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BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Updated about 4 years ago on . Most recent reply

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11
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5
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Trago WAllace
  • Rental Property Investor
  • Templeton, CA
5
Votes |
11
Posts

Opportunity Zone Funds and BRRRR

Trago WAllace
  • Rental Property Investor
  • Templeton, CA
Posted

I have been looking into Opportunity Zone Funds (OZF) to defer capital gains I made in December (plus make more long term capital gains without paying taxes).  I have a decent grasp of how OZF works.  

What I am trying to clear up is if I can combine OZ investing with the BRRRR
process. Here is what I would picture that looking like:
1) Create the OZF and “deposit” the gains I'm trying to defer into it.
2) purchase property A and rehab it with the OZF (the rehab needs to
cost at least as much as the acquisition of the property, right?).
3) rent out property A
4) refinance it and the cash out gets deposited back into the OZF (this is
where I am unclear on the process)
5) Find property B and repeat the process.

Is step 4 legit?  Is this how it could work? 

Also, any cashflow from the properties in the fund can be paid to investors (me), right?  Or do they need to stay in the fund?

Most Popular Reply

User Stats

41
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37
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Scott McIntosh
  • Attorney
  • Lexington, KY
37
Votes |
41
Posts
Scott McIntosh
  • Attorney
  • Lexington, KY
Replied

@Jason Hsiao the use of refi proceeds is a little trickier a QOF, as the IRS has stated that disguised sale rules will be applied to cash out refi’s of OZ property. If you pull the proceeds of a refi out of the QOF before the end of year 2, the leveraged distribution is presumed to be a disguised sale and would trigger early recognition of the previously deferred gain. If you take a leveraged distribution of refi proceeds after year 2, it’s presumed not to be a disguised sale, so they’re likely would not be an early recognition event.

I like your point about waiting to distribute any refi proceeds until closer to the due date of tax on the deferred gain. 

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