Our model (buy, rehab, refinance to return capital, hold w investors forever) turns out to work well with the Opportunity Zone rules. Bizarrely, a few LA 'hoods, in which we've done ~20 deals, are OZs (bizarre bc they didn't need the help). Starting to look closely at this now.
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Benefit isn't to my deal... It's to the capital. Can sell an appreciated asset, like your share in a start up that exits, move that money to real estate in LA w/o paying cap gains for 10 years
“Our model (buy, rehab, refinance to return capital, hold w investors forever) turns out to work well with the Opportunity Zone rules.” So this is wrong. And opportunity zones don’t work with startups (as they’re usually defined) AFAIK.
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Think about things from the perspective of a founder or investor in a start-up that exits. If you do nothing, you will pay a huge chunk of your cap gain to the IRS. Pretty much only alternative is op zone investment.
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While I underestimated the value of opp zone tax deferral from a startup or stock exit, I still don’t think it works with your model in a meaningful way. Opportunity zones are all about stepping up basis for cap gains or eliminating them. You don’t sell so it doesn’t matter here.
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Most re private eq models assume express after 5 years or something to get the irr to be palatable. It's don't. Most rehab models don't meet the substantial improvement test; ours do. Seriously, go read the law or a good summary.
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I did. Of course your improvements are substantial, too bad you don’t sell.
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A start up created in adherence with the OZ rules is ideal given capital gain tax avoidance upon sale per program
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Must be capital intensive and pass the “substantially improve” requirement. Do you know how to make it work with software?
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