Podcast: Opportunity Zones Update – Defer, Reduce, and Even Eliminate Taxes

Opportunity zones is one of the hottest topics in real estate investing right now. Recently released guidelines provide much needed clarity to help investors and syndicators move forward.

In this episode, we re-visit Opportunity Zones with attorney Mauricio Rauld and discuss how opportunity zones are rolling out to help investors defer, reduce, or even completely eliminate capital gains taxes.


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Using Market Metrics to Spot Trends and Opportunities

Markets are always in motion.

Population, economic growth, demographics … these factors and more affect the supply and demand for every property you own.

Without understanding market metrics, investing is like reaching into a lake and hoping you pull out a fish.

But WITH market metrics … the savvy investor can spot trends and opportunities … and bag a winning catch!

Listen in as we explore how to make market metrics work for you.

In this episode of The Real Estate Guys™ show, hear from:

  • Your metric-master host, Robert Helms
  • His laugh-master co-host, Russell Gray

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Crystal balls aren’t real, but market metrics are

Every market is different.

Every city … every neighborhood … even every street has unique attributes of real estate.

When we look at real estate, we’re dealing with many different kinds of markets … niche markets, geographic markets, and demographic markets.

Real estate isn’t a typical asset class. Every deal is unique.

You can choose to throw a dart at the map and buy a property … or you can study market metrics and identify trends.

Most of the information readily available to investors isn’t local … it’s national or state data.

As an investor, you need to learn to take that higher-level data, look at both sides of the equation, and break down what it means for you.

We don’t have a magical crystal ball … but we do know that we can spot important trends if we pay attention to key metrics … and so can you!

Deciphering national statistics

Let’s start by talking about days a property stays on the market.

The National Association of Realtors recently announced that residential properties remained on the market for an average of 36 days in March 2019 … which was down from 44 days in February 2019.

What does this mean for the newbie real estate investor trying to figure out if this is a seller’s market or a buyer’s market?

This is the perfect example of national statistics that give a false impression when you focus on the market at a local level.

Someone in the Bay Area may think that 30 days on the market is forever … but to someone else from Kansas, that seems like selling in record speed!

Remember to dig deeper and look at both sides of the equation. Think about what other factors could be creating this metric.

Imagine that fewer people were listing their homes … that would mean that there were fewer houses available.

If there are fewer houses available but the same number of buyers … then the number of days spent on the market is going to go down.

On the other hand, if there are more sellers than buyers … then homes are going to spend more time on the market.

Three crucial metrics for real estate

Depending on the information you’re after, you pay need to attention to different metrics.

To get a good amount of information, you need a big statistical set.

That’s why most of the data that you read is going to be relating to a bigger group of properties than really affects your market and your property every day.

News pundits often talk about average home price and median home price. These are two different things with very different meanings.

If you have a list of 101 sales that happened last month, the sale in the middle of the list … number 51 … is the median price.

So, if you have the numbers two, five, and seven … the median is five.

And if you have the numbers two, five, and fourteen … the median is STILL five. Median price is NOT the same as the average price.

Another important metric to understand is net in migration.

People are always moving in and moving out of markets. Net in migration means a market where more people are entering than leaving.

More people means more demand for schools, services, shopping, and … housing!

It may seem like a rudimentary concept … but it is essential. If people are leaving a market, demand goes down and so do prices.

Dallas, Texas, is the perfect example of putting a market with net in migration to work for investors.

After the 2008 financial crisis, investors were forced to look at markets differently … and up until this time, Dallas had been boring.

The market had the least appreciation of markets on our radar … but after 2008, stability started to look really, really good.

Dallas had a winning combination of affordability, low income tax, vibrant infrastructure, and diverse economy.

The energy sector was a huge player … and it was one of the few industries that remained solid after 2008. As people moved in for jobs, demand grew.

Now, a decade later, we look at the net in migration, and Dallas has an additional one million residents since we first started looking into the market.

Look to the future

Some of these concepts may seem basic … but in real estate, it’s easy to fall asleep at the wheel. Real estate really does move slowly.

But when you see the headlines, you may feel like the wind is changing fast … and you need to act or be swept away.

Don’t panic. You have time to get in position, study a market, and build relationships.

Keep your focus on the basics … supply, demand, and capacity to pay. Every metric impacts these basic principles of real estate investing.

We can all look at the past and act on what we learn here in the present … but we need to look forward too.

As investors, we ultimately have to take our best educated guess. Market metrics give us the information we need to do our due diligence and act in the best way we know how.


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Wealth redistribution by hook or by crook …

You’ve probably heard the expression …

“There’s more than one way to skin a cat.”

We’re not sure why anyone would want to skin a cat… that sounds gross and cruel.  But the idea is there’s often more than one way to get something done.

In this case, we’re talking about wealth re-distribution.

We realize that’s a politically charged topic, but anyone who’s rich … or plans to be … should be paying close attention to the winds of change on this hot topic.

No matter which side of the political spectrum you’re on, the problem everyone is staring at is the same …

There’s a big and growing gap between the rich and the poor.

Meanwhile, only a small percentage of middle-class are successfully fighting their way into the realm of the rich.

Most are falling off the back of the bus into the pit of poverty.

We’re not here to point fingers.  There’s plenty of blame to go around.

But we think it can be credibly argued that the Fed’s decade-long easy-money policy has inflated both asset prices and the cost of living.

This worked to the advantage of asset owners, but to the detriment of the paycheck-to-paycheck folks.  It’s no surprise they’re mad about it.

Of course, there’s no point in ranting about what we think policy makers should or shouldn’t do.  They don’t listen to us anyway.

So we simply watch and consider how the future might unfold … then get in position to capture opportunity and mitigate risk.

You’re probably aware, the USA is ramping up for yet another knock-down drag-out presidential election cycle.

In addition to stocking up on popcorn, we’re thinking about which issues will frame the debates.

Based on the mid-term results … and the predominant philosophies espoused by the challengers …

… it seems a major objective is to make rich people do more for the poor … by hook or by crook.

There’s the “Robin Hood” approach of taxing the rich and giving benefits to the poor … free college, healthcare, basic income, etc.

Let’s call the Robin Hood approach “by crook.”

Then there’s the “Opportunity Zone” approach …

The Opportunity Zone idea is to provide tax incentives to the rich so they voluntarily move their money into poor areas … thereby creating jobs and commerce for the currently disenfranchised.

We’ll call the Opportunity Zone approach “by hook.”

There’s a lot of history on the crook approach … and it doesn’t have a strong track record of creating abundance.  But it’s easily sold to desperate people.

Obviously, no one yet knows how the Opportunity Zone “hook” will work out … but the idea seems promising, so we’re watching it closely.

And when you consider the common sense wisdom in the saying …

“The definition of insanity is doing the same thing over and over but expecting a different result.”

… at least Opportunity Zones are a new approach to the problem of getting capital to where it’s needed most.

That’s why when we saw Yardi Matrix had released this well-written and informative white paper on Opportunity Zones, it captured our attention.

You should read it, but there are a few excerpts we think are noteworthy …

“… within Opportunity Zones, there are either in place or under construction 1.9 million multi-family units, 960 million square feet of office space and 189 million square feet of self-storage.”

Clearly, Opportunity Zone pioneers are quickly moving from idea to action.  And even though it’s still ramping up, the scope is impressive …

“As a percentage of total space, properties in opportunity zones that are in place or under construction represent 13.1% of total multifamily units nationwide, 13.7% of total office space and 11.4% of total self-storage space.”

So Opportunity Zone development is already up to over 10% market share nationwide in not one, but THREE real estate niches.

That’s impressive.

And even though many details about the Opportunity Zone program remain unclear ….

… BIG money is moving forward NOW and creating a wave of capital small investors can potentially ride to profits of their own.

This creates an unprecedented opportunity for Main Street investors.

Because while a small investor might have the means to fix up a single derelict property on his own, he can’t really change the local economy all by himself.

Sure, a large group of small investors might team up to upgrade a specific neighborhood … changing the personality of the neighborhood and improving everyone’s chance of seeing their value-add stick long-term.

But only BIG money can rehab entire regions … or “zones.”

And when it does, it creates critical mass which can fundamentally change the economic drivers and opportunities of entire local economies …

… including jobs, and access to services and opportunities for those people who get left out of financial boom times.

After all, you can only benefit from asset inflation if you own assets.  Most lower-income folks don’t.  For them, inflation just means higher living expenses and a higher hill to climb to become an asset owner.

But Opportunity Zone incentives entice rich people to move their profits from inflated financial assets into depressed real estate.

But not as flippers.

The best Opportunity Zone perks go to those who stay in their markets for at least TEN years.  That’s enough time to light a permanent flame in a local economy.

And as jobs are created to do the actual work of rehabbing these regions …

(and remember, these are jobs which can’t be off-shored)

… the workers will have both the incomes and opportunities to purchase affordable properties themselves.

Now the worker can get into the asset owner class.  And until they do, they have paychecks to pay YOU rent.

Of course, as the workers’ labor is partnered with investors’ capital to improve the Opportunity Zone, the asset owning laborers also get to ride the equity wave they’ve helped create.

And so do YOU … if you’re in the right position.

So we encourage you to read the Yardi Matrix white paper because there’s useful data and insights to help identify specific markets to explore.

Opportunity Zones may not yet be a proven model for creating access to prosperity for lower-income folks, but the potential is there.

And if YOU aren’t as high up the economic food chain as you’d like to be … consider syndication as a way to get rich helping the rich get richer.

When you syndicate, YOU marry your capital and labor to the capital of your wealthy investors … and then marry all that to the BIG money driving the growth in these Opportunity Zones.

It’s a win-win-win.

Until next time … good investing!


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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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Forecasting the Future of Real Estate in 2019

Are you prepared for the future?

In our annual yearly forecast episode, we explore the future of real estate in 2019. We don’t have a crystal ball … but we do have great resources and smart friends.

Hear from three real estate experts on the state of the housing market, the effect of changing interest rates, the outlook for commercial real estate, and MORE.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your forward-thinking host, Robert Helms
  • His fraidy-cat co-host, Russell Gray
  • Consultant and new home expert John Burns
  • Podcaster and real-estate expert Kathy Fettke
  • The Apartment King, Brad Sumrok

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In the news …

We’ve scoured the news sources and industry journals to see what might be coming in 2019.

The National Association of Realtors predicts in their 2019 Forecast that home sales will flatten and home prices will continue to increase.

The report also says not to expect a buyers’ market within the next five years except in the case of a significant economic shift.

On the other hand, the forecast cautions sellers to be mindful of increasing competition. It notes inventory growth, particularly in high-end housing, but reminds readers of the current housing shortage.

We’ve looked at predictions from various experts. Several of those experts predicted home prices will stabilize or rise at a much slower rate than in previous years.

One expert predicted listings in entry-level markets will remain tight. Yet another predicted industrial markets will continue to sizzle, interest rates will keep rising, and apartment rents will steadily moderate.

We’ve also read an article covering the State of the Market Panel hosted by Real Estate Journals.

The panelists agreed 2019 will be a big year for commercial real estate, including some new industrial and distribution/warehousing opportunities. They noted commercial rates will keep inching up.

Investors should consider opportunity zones and changes in the tax code in 2019. There are far different incentives for investors than for homeowners, and expensive housing means even more people will be pushed from buying to renting.

Predictions for the new home industry from John Burns

John Burns runs John Burns Real Estate Consulting, and he aims to help people in the new home industry understand trends.

In 2019, John says he is, “confident we won’t see construction grow that much.” He notes sales slowed dramatically in 2018, and he believes people will continue to be cautious.

What are builders paying attention to? They’re trying to build smarter with strategies like offsite construction and materials efficiency. They’re also building better by integrating smart-home technology and pivoting toward lower price points.

What about trends in home ownership? John says he thinks ownership is ticking back up. He says the millennial generation has some unique considerations … most want homes, but compared to previous generations, it may take them a bit longer to commit, especially because of increasing student loan debt.

And how do interest rates affect home builders? “It takes a big bite out the market,” John says. If people can’t get mortgages or can’t afford a new mortgage, they’re less likely to invest in a new home.

Take advantage of opportunity zones in 2019, says Kathy Fettke

Investors should look for jobs and opportunities in 2019. There will always be certain companies and cities that will thrive through a recession, says podcaster and Real Wealth Network founder Kathy Fettke.

These areas can provide investors with both equity and cashflow … and with new opportunity zones, there’s also the potential for tax breaks.

Neighborhoods that are flooded with investors because they’re opportunity zones WILL see equity growth, Kathy notes.

But just because an area is an opportunity zone doesn’t mean it’s a guaranteed good deal, and Kathy cautions investors to make sure deals make sense by investigating if they’ll hold out in the long run. That means job sources, stable and growing infrastructure, and good prospects for revitalization.

“You need the city on your side,” she says.

In 2019, Kathy is looking for stable employers that can thrive through a recession … she mentions Netflix. She warns investors not to get ahead of themselves by investing in areas that aren’t likely to improve within 10 years.

Employment is low, and interest rates are rising. We asked Kathy what she thinks will happen in that arena.

She says that while it’s hard to predict what will happen with the Trump administration, investors should keep their eye on corporate debt.

The ’08 recession happened because of a big consumer debt problem … corporate debt might cause trouble in the future. So, take a close look at the businesses that employ renters when investigating a market.

“Our world is changing so quickly,” Kathy notes. “Today is no longer a world where you can invest and forget about it for 30 years.” So in the housing realm, make sure you’re looking beyond the current tenant to say, who’s next? And will they have a job? Look for stability.

Demand and supply in multi-family, with Brad Sumrok

Last, we talked to the Apartment King, Brad Sumrok, educator and investor in the multi-family housing realm.

“I’m still proceeding with caution,” Brad says. But he notes there are many indicators that multi-family will continue to be a good asset.

We asked him whether some of the signs of doom from ’07 and ’08 are happening again in the multi-family space. The short answer? No.

Back then, there was a huge oversupply of housing. Now, there’s a 2-million-unit shortage. Most building now is happening in the A-class luxury space … but that’s not where the demand is. That means there’s an oversupply of luxury housing … but still some great opportunities to provide housing for working-class tenants.

Most people in the B and C class aren’t renters by choice … it costs, on average, $339 more per month to own a home than to rent. For blue-collar tenants, that’s a huge difference. And strict financing is further reducing the number of buyers.

That means more renters, and more demand for housing.

An increasing number of investors are looking at multi-family, which does inevitably mean cap-rate compression. But tax laws are on the side of investors.

“As the market changes, you have to temper your expectations,” Brad notes. Investors can’t expect to triple their equity in three years, and returns are likely to align with historical models.

That means there’s less of a cushion for making mistakes. It’s a strong case for investors to educate themselves before getting into an asset class.

To get educated on the multi-family market, check out Brad Sumrok’s 2019 Apartment Forecast! We wish you lots of equity in the new year.


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Opportunity Zones – Reduce Taxes by Investing in Main Street

It’s easy to figure out where tax incentives lie in wait. Just study the tax code.

The latest version of the tax code introduces a new tax shelter … opportunity zones. But … what are opportunity zones?

In this episode of The Real Estate Guys™ show, we dive into what we know about opportunity zones … including three MAJOR benefits.

You’ll hear from:

  • Your opportunistic host, Robert Helms
  • His inopportune co-host, Russell Gray

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Opportunity zones: The basics

There’s a way to pay no tax on certain investments AND heal struggling communities. We’re talking about opportunity zones.

These new geographic tax shelters are encoded in the version of the tax code passed in 2017 … but they’re not totally finalized yet.

That doesn’t mean they’re not important … savvy investors will be absorbing all the info they can BEFORE opportunity zones go into action.

The idea of opportunity zones is to offer a tax-favored investment vehicle for people who already have capital gains in other investments.

Opportunity zones will be located in low-income communities ripe for revitalization … and will be located in every state in the U.S.

The fundamental purpose of opportunity zones is to encourage long-term investments in struggling communities.

Congress has established an incentive framework that is flexible and unique. This is essentially a new class of investment.

These opportunity zones complement existing community development plans. In essence, the project is treating the U.S. like a giant rehab project.

You’ll basically be moving yourself into a pre-identified path of progress. There hasn’t been a ton of incentive for investors to come into these run-down, lower income areas. But NOW there is.

The benefits of opportunity zones

Like we said earlier, the idea of opportunity zones is set, but the legislation is not in action yet. The appropriate documentation and legislation will be in place by the end of 2018.

So NOW is your time to prepare for the future.

There are definite differences between this opportunity and other investments. Generally, you’re required to pay tax when you liquidate capital gains.

But investing in opportunity zones provides three unique tax benefits. Before we get into those, we do want to clarify … this investment is only available for investors who already have capital gains from previous investors.

But not to worry … if you’re a newer investor who doesn’t have any capital gains yet, there are ways to get in on the action. We’ll get into those in the next section.

Now, the three tax benefits …

  1. You can defer your original capital gains tax for up to 10 years. As you probably know, it’s always better to defer taxes than to pay now.
  2. You also get a 10 to 15 percent discount on your original capital gains tax.
  3. AND …when appreciated capital gains are put into an opportunity zone investment, the gains you make from that investment are completely tax free.

There is a timeline. You have to sell the appreciated assets and invest the capital gains into one or more opportunity zone investments within 180 days.

But we want to emphasize … your capital gains from properties in opportunity zone areas will be completely TAX FREE.

No capital gains? How to invest in opportunity zones

The government has a goal here … they want to bring a ton of investment capital to certain areas and swing them around.

In that vein, there is a certain requirement you have to follow to invest in opportunity zones … there is NO tax incentive if you own property in an opportunity zone under your own name.

You have to invest in opportunity zones through opportunity funds.

If you don’t have appreciated assets, you may be wondering how you can start an opportunity fund and get in on this great opportunity.

There are a few options …

  1. Invest in an area near an opportunity zone. You’ll be boosted up by the wave of capital increasing asset values all around you.
  2. Invest as a syndicator. Set up an opportunity fund … and get other investors to contribute their capital gains.

This last point is something to seriously consider … especially when you start thinking about the stock market.

The stock market is hot, but it’s showing signs of faltering. People want to take their capital gains out … but they don’t want to pay taxes.

A fantastic solution? Opportunity funds.

All about opportunity funds

What does it take to put together an opportunity fund?

Opportunity funds do not have investment limitations.

They must be organized as a corporation or a partnership.

They do not require official IRS approval … the fund manager can self-certify the fund simply by submitting a form to the IRS.

The process is designed for speed. It cuts out bureaucracy … and brings locally driven change to areas that need it.

But it also requires investors to make REAL change … for example, one requirement we expect to see is that investors put as much into rehab and construction as they spent to acquire the property.

Opportunity zones mean sending money to the bottom of the market … and making the subsequent changes LAST for the long term.

For a map of tagged and categorized opportunity zones, plus more information, simply send us an email at opportunityzones [at] realestateguysradio [dot] com.

And don’t think this is the last you’ll hear about opportunity zones … we expect this to be a BIG wave in the real estate investing sea, and we’ll be providing more information to our listeners as this new opportunity develops.


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Podcast: Opportunity Zones – Reduce Taxes by Investing in Main Street

If you’re a regular listener, you may have heard us mention the phrase “opportunity zones.”

But unless you’re WAY ahead of the game, you’re probably not sure what exactly opportunity zones ARE … or what they can do for you.

Well, listen in … because in our latest episode, we tell you everything we know about opportunity zones … the newest tax shelter in town.

Opportunity zones are one of the most exciting provisions of the new U.S. tax code. They offer three fantastic benefits to investors …

  • Great long-term profits
  • Feel-good opportunities to revitalize challenged neighborhoods
  • Excellent tax-saving advantages

In this episode, we take a deep dive into these benefits and explore exactly how YOU can get started in opportunity zones … once the tax code takes effect.

Savvy investors are already getting into position to ride the wave … but as with anything new, there’s a lot to learn.

Inform yourself about this exciting new investment opportunity! Listen in.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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