It seems that everyone is talking about the benefits of investing in a Qualified Opportunity Fund. But what are some of the risks associated with such investments? To put it another way, what should individual investors be particularly cautious about when engaging in an OZ investment?
OZ investments are inherently risky and not for anyone with conservative risk tolerance. The risks involve the length of the holding period at a minimum and depending on whether the investment is closely held or syndicated, there will be a litany of other risks. For syndicated investments, consult the Private Placement Memorandum.
Location, location, location. OZ investments are no different from any other in terms of overall risks. The experience of management is first. The quality of the project/business is second.
Make a good investment. Tax benefits are not going to help if the new investment isn’t good. Also, the capital gains tax rate might be higher in 2026. So the deferred gain might be taxed at a higher rate.
Most importantly do the same level of due diligence on an OZ investment as you would if it were not an OZ investment. In addition be sure that the QOF has measures in place to prove that it is meeting the program requirements and will not fail the investment standard tests. You will regularly hear that OZ does not make a bad deal good.
Be cautious about the investment team and organization with whom you are investing your money. Make sure to do your due diligence. Also, the investment itself is somewhat of a higher risk since they are economically depressed areas in general. Hence, it is even more important to have a trusted investment team.
DISCLAIMER:the information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal and financial experts prior to participating in any aspect relating to Opportunity Zones. Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.