---
title: "Buying a Rental Property in an Opportunity Zone: What You Need to Consider"
description: When conducted properly, buying a rental property in an opportunity zone can generate tax benefits, while assisting with economic revitalization.
---

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# [Buying a Rental Property in an Opportunity Zone: What You Need to Consider](https://www.realized1031.com/blog/buying-a-rental-property-in-an-opportunity-zone-what-you-need-to-consider)

 Written by [The Realized Team](https://www.realized1031.com/blog/author/the-realized-team) | Jun 21, 2023

The Opportunity Zone program [can provide certain investment advantages](https://www.realized1031.com/opportunity-zones). When conducted properly, buying a rental property in an opportunity zone can generate tax benefits, while assisting with economic revitalization.

But if you’re interested in this particular action, here are five things to ask yourself.

### 1. Are you in it for the long haul?

You must hold your Opportunity Zone investment [for at least 10 years](https://www.realized1031.com/blog/disadvantages-of-qualified-opportunity-zones), if not longer, to receive the fair-market value basis step-up. This means [any appreciation received can](https://www.realized1031.com/glossary/qoz-timelines) be excluded from your income. But – 10 years is a long time. A lot can happen in a decade. Additionally, an Opportunity Zone investment is highly illiquid. You won’t have access to that money for a long time.

### 2. Is the Qualified Opportunity Fund you’re considering legitimate?

You don’t invest directly into an Opportunity Zone. Rather, you put your capital gains with a [Qualified Opportunity Fund](https://www.realized1031.com/blog/qualified-opportunity-funds-vs.-opportunity-funds-are-they-interchangeable) (QOF), which invests that money into a federally designated [Qualified Opportunity Zone](https://www.realized1031.com/frequently-asked-questions/qualified-opportunity-zones) (QOZ). But that QOF [must follow specific requirements](https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund):

- It must hold at least 90% of its assets in QOZ property (QOZP).
- It must earn at least 50% of its gross income from business activities within a QOZ.
- It must be organized for the sole purpose of investing in QOZP.
- It must pass the 30-month substantial improvement test.

This requires due diligence when it comes to the QOF’s sponsors. The legitimate ones are transparent and will answer any questions or concerns. However, if there’s a lack of transparency, or some of the answers to your questions seem a little “cagey,” it’s time to move on.

### 3. Are the property’s fundamentals solid?

Designating a property with the QOZ label doesn’t automatically mean it becomes a great investment. The U.S. Department of the Treasury designated 8,764 Opportunity Zones based on U.S. Census Bureau low-income tracts, not their investment potential.

Because of this, the same due diligence you might perform with any other investment should also be done with a QOZP. This requires an analysis of the QOZP’s physical and financial condition, along with the area in which that asset is located. 

### 4. Are you able to follow the investment deadlines?

Yes, there’s a deadline when it comes to investing your capital gains into a QOF. Specifically, if you want to defer taxes on that gain, the IRS wants you to invest in a Qualified Opportunity Fund in exchange for equity interest (not debt interest) [within 180 days of realizing that gain](https://www.irs.gov/credits-deductions/businesses/invest-in-a-qualified-opportunity-fund#:~:text=To%20defer%20tax%20on%20an,of%20the%20180%2Dday%20period.). This gives you six months from the time you generate a capital gain to find – and invest in – a viable QOF. Failure to adhere to this deadline could mean that you’re responsible for taxes on that capital gain.

### 5. Are you an accredited investor?

There continues to be discussion about Opportunity Zones and non-accredited investors. But the truth of the matter is that, right now, the program is primarily directed to accredited investors. Accredited investors are high net-worth entities or individuals who are (in theory) better able to handle a huge monetary loss.

As an aside, if you’re a non-accredited investor, [you could form your own QOF](https://www.realized1031.com/blog/the-13-things-you-need-to-know-about-setting-up-a-qualified-opportunity-fund-qof). But this is a complex task, complete with stringent requirements. There are other potential tax-deferred strategies available to non-accredited investors that don’t carry as much red tape.

The above are just some of the considerations when mulling over buying a rental property in a QOZ. There are other questions and issues to consider as well. To fully understand what’s involved with a QOF investment, check with a qualified financial professional.

[View full post](https://www.realized1031.com/blog/buying-a-rental-property-in-an-opportunity-zone-what-you-need-to-consider)

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