A Glossary of CRE & PropTech Terms
Qualified Opportunity Zones made a big splash when they were introduced in 2017. These special census tracts offer a chance to contribute to the revitalization of communities that need it most and defer taxes in the process. What exactly are QOZs, and why should they matter to you? Let’s break it down.
What Are Opportunity Zones? QOZs are census tracts that have been identified by the federal government as economically distressed and in need of revitalization. Dating back to the Trump administration, they were created through the Tax Cuts and Jobs Act of 2017 to encourage investments in these underdeveloped regions. The idea is to provide incentives to investors to flow capital through the QOZ as a means of improving or developing properties. In exchange for helping improve these areas, the government offers some major tax perks, including deferring taxes or even eliminating taxes entirely.
How Do They Work? QOZs require a team effort between a person and a fund. Someone with a property will sell their property and put the proceeds in a Qualified Opportunity Fund (QOF). From there, the fund manager uses your investment to pour capital into the zones, whether they are residential, commercial, or infrastructure projects. These funds are used to remodel, rebuild, or grow neglected communities, helping bring up the quality of the buildings/life of the residents, while boosting property value.
How Does It Relate to CRE? Property developers and managers can target these zones to help improve areas in desperate need of refurbishing and drive up returns simultaneously. Because of the historically low property values or limited economic activity that stems from these zones, organic property value growth can be difficult to achieve without the help of third parties.
Investing in Qualified Opportunity Zones offers a unique chance to rebuild communities, provides significant tax advantages to investors, and allows investors to make a meaningful difference, making it an attractive investment for many people.
