So, you may have heard about something called a "Qualified Opportunity Zone" (QOZ). Have you wondered what these might be about, and, specifically, what they could mean for the Hampton Roads real estate market?
Well, wonder no more. We're here to give you the basics on Qualified Opportunity Zones for Hampton Roads home owners, buyers, and investors.
Let's get started...
Qualified Opportunity Zones - How They Work
First, QOZs were introduced by the Tax Cuts and Jobs Act of 2017 as part of a plan to encourage development in economically under-served areas by creating tax advantages for investors.
As part of this new plan, thousands of census-designated areas across the country have been designated as QOZs based on their lagging performance on certain measures (like average income, for example).
Now, if a potential investor has some capital gains revenue (from selling a property, for example), they can defer paying tax on those gains by reinvesting them into property in an officially designated QOZ.
Capital gains invested in this areas (via self-certified Opportunity Funds) will also accrue certain additional tax benefits over time.
A number of conditions apply regarding timing, type of property, distribution of properties, and types of improvement - but we won't get into those details here. If you are looking to invest in a QOZ, we recommend consulting with your legal or tax counsel to make the best decision.
What you should know if you're involved in the Hampton Roads real estate market is that the plan is designed to spur significant improvements in under-performing areas. Additionally, Virginia has successfully nominated 212 Qualified Opportunity Zones, including many in Hampton Roads, based on a careful mix of factors geared to maximize benefit for the state and its residents.
If you're looking for more information, try this interactive map of Qualified Opportunity Zones in Virginia.
Qualified Opportunity Zones - What to Expect
So what does all this mean if you own, or are intending to buy a home in Hampton Roads?
Well, given that the plan represents a significant incentive for property investment, there's likely to be a lot more money floating around the real estate market soon. We would expect this influx of cash to raise home prices, yet it is unlikely that most of the money will go towards buying or developing homes as such.
At the moment, precise details for residential investments are fuzzy, so the true effects are difficult to predict, but here are some tentative guesses:
Increased community development will boost residential property prices in surrounding areas.
Since property owners stand to gain more from cashing in on their equity, we should see more high-end properties entering the market.
Some investment money could shift away from residential, towards infrastructure and business development.
Previously depressed areas could experience revitalization or gentrification.
Since QOZs are selected from existing census designations, these areas don't always capture the boundaries intended for targeted development. In other words, some QOZs might "spill over" into high-income areas, allowing these to benefit from investment as well.
Certain kinds of residential developments - like condos or rental properties - might qualify as eligible investments under the current plan. If this actually happens, then the increase in supply could take some pressure off the middle and bottom of the residential market, leading to price drops in those sectors.
So there you have it. Well...not quite. Some important details are yet to emerge regarding what kinds of properties and improvements fall under the current plan. So, keep your ear to the ground and find someone with knowledge and experience to advise you on the right decisions for your property investments.
If you have more questions, don't hesitate to contact us online or call (757) 623-2382