All Forum Posts by: Jonathan Hoyt

@Tinley Jones

Contact me. I’m an investor in Evansville and could give you a very valuable contact in Evansville. He is super knowledgeable and well connected.

The Treasury Department and IRS released more guidelines for OZ today https://www.irs.gov/newsroom/treasury-irs-issue-pr...

The biggest thing that stood out to me in the press release was:

> If the tangible property is a building, the proposed regulations provide that “substantial improvement” is measured based only on the basis of the building (not of the underlying land).

I haven't had time to read the full 74 page PDF yet but hope to work through it over the next couple weeks: https://www.irs.gov/pub/irs-drop/reg-115420-18.pdf

I think the Opportunity Zone incentives aren't meant to compete with 1031 but rather provide a similar (but inferior) option for folks with cap gains from non real estate investments like the stock market. I.e. Pave a path for capital to flow from the stock market into businesses in economically distressed communities.

@Michaela G. everything I’ve read to date has said that the purchase must have happened after December 31st 2017, but I’m no expert :) There’s also the “substantial improvements” criteria to consider, you have to put as much into improving the property as you did to purchase it. I would read through http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1400Z-2&num=0&edition=prelim#substructure-location_d_2_D_ii and the IRS F.A.Q.‘s to get started.

> I have one opportunity Zone property right now.

That's great!

> I self-certified my LLC and I'm doing 100% improvements.

For the 100% improvements, I'm wondering how this is all calculated. Let's say I paid $250k for a property and then spent $150k on improvements but it raised the FMV of the property to $500k. Does that meet the requirement or do I literally need to spend the same amount that I paid for the property? Haven't talked to a CPA yet so I'm curious how you're approaching it.

> This is the best map I have seen.

Awesome, thank you for the link. 

I'm learning everything I can about the Opportunity Zone program introduced in the Tax Cuts and Jobs Act and thought I would share what I've been learning, the links I'm using on a daily basis, forum posts that have been helpful, and what I'm hoping to do next.

First, if you don't know know about Opportunity Zones and want to get up to speed quickly check out these links:

• https://www.youtube.com/watch?v=gmn19vSE-V4&t=2s
• https://www.irs.gov/newsroom/opportunity-zones-fre...

OZ summary:

• Opportunity Zones were introduced in the Tax Cuts and Jobs Act
• Incentivizes investment in economically distressed communities
• Deferred capital gains, reduction in capital gains tax realized for 5-7 year investments, and no capital gains taxes on gains from investments in Opportunity Zones for 10 year holds
• Opportunity Zone Funds can invest in operating businesses, equipment, and real property

Now you're probably wondering where these Opportunity Zones are:

• https://eig.org/news/opportunity-zones-map-comes-f...
• which links to https://esrimedia.maps.arcgis.com/apps/View/index.... (you can enter any address into the map search to see if it's in a zone)

Next you'll want to understand more about the tax benefits:

• https://www.biggerpockets.com/forums/104/topics/59...
• https://s3.amazonaws.com/fundrise-content/website-...

For real estate investing you'll want to understand the big gotchya:

• https://www.biggerpockets.com/forums/48/topics/601...
• http://uscode.house.gov/view.xhtml?req=granuleid:U...

Ok, so you're still interested and want to take advantage of Opportunity Zones! That's great, BUT we're still waiting on guidance from the Treasury/IRS:

• https://www.enterprisecommunity.org/blog/2018/07/g...
• https://eig.org/wp-content/uploads/2018/06/Opportu...

Next I'm hoping to start connecting with commercial brokers, CPA's, and Real Estate Lawyers that are interested in becoming Opportunity Zone experts.

I would love to see a dedicated Opportunity Zone forum on BiggerPockets, anyone else interested in having more detailed conversations? How might Opportunity Zones fit into your business plans and investing strategies? If you have other links please add them to this post! Thank you for your time.

My business partner and I are putting together our business plan and I wanted to share the particulars and hopefully get some feedback. We started with these goals:

1. Business partner wants to retire in ~6 years.
2. I want to retire in ~20 years.
3. We want to have $120k in cash flow by year 6 and $600k in cash flow by year 20.
4. After buying and improving each business or property we want to outsource management.

With these goals in mind we came up with a plan to invest $220k per year for the next 5 years ($1.1m total excluding capex), purchasing one passive income business (apartment building, storage units, ???) per year that cash flow (NOI - debt service) at around $24,000 per year. Ideally we would purchase for $850k with 20% down ($680k loan, $170 down payment) and then put in ~$50k in improvements to force appreciation and start with $220-320k in equity (targeting $1m ARV). As an example, for a 20 unit apartment building we would need to hit $100 profit per door per month after debt service to hit our yearly cash flow goal.

After purchasing the fifth business (year 6) my business partner would retire and keep their half of the yearly profit (~$60k) and I would switch from adding new businesses to using the snowball strategy to pay down the debt on the 5 businesses. At this point my partner's equity would get a little smaller each month compared to mine as I put all my profits towards the faster pay down but they would still be making enough to live comfortably until the 1st property was completely payed off in year 10 and cash flow increased from ~$120k to ~$228k. All 5 businesses would be payed off by the end of year 19 with an ideal yearly cash flow of $660k and ~$5m equity in real estate. Our total capital contributions over the 20 years would be about $2.6m.

So my first question is, can you find businesses (like apartment buildings) in the $800k-$1m price range that cash flow $24k per year after debt service and > $120k per year after the debt is gone? My second question is, has anyone tried this strategy and succeeded or failed?

A slight twist on this whole plan is we're only looking for businesses to purchase in Opportunity Zones (https://eig.org/opportunityzones) so that we can use capital from the stock market and defer the capital gains from that capital until 2026.

Thank you for your time!

Links to similar previous forum posts:

* https://www.biggerpockets.com/forums/12/topics/592...

* https://www.biggerpockets.com/forums/81/topics/246...

* https://www.biggerpockets.com/forums/61/topics/156...

A lot of the focus in the BiggerPockets podcasts, blog posts, and forums are how to get started when you don't have much or any capital. The recommendations include everything from house hacking with duplexes/quads/etc, flipping to raise capital, BRRRRR, etc. Things progress from there to scaling with larger multi-family properties, commercial real estate, and so on.

I'm wondering what experienced investors would do with the knowledge they've gained if they were starting from scratch and had $500k-$1m starting capital. How would you start building your real estate empire? Would you make it your full time focus, part time focus?

Great, thank you David!