Finding Opportunity Zone Funds: A Comprehensive Guide

Written By
Carl E. Sera, CMT
Published On
June 2, 2023

Strategies for Finding the Best Opportunity Zone Funds

Opportunity Zones offer investors the ability to help under developed areas, as well as revitalize communities in need.Are you hoping to invest in a Qualified Opportunity Fund or QOF to defer capital gains taxes? These funds are a great way to improve your community and help others around you while reaping tax benefits. However, it can be difficult to decide where to direct their assets. While you could browse the national database and choose one local, it may not be the best financial decision. The team at Sera Capital is here to help our United States clients choose the most promising Opportunity Zone Funds. Here are our tips for making the right decision for your finances.

Opportunity Zones (as defined by the Internal Revenue Service) offer investors the ability to help underdeveloped areas and revitalize communities in need.

Know the Basics of an Opportunity Zone Fund

Qualified Opportunity Funds (QOFs) are partnerships between public and private entities that give investors tax breaks for investing in economically distressed regions. These long-term real estate investments create a win/win situation—the investor pays less in taxes while less-fortunate communities get an injection of funds. Each governor creates Qualified Opportunity Zones hoping that additional assets will help spur economic development and job creation in struggling areas (you can reference each state's hud opportunity zones map).

Solidify a Fund Strategy

First and foremost, we advise having a specific strategy for how you plan to choose and invest in QOZs. Before investing, please take a look at the Opportunity Zone Fund's objectives and approaches. You want something that can communicate a clear, focused strategy for how they plan to reach their goals.

Don't Be Afraid to Diversify

The most successful Qualified Opportunity Funds tend to have diverse goals. The general wisdom is that diversification minimizes risk, which is true when investing in QOZs. Prioritize funds that diversify their goals across different investment types and geographical areas. Look most closely at opportunity zones in fast-growing urban areas that are most likely to have lots of variety. In addition to this, make sure the Fund Sponsor has a history of raising capital, >$250mm is a good start.

Look for Transparent Fee Structures

As you further consider your options for real estate investment, remember to look at fee structures. The best Opportunity Zone Funds will have fair and transparent fee structures. If you need help with the fine print, we will help guide you through the many options. Here's our advice on where to cap fees and commissions:

• Fundraising commissions shouldn't top 5% (Sera Capital waives all commissions)

• Performance fees likely don't need to be more than 25%

• Annual asset management fees over 2% are probably too much

Consider Your Community

Community involvement can be a big motivator for investors looking into Opportunity Zone Funds. While looking into these sustainable investing options, consider what communities can most benefit from your contribution. Look at leadership in these communities and decide whether their goals align with yours. Perhaps your hometown is struggling with job loss. Remember the human side of investing!

Reap the Benefits

In addition to helping in-need communities across the United States, QOZs offer investors three tax benefits. Our team can help you better understand the following advantages of investment:

• Temporary tax deferral

• Step-up in basis for capital gains reinvested in QOZs

• Permanent exclusions from taxable capital gains

Work With a Seasoned Investment Advisor

Whether you're looking into opportunity zones, estate planning strategies, or passive income approaches, let Sera Capital lend a helping hand. Our experienced investment advisors will look at your unique situation and help you choose the right approach for your needs. We've gone through the Opportunity Zone Fund Directory and we have our favorites.

Please contact us today to learn more about your options and how Opportunity Zone Funds can help you defer capital gains taxes today.

Carl E. Sera, CMT

Carl E. Sera, CMT

Managing Principal, Sera Capital
Carl Sera is a Chartered Market Technician and the Managing Principal at Sera Capital Management, LLC. He has over 16 years of experience in the financial services industry with a focus on investment management.

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