investments online.

More About Opportunity Zones
Although created in 2017, the U.S. Treasury Department and the IRS only finalized regulations implementing the opportunity zones tax incentive at the very end of 2019.

The opportunity zones provision designated 8,700 opportunity zones all throughout the country. These are areas that could really benefit from economic development.

There is potentially more than $2 trillion in unrealized gains that sit on the ledgers of investors and corporations, according to CNBC. At the end of last year, Sen. Tim Scott, the primary sponsor of the opportunity zones effort, said there is already more than $63 billion in anticipated opportunity zone investments.

The benefit for investors is a potentially huge tax break. Investors can pull a prior capital gain and defer paying taxes on it if they put it into another investment in a qualified opportunity zone.

manny quoteIf the person holds onto their opportunity zone investment for more than five years, they get a 10 percent reduction on taxes owed from the deferred gain. If they hold onto the investment for more than seven years, they get a 15 percent reduction. And if they hold onto the investment for 10 years, the investor will not have to pay any capital gains taxes on the new money made from the investment.

Fernandez stressed that investments in these zones need to make sense as a normal investment. The fact that it is an opportunity zone does not make it a sound investment, but simply allows people to make more money on it, he said.

“Some people may be blindly looking at the opportunity zone,” added Fernandez. “Study the manager, make sure the manager of the fund has a track record of making money. This is not for new people.”

The ideal investor, according to Fernandez, is a person who might have been an early employee with equity at a high growth startup, and now is worth millions after that company issued an initial public offering.

Fernandez acknowledged that opportunity zones are still relatively unknown to many people, but given his entrepreneurial success in the past, which includes the successful launch and exit of the equity crowdfunding portal DreamFunded, Fernandez has built an extensive network.

There are two other factors that will help the Stanford-educated entrepreneur market his company.

He has more than 71,000 followers on Twitter and has appeared on huge media outlets such as CNBC and the Oprah Winfrey Network. Also, being based in San Francisco and closely linked to the startup community, OurZones should have no shortage of access to their ideal investor now that Lyft, Uber, Slack and Zoom have all issued IPOs.

“These people sold their shares and now they want to, instead of paying the IRS taxes, use their capital gains money to make money by putting it into the local neighborhood and thus improving the community that they live in,” said Fernandez.

Doing Well by Doing Good
Despite the potential to make some nice returns and enjoy tax benefits, Fernandez said he truly believes in the power of opportunity zones to do some real good in the world.

In his 20s, Fernandez made some of his first real estate investments in a very poor area. He saw how those investments helped families move in, improve the local economy, and reduce crime.

you invest600x500“I'm doing it because I realize that the odds and the rules are stacked against certain people from becoming homeowners,” he said. “People that are homeowners take more pride in their communities; they pay taxes, and eventually the equity builds into their property. It also helps with things like being able to send your kids to a better school. It can help with a person's rise to a higher net worth individual, and make their lives better versus paying a landlord all their life.”

While there has been some pushback from critics who say that opportunity zones promote gentrification, OurZones said on its crowdfunder site that the company “will be fighting gentrification by giving those with little to no credit a chance to take part in the American Dream.”

Thus far, OurZones has raised money from the SF Angels Group, and Fernandez said more “large money” is on the way.

The company has been running in beta stage for invite-only investors, but will be available to the public very soon. Until the SEC approves the fund, everyone is welcome to express interest and learn about the fund, but only accredited investors can invest at this time. The goal, according to Fernandez, is to have half a billion dollars in investments come through the platform by next year.

Long-term, Fernandez really expects to help communities and average investors.

“This Regulation A+ fund allows people to co-invest, so therefore a normal person can get the same large return the other guys are getting,” he said. “And it does have some ownership opportunities in communities that probably would never have ownership in the past. This is huge.”

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