California is facing a housing shortage and affordability crisis, but Opportunity Zones may serve to alleviate these concerns. In a post on Forbes [1], Ridaa Murad, founder of BREAKFORM | RE. and Co-Founder of BEDROCK | Group discusses the pros of investing in any of the 879 federally designated Opportunity Zones (the most in the country).
According to a report from ATTOM Data Solutions [2] earlier this year, homes in Opportunity Zones are cheaper than the average home.
The report found that roughly 80% of these zones had median home prices in the Q2 2019 that were below the national figure of $266,000, and that half had median prices of less than $150,000.
Additionally, compared to the surrounding regions, median Q2 2019 prices in about one in four zones were less than 50% of the typical value in the Metropolitan Statistical Areas where they exist. Within Opportunity Zones, 86% had median Q2 2019 sales prices that were less than the median sales price for the surrounding Metropolitan Statistical Area (MSA). Roughly 26% had median sales prices less than half the figure for the MSA. Only 14% had median sales prices that were equal to or above the median sales price in the MSA.
“As investors, we always want to maximize our return, and as humans, we want to do good and make a positive impact in our communities,” Murad said. “Opportunity zones give investors the chance to do well financially while also contributing to the betterment of local communities that desperately need economic improvement.”
Murad covered the social impact of opportunity zone investment, including a long-term hold strategy associated with Opportunity Zones, as the investment must be held for a period of 10 years. Additionally, Zones force developers to secure land for communities where there is a demand, and the alternative building processes are cost-friendlier.
Another bonus for investors and homebuyers is that the nontaxed exit gains eliminates price-gauging.
“When the profit isn’t taxed, it removes the need to squeeze every last penny out of the buyer on the front end,” Murad said. “The opportunity exists to create a business that doesn’t have to price-gauge because back-end profits remain intact.”
Find Murad’s complete commentary here.