The Tax Cuts and Jobs Act of 2017 opened up real estate wholesaling and investment opportunities more than two years ago, but it remains relatively unknown. The legislation establishes opportunity zones where investors can put investment returns from outside investments into properties instead of paying capital gains taxes on them — as long as they do so within 180 days of cashing in the outside investment.
According to researchers from the Economic Innovation Group, more than $6 trillion could be freed up to purchase real estate in these zones because of the act. But even wholesalers and investors who learn more about their choices with opportunity zones can be reluctant to jump in headfirst. What are their main concerns? For some, finding properties in designated zones seems tough. And even those who know of properties may worry that the risks will outweigh the potential benefits.
The pros and cons of opportunity zone wholesaling
To be sure, opportunity zone structures have their downsides. Situated in blighted areas, most real estate is older and in need of revitalization, and spending money to spruce up a home in a questionable neighborhood requires foresight and determination. Your house could end up being the nicest on the street, which could create challenges for you in the future. This happened to me once, and the bank refused to refinance my property because it had no comparability to other homes in the area.
Landlords also aren’t sure that tenants who aren’t low-income will want to move to the block. But the key to getting qualified housing applicants is patience. They will come; it just takes longer than it might in some communities.
Despite temporary setbacks, wholesalers and investors shouldn’t be so quick to overlook opportunity zone properties. Investors, specifically, can make use of any assets they’ve been sitting on, getting more bang for their buck without shouldering a tax burden or penalty.
And being open to canvassing these zones for potential deals creates a palpable ripple effect. Early studies on gentrification in these zones indicate that once impoverished areas can come back to life as a result of investment instead of going downhill or remaining unchanged. Opportunity zones may also become sites for job creation, giving residents and companies the potential to earn more income to spend on home and building maintenance.
Tips to Add Opportunity Zones Into Your Wholesaling Mix
Like the idea of an untapped revenue source just waiting to be mined? Before jumping into opportunity zones as a wholesaler, take the following four steps:
1. Gauge your interest level.
Your excitement for properties in opportunity zones should always be tempered by what investors might want. Send them a quick email asking whether they’re interested in receiving property information about real estate in these areas. That way, you’ll know whether it’s worth driving around to find deals or whether your investors would prefer to see possibilities from more traditional neighborhoods.
2. Become the expert.
When you’re the expert on any topic, you naturally become a go-to resource for everyone seeking insider knowledge. Study up on opportunity zones and solidify your expertise. As you test the waters with possible properties, educate your team and investors on what you find. This will differentiate you and keep your wholesaling business top of mind.
3. Build a targeted list.
After establishing a few locations to scout, drive for dollars yourself or hire drivers to explore the region. Using an app, take pictures of the rundown properties you see and amass a list of owners to contact. You could even send out postcard blasts to every property owner in an opportunity zone if your budget allows. Then, you’re equipped to handle the response.
4. Concentrate on selling to buy-and-hold investors.
Finally, focus your attention primarily on buy-and-hold investors. They’re the most likely to bite when you come up with great opportunity zone properties that would be hard to turn down. Flippers may be your No. 1 buyer for transactions outside of opportunity zones, but they’re not eligible for the tax breaks afforded by the act.
Navigating the world of real estate wholesaling requires using all the tools at your disposal. While your competitors aren’t thinking outside the box — and might be boxing themselves in — set yourself apart by strategically taking advantage of the opportunities in opportunity zones.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
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