The substantial tax advantages provided by the Tax Cuts and Jobs Act (TCJA) will likely lead to a significant influx of capital to multifamily investments in Opportunity Zones. In addition to traditional equity and large institutional investors, Opportunity Zones have opened the door to a whole different group of investors. With this new program, small investors and family offices can profit from the same type of quality multifamily deals traditionally reserved for institutional investors.
A “Multifamily in Focus” research paper pdf was recently released by Freddie Mac. It compares a hypothetical investment under the tax structures offered by both traditional and Opportunity Fund circumstances: a traditional investment that provides an 8 percent annualized return may correlate to a return of more than 12 percent if invested in a 10-year Qualified Opportunity Fund (QOF). Similarly, the paper projects that a five-year investment in a QOF would increase yield from 4.6 percent to 7.4 percent. In addition, opportunity zones can be combined with other various tax credited projects, such as historic district tax credits, affordable housing and/or other state and local incentives.
The Opportunity Zones program signals the beginning of an exciting new chapter for multifamily investing and creates a win-win situation for the communities, developers, and investors involved.