Following up on last month’s Opportunity Zone discussion, my client ended up selling his home for 1.7 million in San Diego. I discovered that options are limited in looking for Qualified Opportunity Zone funds, mainly because deferment of gains ends in 2026. Even though 2021 is a great year to invest, Fund Managers realize the demand might not be there after 2021.
Example of a suitable fund option: Inland Securities
In looking for a suitable option to implement this new investment idea, I came across Inland Securities. Their current fund offering is called the Self-Storage Redevelopment Fund. This fund offers two invested time commitments, from 2021-2026 or 2021- 2031. The expected annual growth rate is 10-12%, and the investment is classified as moderately conservative. Another interesting feature of the fund is that three and a half years into the investment, the investors have access to up to 80 percent of the principal invested if they choose to withdraw funds.
This fund seeks to repurpose industrial and retail spaces as self-storage facilities in the Midwest – states like Indiana, Michigan, and Wisconsin. Abandoned warehouses and underutilized once-retail spaces such as K-mart are ideal target locations for acquisition and conversion.
A quick opportunity zone recap
According to the IRS.gov website, the Tax Cuts and Jobs bill of 2017 established Opportunity Zones as a new community development program to bolster the economy. The goal of Opportunity Zones is to encourage longterm investment, specifically in low-income urban and rural areas throughout the country. Below are the main benefits of investing in Opportunity Zones.
- The first benefit offers a temporary deferral of taxable income. This incentive is for capital gains reinvested in a Qualified Opportunity Zone Fund.
- The second benefit offers a step up in tax basis for capital gains. There is a tax basis increase of 10% should the investment in the Qualified Opportunity Zone Fund be held for five years. If the asset is held for at least seven years, the tax basis will increase by an additional 5%. Thus, the step-up tax basis increases can help investors exclude up to 15% on the original taxable gains.
- The third benefit offers a permanent tax exclusion. Suppose the investor holds the initial investment in a Qualified Opportunity Zone Fund for more than ten years. In that case, the investor can enjoy a permanent exclusion from taxable income. It’s important to note that this exclusion only applies to gains accrued after investing in a Qualified Opportunity Zone (www. Realwealthnetwork.com).
When introducing the fund to my client, he was pleased with this option mainly because the fund seemed like a stable investment option with a relatively attractive internal rate of return. He also liked the 80 percent liquidity feature after three years. If you would like to know more about this fund or opportunity zones in general, please feel free to reach out to me for a no-commitment discussion.
There are full-service investment advisors who are willing to accept accounts for both large and small investors. At empiriKal partners, llc©, we’re geared to help all ATRA members, regardless of their stage of life or portfolio size.
Let us help you rather than going it alone. If you already have an investment advisor, congratulations. However, if you’d like to learn more about what investment advisors do for their clients, please feel free to reach out to me at empiriKalpartners.com for an individual assessment.
Edward Vela is an Investment Advisor and Estate Planning Specialist at empiriKal partners, llc©, with 13 years of wealth management experience. He earned a Journalism Certification from the University of Massachusetts, a BA in Political Science, a Financial Planning Certification at UCLA, and an MBA from the UCLA Anderson School of Management. You can contact Edward at 925-300-8805 or email edward@empiriKalpartners.com.