Can You Buy Someone Else's Opportunity Zone Share?

Can You Buy Someone Else's Opportunity Zone Share?

Posted by on Aug 23, 2021

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Buying into Qualified Opportunity Zones (QOZs) requires a somewhat hefty initial investment, often in the five- or six-figure dollar range and can range from $25,000 to $100,000 or more. Some Qualified Opportunity Funds (QOFs) can require a minimum investment of $250,000. Furthermore, only capital gains can be used for this type of investment.

But is it possible to buy someone else’s opportunity zone share? 

This is an interesting question. Some funds do offer liquidity options. Furthermore, some fractional share interests – such as Delaware Statutory Trusts – do offer an opportunity to “rebuy” shares on a secondary market. Realized Holdings, for example, offers this benefit.

What’s also interesting is that not much has been written about secondary purchases from QOFs, meaning there is not a “yes” or “no” answer readily available about buying opportunity zone shares from another investor. However, given the spirit and nature of the QOZ program, it would be highly difficult, if not impossible, to buy shares from someone else for the following reasons.

Cost

Let’s return to the first paragraph of this blog. An opportunity zone investment requires a high amount of initial capital. It also requires accredited investor status. And accredited investors must be high net-worth individuals or entities. On top of that, QOF investors are involved for the tax-deferral benefits, something a secondary buyer would not be able to offer. As such, even if a secondary market for QOF shares existed, it’s likely that involved investors wouldn’t want to participate.

Timing

We’ve mentioned it several times before. Opportunity zones require a very long-term investment outlook. To truly benefit from the program’s various tax deferral advantages, those involved should hold their QOF investments for at least 10 years, if not longer. Even if it were possible to do so, an entity coming in to buy shares would likely not benefit from tax savings benefits, due to a shorter holding period.

Another issue to consider is that investors wanting to defer taxes on eligible gain must invest in a QOF within 180 days of realizing that gain. As there is no QOZ secondary market, it could be highly difficult for a secondary buyer to track down QOZ shares in that given time period.

Restrictions

Most funds have restriction requirements issued through one, or more of the five federal financial regulatory agencies. Qualified Opportunity Funds have two more agencies to answer to: The U.S. Department of the Treasury and the Internal Revenue Service. Both Treasury and the IRS issued very specific requirements about QOFs, such as the 30-month substantial improvement specification. Many QOF sponsors or managers are developers and, as such, don’t want surprises when it comes to their capital--such as a new investor suddenly coming in and buying shares from an old investor. 

Would You Want To?

The final response to the issue of whether you could buy someone else’s opportunity zone shares is, why would you want to? There are plenty of Qualified Opportunity Fund opportunities in existence, with fund managers and sponsors seeking out capital on a regular basis. Furthermore, if the idea of an opportunity zone investment doesn’t fit in with your portfolio strategy, there are other tax-deferral options to consider. 

In other words, if you’re interested in buying into an Opportunity Zone, don’t worry about buying shares from someone else. Instead, either create your own Qualified Opportunity Fund, or find another in which to invest.  

There are material risks associated with investing in QOZ properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Costs associated with the transaction may impact investors’ returns, and may outweigh the tax benefits. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor.

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