When a government wants something done, they can do it one of two ways – do it themselves, or encourage private enterprise to do it. One of the ways that government inventiveness private corporations to do something is through the use of tax incentives. There are some POWERFUL tax incentives for real estate developers in the city of Savannah, so let’s talk about the first of these types of zones and how the average investor can benefit from them: Federal Opportunity Zones.
FEDERAL OPPORTUNITY ZONES
Federal Opportunity Zones (O-Zones) are a huge program that got rolled out in the Tax Cuts and Jobs Act of 2017. Investing in an o-zone allows the investor to completely avoid paying capital gains from the sale of ANY asset as long as certain conditions are met. This is a much better deal than the simple tax deferral that an investor can get from a 1031 exchange, and you can do it with non like kind assets – for example, you could sell the TSLA stock you bought at $150 (pre-split) and roll your 10x gains into an o-zone tax-free. Now, O-Zones are hard to invest in for the average investor, but it’s still critical to know where these zones are. You can bet that big players will be putting their money to work in an o-zone whenever possible, and if you can forecast where the big money might be flowing then you can ride that appreciation wave that will follow. If you’re investing in Savannah real estate and you’re not taking o-zones into account you’re ignoring a big piece of information that could help drive your investing decisions.
First, some notes on why o-zones are not really for the average investor:
You can’t just invest your money into an o-zone, you must invest it in a Qualified Opportunity Fund (QOF).
There are a ton of rules governing how a QOF must operate. A certain percentage of their total assets must be in an o-zone, for example, and they have to at least double the taxable value of property acquired inside the o-zone, funds must be held inside the QOF for at least ten years, etc etc.
QOFs need to get buy in from many different stakeholders: local citizens, politicians at the local and state level, and often need to fight zoning fights to do what they need to do. This induces significant legal overhead.
Basically, unless you’re investing/raising a significant sum of money ($10+ million), it doesn’t make sense to have all the legal and administrative overhead required to run a QOF.
BUT – that doesn’t mean that a real estate investor in Savannah can’t benefit from these zones! You know a lot of the big development going on around town? Places like Eastern Wharf, the new apartments going up by Wheaton, and the two new apartment complexes out Presidents past East Broad? All of these massive developments are happening/have happened inside o-zones and are possibly QOFs. Wouldn’t it be nice if you knew where all the opportunity zones in Savannah were so you could forecast where the next big money investments might happen?
Well, you can! Go to sagis.org/map and turn on the “Federal Opportunity Zone” layer – or check out the screenshots below. Now just because an opportunity zone exists doesn’t mean that money is just going to come pouring in – you’ll want to look for other favorable indicators for development. Favorable zoning. Undeveloped, dry land that won’t cost much to buy. Or perhaps an undeserved demographic. Like, perhaps an influx of college kids, service industry workers, and young professionals chasing cheaper rents into an area of town with no coffee shops, bars, dining, or retail within walking distance? Know anywhere like that? I do, because I live there: East-side and the Waters Ave corridor – which is all in an o-zone.
