All Forum Posts by: Austin Hendrickson

@Jonathan Hoyt I would argue that QOZ's are much better than a 1031 if the property is a new build or significant renovation as you get permanent appreciation and depreciation savings as well as the reduced and deferred capital gains. The major beneficiaries of QOZ's will be bigger commercial and multi-family investors.

Overall though a 1031 will be much more convenient and widely used for the majority of residential investors.

Another thread on QOZ's from a few months ago:

https://www.biggerpockets.com/forums/51/topics/586...

As far as if investors with existing properties in the zones there has to be a sale to an unrelated party after 12/31/17 and it must be "substantially improved"

I have seen some conversations where a sale to an LLC with a 51% unrelated party owner and then a substantial renovation the property after the sale would meet the requirements. This is more for owners of bigger buildings in the zones where they know they are going to substantially improve the property.

While a lot of the show is for entertainment there is some truth to them. I had the opportunity to hear Ken Corsini and his contractor speak from Flip or Flip Atlanta. He has flipped over 800 homes and said that when they were approached to be part of HGTV he was skeptical but gave it a shot and said it's pretty much business as normal except they have cameras following the action.

Your time is definitely better spent somewhere else if you are looking to learn about real estate however. HGTV exists for primarily entertainment.

Sounds good! Let's stay in touch as guidance comes out

@David Sillaman Ok so it sounds like cash investments will not give rise to the appreciation/depreciation tax benefits for holding 10+ years and it must be capital gains invested into a fund to get that treatment.

If cash and capital gains are mixed into a fund I believe that dilutes the tax benefits. Did you ask Steve Kennedy on that?

@David Sillaman so you are saying a 100% cash investment into a QOZ Fund that for example buys an apartment building and holds it for 10+ years would get the appreciation and depreciation tax free? If so this would be big!

Do you know where in the code it says that normal after tax investments are allowed? Everything I have seen so far refers to gains being invested into the funds.

@Scott Smith I have yet to see that guidance. The way the opportunity zone tax code is worded now is that if the investment consists of a mix between capital gains and cash contributions then only the portion relating to capital gains will give rise to tax benefits (i.e. pro rata treatment, cash contributions would dilute the benefits)

If you have any support for the post tax cash investments being allowed let me know!

@Nathan Platter shouldn't a wholesale contract include language such as "the buyer and/or assignee" Or do you just throw that in the additional terms of the standard residential agreement?

@Matt Fore Yes it does have to be capital gain although there is some language that just references "gains" so we are waiting on additional guidance as to whether ordinary gains would qualify.

I think the reason capital gains need to be invested into the funds instead of straight cash is that by recognizing a capital gain you are selling something which promotes economic activity (selling stocks, businesses, real estate, etc.)

I believe in the Millionaire Real Estate Investor the book said of all the millionaire real estate investors that were interviewed the overwhelming majority preferred to keep at least 20% - 30% of equity in each deal to protect against downturns as opposed of being leveraged to the hilt. I would agree with this.

I don't agree that equity in a house is "dead money" - it prevents you from paying interest on that amount if you borrowed on it and if the market ever does turn south it will be the investors with plenty of equity that will be in the best position to benefit as they can leverage that equity into more deals. The over-leveraged investors will be unable to get traditional financing and will be in much worse shape.