January 2021 – Page 2

OWNING A HOME MORE AFFORDABLE THAN RENTING IN NEARLY TWO THIRDS OF U.S. HOUSING MARKETS

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ATTOM Data Solutions, curator of the nation’s premier property database, released its 2021 Rental Affordability Report, which shows that owning a median-priced three-bedroom home is more affordable than renting a three-bedroom property in 572, or 63 percent of the 915 U.S. counties analyzed for the report. That has happened even though median home prices have increased more than average rents over the past year in 83 percent of those counties and have risen more than wages in almost two-thirds of the nation. The analysis incorporated recently released fair market rent data for 2021 from the U.S. Department of Housing and Urban Development, wage data from the Bureau of Labor Statistics along with public record sales deed data from ATTOM in 915 U.S. counties with sufficient home sales data. Home ownership is more affordable in almost two-thirds of the country following a year when the impact of declining interest rates helped counteract home prices that rose faster than rents and wages. Trends favoring home ownership show up most in suburban and rural areas with the most affordable home values, while renting remains more affordable in the biggest cities. “Home-prices are rising faster than rents and wages in a majority of the country. Yet, home ownership is still more affordable, as amazingly low mortgage rates that dropped below 3 percent are helping to keep the cost of rising home prices in check,” said Todd Teta, chief product officer with ATTOM Data Solutions. “It’s startling to see that kind of trend. But it shows how both the cost of renting has been relatively high compared to the cost of ownership and how declining interest rates are having a notable impact on the housing market and home ownership. The coming year is totally uncertain, amid so many questions connected to the Coronavirus pandemic and the broader economy. But right now, owning a home still appears to be a financially-sound choice for those who can afford it.” Home prices rising faster than rents in 83 percent of counties across U.S. Median prices for three-bedroom homes are increasing more than average three-bedroom rents in 764 of the 915 counties analyzed in this report. Counties were included if they had at least 500 sales in YTD (Jan-Nov) 2020. The most populous counties where home prices are rising faster are Los Angeles County, CA; Cook County (Chicago), IL; Harris County (Houston), TX; Maricopa County (Phoenix), AZ and San Diego County, CA. The largest counties where rents are rising faster are Kings County (Brooklyn), NY; Queens County, NY; New York County (Manhattan), NY; Bronx County, NY; and, Allegheny County (Pittsburgh), PA. Renting more affordable than buying in nation’s most populated counties Renting is more affordable than buying a home in 18 of the nation’s 25 most populated counties and in 29 of 44 counties with a population of 1 million or more (66 percent) — including Los Angeles County, CA; Cook County (Chicago), IL; Harris County (Houston), TX; San Diego County, CA; and, Orange County, CA (outside Los Angeles). Other markets with a population of more than 1 million where it is more affordable to rent than to buy a home include counties in the New York City, Seattle, Dallas, San Francisco, San Jose and Boston and Riverside, CA, metropolitan areas. Among the 44 U.S. counties analyzed in the report with a population of 1 million or more, those where it is more affordable to buy a home than rent include Maricopa County (Phoenix), AZ; Miami-Dade County, FL; Clark County (Las Vegas), NV; Tarrant County (Fort Worth), TX; and, Broward County (Fort Lauderdale), FL. Owning more affordable in less-populated counties Home ownership is more affordable than renting in counties with a population of less than 1 million, especially among those with less than 500,000 people. Owning is more affordable in 47, or 50 percent, of the 94 counties with 500,000 to 999,999 people. The largest in this group where it is more affordable to buy are St. Louis County, MO; Pinellas County (Tampa), FL; Milwaukee County, WI; Marion County (Indianapolis), IN; and, Shelby County (Memphis), TN. The largest in this group where it is more affordable to rent are Honolulu County, HI; Fresno County, CA; Westchester County, NY (outside New York City); Collin County, TX (outside Dallas); and, Fairfield County (outside New York City), CT. Among the remaining 779 counties with a population less than 500,000, owning is more affordable in 510, or 65 percent. The largest in this group where owning is more affordable are Greenville County, SC; Adams County, CO (outside Denver); Lake County (Gary), IN; Hampden County (Springfield), MA; and, Clark County, WA (outside Portland, OR). The largest counties where renting is more affordable are Spokane County, (WA); Morris County, NJ (outside New York City); Polk County (Des Moines), IA; Richmond County (Staten Island), NY; and, Tulare County (Visalia), CA. Most affordable rental markets in South and Midwest; least affordable in West The report shows that renting the typical three-bedroom property requires at least a third of average weekly wages in 506 of the 915 counties analyzed for the report (55 percent). The most affordable markets for renting are mostly in the South and Midwest, led by Roane County, TN (outside Knoxville) (18.4 percent of wages needed to rent); Benton County (Rogers), AR (20.7 percent); Madison County (Huntsville), AL (21.6 percent); Greene County, OH (outside Dayton) (22.5 percent); and, Sullivan County (Kingsport), TN (22.6 percent). The most affordable for renting among counties with a population of at least 1 million are Allegheny County (Pittsburgh), PA (23.9 percent of average wages needed to rent); Cuyahoga County (Cleveland), OH (24 percent); Fulton County (Atlanta), GA (24.6 percent); Wayne County (Detroit), MI (26 percent); and, Oakland County, MI (outside Detroit) (26.1 percent). The least affordable for renting are mostly in the West, led by Santa Cruz County, CA (82.9 percent of average wages needed to rent); Santa Barbara County, CA (68.7 percent); Marin County, CA (outside San Francisco) (67.9 percent); Park County, CO (outside Denver) (67.5 percent); and, Kauai

Investor Profile

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Vince and Noelle Mora ACHIEVING WORK-LIFE BALANCE Achieving a “work-life” balance is a basic human need and desire that everybody strives for, but few ever achieve. For Vince and Noelle Mora, that is the very reason they started VinLex Ventures LLC, an independently owned and operated HomeVestors® franchise, in 2014. “I needed to be my own boss and get some balance in my life,” said Vince. “I needed to avoid that awful commute from New Jersey to New York City every day and start spending some quality time with my wife and children.” Vince graduated from Rutgers University with a degree in Economics in 1988 and within three weeks he was working at Merrill Lynch trading mortgages. He worked for Merrill Lynch for twenty years culminating his career as the Managing Director of whole loan trading. “In a nutshell, I would buy loans, bundle them in a securities package, and then sell that package to investors,” Vince recalled. That experience in “securitization” and financing, coupled with his degree in Economics, laid the foundation for Vince to become a real estate entrepreneur. A NEW BEGINNING VinLex Ventures LLC is part of the HomeVestors Central New Jersey Advertising Council, of which Vince is the President. While Vince is the buyer, risk assessor, and “field manager” for VinLex Ventures, Noelle is the coordinator and administrator. “Noelle is very analytical. If I have a problem, I turn it over to Noelle and let her analyze the situation and solve it,” said Vince. Starting their franchise business in 2014, Vince and Noelle recently hit the important 5-yr milestone with HomeVestors and renewed their franchise agreement for a second term. Being a HomeVestors business owner in New Jersey is different than other markets. The MLS systems in New Jersey are not beneficial to the iBuyer group of investors. As one example, MLS home data in New Jersey does not provide consistent information such as square footage, only the number of bedrooms and bathrooms. HomeVestors, on the other hand, offers a virtual or in-person visit to the home so the prospective buyer can determine the square footage and make a firm cash offer. Since becoming an independently owned and operated HomeVestors® business owner in 2014, the Mora’s lifestyle has changed, just as they desired. For both Vince and Noelle, who have been married for twenty-two years, the work-life balance has substantially improved. Vince became the coach of his daughter Alexa’s softball team. “I love teaching young people skills and then teaching them how to apply those skills and execute,” he reminisced. And he finally was able to spend some quality time with his son. “My son Vincent is a piano player and a singer. I missed so many of his performances while working at my other career,” Vince said. Vincent still plays piano and sings at local venues while a freshman at the University of Tampa. He is also the only freshman to be accepted as a member of the University’s real estate club. A Big Heart HomeVestors provides its franchisees many opportunities to help people because real estate is a people business. And as is often the case with “self-made” people, Vince and Noelle have big hearts. They recently received a call from a gentleman (a stranger) who had inherited a mortgage-free home from his mother. This gentleman was 62 years old and unable to work, which meant he had zero income. He could no longer afford to keep the home because of the outrageous New Jersey property taxes, insurance, and maintenance costs. As time went by, the tax bills kept mounting. And he could not move; with no income, every time he filled out a rental application he got rejected. Vince and Noelle came up with a “big heart” solution! “We are exploring the idea of buying a condo for him, letting him live there, and he can start paying rent when he begins collecting social security,” Vince said. “Once he has a place to live, then we can help him with the house he inherited.” Best Advice and Rules Vince does offer advice for people looking to become real estate investors. Rule #1 – Be prepared to work extremely hard! Rule #2 – You only get out what you put in! Rule #3 – Manage your risk. Make sure you are well capitalized and do not over leverage yourself! Rule #4 – Be patient. Do not chase a bad deal for the sake of a deal! Rule #5 – There are no quick riches in real estate! HomeVestors does not offer, or promote, a “get-rich-quick” scheme! Your house-buying business is yours and you run it as your own independent venture. HomeVestors does provide the tools necessary to help ensure success and provide the opportunity to build a business and not just create a job. Contact Vince, Noelle, and their two children (Vincent, 18; Alexa, 15) currently reside in New Jersey. If you wish to contact Vince, he can be reached at Vince.Mora@homevestors.com.

A True Team Player

by Carole VanSickle Ellis
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Home Depot’s Frank Blake Will Never Stop Building by Carole VanSickle Ellis Frank Blake will be the first to tell you he’s extremely grateful for his team. In fact, that is the mantra you will hear over and over in conversation if you speak with him for any length of time. “You are only as good as your team,” the Bronze Star recipient and current Home Depot general manager for Outside Sales and Service, is fond of saying. Invariably, he follows that up with something even more telling: “I want to thank everybody who has ever been on my team.” Blake credits his time in Iraq, where he was deployed in the Sunni Triangle, with demonstrating to him, firsthand, the role of an effective leader in turning a group into a high-performing team. “It’s your job to make one plus one equal three, or four, or even five,” he explained. Blake was commissioned as a second lieutenant in the U.S. Army in 2000 after completing ROTC at Clemson University, where he attended on an ROTC scholarship. He earned his bachelor’s degree in political science, minored in Japanese and military science, then went on active duty in Fort Carson, Colorado. By 2003, he was in Iraq, where he earned the Bronze Star, a United States decoration awarded for heroic achievements, merit, or valor in a combat zone. It was upon leaving the military and entering the civilian workforce he realized just how different teambuilding and leadership would look outside the military—or so he thought. Why the Home Depot? “When I started interviewing for civilian jobs, everyone essentially told me, ‘You’ll start out in a cubicle looking at spreadsheets, and when you get really good at that we will give you a bigger cubicle with more spreadsheets. It was really discouraging.” The creative and highly motivated Blake had difficulty mustering enthusiasm for this type of employment, and he began to feel discouraged and lose hope, as many veterans do when they begin seeking civilian work. Fortunately, he landed an interview with Home Depot. “Home Depot is so leadership-focused and business focused,” Blake said. “It makes starting in a store mixing paint and working the cash register feel exciting and important because you know you are part of building and growing a team.” The Home Depot culture was such a good fit that Blake knew he could trust the company to put him in a good position after he passed his store manager test, so he did not request a specific store or location. “I just told them, ‘I don’t care where I work, but I want to work for the best leader you have,’” he said. Upon completing the company’s Store Leadership Program in 2006, Blake was assigned a position in Wilmington, North Carolina, where he worked under formal naval officer Jeff Tompkins and Haydn Chilcott, who is now president of the Western Division of Home Depot and responsible for leading sales and operations throughout 13 western states. After working as a store manager for three years, Blake took on the challenge of serving as a district manager for Home Depot until 2015. During that time, he worked in the Richmond, Virginia, area and in Atlanta, Georgia. In Atlanta, he took on the challenging role of general manager of renovation services for the Greater Atlanta area, a position he held until 2018. Although he was swiftly climbing the professional ladder at the company, Blake remained humble. In fact, he still maintains being a store manager was probably one of the most stressful things he has ever done—including serving in the military—due to the sheer number of people for whom he was responsible. “You work every day for the customer, but you also have to build and maintain respect for and among all your employees and store associates,” he explained. That type of challenge was exactly what Blake needed. He credits Home Depot with saving his life. After leaving the military and combat behind him, Home Depot gave him a place to put his energy and provided focus to his life. “I love every day at this company. Every day brings a challenge and a new goal to help the customer, compete with the competition, be the best I can be, and support my team so they can be the best they can be as well,” he explained. “I’ve been with Home Depot 16 years so far and hope to stay here as long as I’m alive.” Leadership and Mentors Today, Blake still works in Atlanta as a general manager for Outside Sales and Services. Doing so has placed him in a position to meet and learn from Home Depot’s vice president of stores, Ann-Marie Campbell. “She is a great inspiration,” Blake said of Campbell, who is twice-listed on the Forbes “Most Powerful Women” list. Campbell, like Blake, is a team player, serving as an active Team Depot volunteer to give back to the local community and as a board chair for the Homer Fund, a Home Depot charity that supports associates facing unexpected financial crises or hardships. Like any good leader, Blake values others who demonstrate and exemplify strong leadership qualities. In addition to Campbell, he counts among his mentors J.T. Rieves, who he describes as “a great leader” who taught Blake the importance of customer service, Chuyu Xi, Home Depot’s vice president of merchandising and a Home Depot Foundation board member, Lieutenant Colonel (RET) Nate Sassaman, and West Pointer Shane O’Kelly, who Blake says may be the “greatest world-class leader” he has ever worked for. O’Kelly taught Blake the value of building strong relationships and always doing the right thing, while Xi modeled effective leadership and what Blake refers to as “entrepreneurial spirit”. Sassaman, he says, demonstrated for him just how important it is not just to care about the people who work with and for you but to make sure they know how much you care. “Caring for the team is vital,” Blake explained. “Your people need to know

November Foreclosure Filings Dip from October

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Foreclosure Moratorium Extended to 2021 ATTOM Data Solutions, licensor of the nation’s most comprehensive foreclosure data and parent company to RealtyTrac (realtytrac.com), a foreclosure listings portal, released its November 2020 U.S. Foreclosure Market Report, which shows there were a total of 10,042 U.S. properties with foreclosure filings—default notices, scheduled auctions or bank repossessions—in November 2020, down 14 percent from a month ago and down 80 percent from a year ago. “It’s not unusual to see foreclosure activity slow down beginning in November and through the holiday season,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM Data Solutions company. “Both foreclosure starts and repossessions were down about 80% on a year-over-year basis, but it might be worth noting that a few cities that may be vulnerable to the pandemic-driven flight from urban areas to the suburbs—like New York City, Chicago, and Miami—were among the markets with the highest levels of foreclosure actions.” Florida, Illinois, and Oklahoma post highest state foreclosure rates Nationwide one in every 13,581 housing units had a foreclosure filing in November 2020. States with the highest foreclosure rates were Florida (one in every 7,109 housing units with a foreclosure filing); Illinois (one in every 7,285 housing units); Oklahoma (one in every 8,128 housing units); New Mexico (one in every 9,236 housing units); and Delaware (one in every 9,310 housing units). Among the 220 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in November 2020 were Champaign, IL (one in every 3,636 housing units with a foreclosure filing); Shreveport, LA (one in every 3,806 housing units); Macon, GA (one in every 3,947 housing units); Davenport, IA (one in every 4,038 housing units); and Evansville, IN (one in every 4,296 housing units). Those metropolitan areas with a population greater than 1 million that posted the worst foreclosure rates in November 2020, were St. Louis, MO (one in every 4,454 housing units); Cleveland, OH (one in every 5,368 housing units); Jacksonville, FL (one in every 5,877 housing units); Louisville, KY (one in every 6,373 housing units), and Birmingham, AL (one in every 6,591 housing units). Foreclosure starts decline monthly nationwide A total of 5,256 U.S. properties started the foreclosure process in November 2020, down 13 percent from last month and down 79 percent from a year ago. While foreclosure starts are down in many states across the nation, a few states did see monthly increases in foreclosure starts in November 2020, including Missouri (up 18 percent), Indiana (up 14 percent), Georgia (up 4 percent), Arizona (up 1 percent), and Texas (up 1 percent). Among metropolitan areas with a population greater than 1 million, those with the greatest number of foreclosure starts in November 2020 were New York, NY (454 foreclosure starts); St. Louis, MO (208 foreclosure starts), Chicago, IL (207 foreclosure starts); Miami, FL (151 foreclosure starts); and Los Angeles, CA (147 foreclosure starts). Bank repossessions see a 22 percent decline from last month Lenders foreclosed (REO) on a total of 2,010 U.S. properties in November 2020, down 22 percent from last month and down 86 percent from a year ago. States that posted the greatest number of completed foreclosures (REOs) in November 2020, included Florida (273 REOs filed); Illinois (167 REOs filed); California (164 REOs filed); Arizona (141 REOs filed); and Georgia (117 REOs filed). Among the metropolitan areas with a population greater than 1 million, those with the greatest number of REOs filed in November 2020, included Chicago, IL (114 REOs filed); Phoenix, AZ (93 REOs filed); Atlanta, GA (88 REOs filed); Birmingham, AL (60 REOs filed); and Miami, FL (58 REOs filed).

Connect the Dots to More Seller Leads

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Utilizing Technology and Data to Optimize Marketing Performance by Robert Rakowski Lead generation and financing are likely the two most challenging aspects of real estate investing. HomeVestors®, the We Buy Ugly Houses® people, is America’s #1 Homebuyer and generates more motivated seller leads than any competitor in the discount homebuying business. Enter Charlie Calise and Imaginuity Charlie Calise is the Chairman of Imaginuity, an integrated marketing agency located in Dallas, Texas. For over ten years, Calise has handled the marketing and advertising efforts for HomeVestors of America and the famed We Buy Ugly Houses brand. Imaginuity provides integrated marketing services throughout the entire seller journey, including brand experience, advertising, traditional and digital media buying, paid and organic search, social media, web development, UX, data analytics and database marketing services. The Homeowner’s Journey to Sell Is Not Siloed, Neither Is HomeVestors Approach Most companies take a siloed approach to marketing. For example, there may be one team (or agency) executing direct mail or television campaigns and another executing paid search or online display advertising. Additionally, there could be different agencies working for individual franchisees, companies, or regional groups. In some instances, these teams or agencies do not always communicate well together which can create a great deal of friction, inefficiency, and poor cross-organizational sharing and learning. The Imaginuity approach for HomeVestors is to bring everyone together under one agency, all armed with data insights from a customer data platform like AdScience®. According to Calise, “When one integrated team—subject matter experts, media planners, direct mail specialists, broadcast buyers, SEM experts, data analysts and web developers—has shared, real-time access to information about what is working to generate seller leads, and what is not, they are able to make more meaningful cross-departmental connections and collaborate better. New ideas can flourish, and campaigns can be efficiently optimized, resulting in more, highly motivated seller leads.” The Secret Sauce—AdScience® Customer Data Platform Imaginuity manages almost two billion rows of first, second and third party data to make smarter marketing decisions for HomeVestors. AdScience®, Imaginuity’s proprietary Customer Data Platform, is leveraged with two goals in mind: to measurably improve the quality and quantity of motivated seller leads and provide an unprecedented level of transparency into all the client’s traditional and digital media performance. “With this platform we help generate almost 100,00 leads per year for HomeVestors, and AdScience® aggregates an incredible amount of data to provide seller insights into every one of those leads. HomeVestors’ powerful CRM system, powered by Salesforce, along with the AdScience customer data platform, makes HomeVestors the most sophisticated home-buying lead generation system in the industry,” said Calise. Additionally, “It is no wonder that the independent HomeVestors® business owners are widely recognized as the most successful home buyers in the industry.” According to David Hicks, CEO of HomeVestors, “We remain the #1 homebuyer in America to this day. We have purchased more than 100,000 houses, which is why we say we have been leading the industry since the day we began franchising in 1996.” AdScience® collects an abundance of data, including offline and online media performance, and demographic, behavioral, customer journey and transactional data, to provide timely, intelligent visualizations and actionable reporting for Imaginuity, ultimately making it easier to measure what is most important to converting more sellers. This also allows HomeVestors to extract the highest value out of every marketing and advertising dollar spent. AdScience® connects marketing data with customer data to effectively activate custom audiences across multiple media channels. This approach allows Imaginuity to optimize marketing campaigns toward audiences that are most likely to sell their house. “Utilizing data from such sources as the USPS, First American, Google, Facebook, The Trade Desk, Experian, Nielsen, and CoreLogic, we look at almost three-billion rows of data to understand who has previously sold houses to HomeVestors and how to get new sellers who look just like them,” explained Calise. “These look-alikes have a higher likelihood of doing business with them.” There are hundreds of offline and online media channels available to reach customers. They can be reached in home through direct mail, traditional broadcast television or streaming through OTT (over the top) platforms such as Netflix or HULU, or on the go through out-of-home media and SMS text campaigns delivered to smartphones or watches. To manage today’s marketing complexity, companies must look for ways to connect the dots of multiple customer touchpoints along the path to sell. This approach allows for the delivery of the right message to the right customer at the right time on the right channel, all the way down to their device of choice. Refine your Media Mix Take a smarter approach to attribution. While many customers may appear to convert online (for example, scheduling an appointment on a website), their journey may begin offline where they were first reached by traditional media such as direct mail or television. The most effective marketing approach today is to track a seller’s behavior as they pinball between multiple offline and online media touchpoints, across different devices, on their journey from awareness to conversion. Understanding these conversions, or attribution paths, and which media types play nicely together can help you get the most out of every media dollar spent. Connect Organic and Paid Search to Take You Higher Today when customers are looking to sell, they often use search engines to find what they are looking for. In fact, over 90% of all web traffic comes from search engines, and 75% of Internet users do not look beyond the first page of search results before clicking. In addition, 46% of all Google searches are linked to something local. So, ranking highly in paid and organic search engine results is a top priority. This can be accomplished through an ongoing search engine optimization (SEO) program. However, this may not be all you need. To get the best results from search, your SEO program should be tightly integrated with paid search (PPC). Home sellers rely heavily on search engines to find what they are looking

The Future of Opportunity Zone Tax Benefits for Real Estate

by Jenny Connors
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A Legal Perspective on Benefits, Requirements and Criticisms by Jenny Connors The opportunity zone (“OZ”) tax incentive, which was enacted as part of the Tax Cuts and Jobs Act, has been a major catalyst for real estate investment over the past three years. Initiated as a bipartisan effort for economic growth and job creation, the incentive was intended to promote long-term, private investment in America’s low-income communities. The incentive, however, has long come under criticism for failing to meet its objectives. This article includes a brief summary of the incentive’s tax benefits and its requirements for qualification, as well as a discussion of the future of OZs and foreseeable changes under the Biden administration. OZ Tax Benefits There are three primary components of the OZ tax incentive. First, the incentive offers electing taxpayers an opportunity to defer tax on eligible capital gains if they invest those gains on a timely basis in an entity taxed as a corporation or partnership that self certifies as a qualified opportunity fund (a “QOF”). Generally, the applicable QOF investment period is 180 days following a gain recognition event. However, there are several regulatory exceptions to this rule. For instance, the 180-day period for partners allocated partnership gains begins on the last day of the partnership’s taxable year or, if a partner so elects, on the due date of the partnership’s tax return (without extensions) or the partnership’s recognition date. The deferral period for all taxpayers, though, regardless of the date of investment, ends as of December 31, 2026. Any gains recognized after that date are ineligible for OZ tax benefits. Second, taxpayers can qualify for a partial tax reduction on their deferred capital gains if they invest in QOFs by certain dates. Specifically, taxpayers who hold their qualifying QOF investments for at least 7 years prior to December 31, 2026 get the benefit of a 15% tax reduction on their deferred eligible gains. To satisfy this timeline, taxpayers needed to invest eligible capital gains in a QOF on or before December 31, 2019. Taxpayers who missed this deadline may still be eligible for a 10% tax reduction, so long as they invest such gains in a QOF prior to December 31, 2021 and continue to hold that investment as of December 31, 2026. After 2021, the partial reduction benefit expires, and there is no option for taxpayers to reduce the tax owed on their deferred capital gains. Lastly, taxpayers who hold their qualifying QOF investments for at least 10 years and make a valid election can benefit from a tax exclusion on the appreciation of their QOF interest. Basis adjustments taken over the life of the QOF interest facilitate this exclusion. When a taxpayer makes a qualifying investment in a QOF, he or she takes a $0 basis in the QOF interest to preserve his or her unrecognized capital gains. As of December 31, 2026, when the deferral period ends, the taxpayer’s basis is increased by the then-recognized gain, plus the tax reduction amount, if any. Upon a sale or exchange of the taxpayer’s QOF interest, and after a 10-year hold, he or she can elect to increase his or her basis in the QOF interest to its fair market value immediately prior to the sale or exchange. In so doing, the taxpayer’s amount realized (i.e., gain less basis) is equal to $0, and the taxpayer recognizes no gain on the transaction. Treasury Regulations extended the 10-year gain exclusion election to sales of QOF assets, including sales of qualified opportunity zone property (“OZP”) and qualified opportunity zone business property (“OZBP”). In those instances, the taxpayer may elect to exclude the asset sale gain, provided that he or she has held his or her QOF interest for at least 10 years. OZ Requirements At least 90 percent of a QOF’s assets must be OZP. OZP includes OZBP or equity interests in subsidiary businesses. Typically, QOFs investing in real estate opt for the latter, specifically holding qualified opportunity zone partnership interests. Referred to as the “indirect” structure, the QOF holds the partnership interests in satisfaction of the 90 percent OZP requirement. Those partnership interests must be acquired after December 31, 2017, and the underlying partnership must be a qualified opportunity zone business (an “OZB”). While OZBs are subject to additional requirements, the indirect structure, which necessitates an OZB, ultimately provides QOFs with greater flexibility in deploying cash and satisfying asset thresholds. An OZB must derive at least 50 percent of its total gross income from, and use a substantial portion of its intangible assets, if any, in, the active conduct of a trade or business within a designated OZ. Less than 5 percent of its assets may constitute nonqualified financial property, including, among other things, cash (other than reasonable working capital, including amounts to be deployed within a 31-month period pursuant to a written plan), debt, stock and subsidiary partnership interests, and no part of the OZB’s business can constitute a “sin” business. Most importantly, though, substantially all, or at least 70 percent, of the tangible property owned or leased by an OZB, if any, must be OZBP. OZBP includes tangible property, real or personal, that is acquired or leased after December 31, 2017. For purchased OZBP, its original use in the OZ must commence with the OZB, or it must be substantially improved within a 30-month period. Substantial improvement generally requires an OZB to spend at least the amount of the property’s acquisition cost (less, in the case of real property, amounts allocated to land) on improvements. Finally, for at least 90 percent of the OZB’s holding period, OZBP must be used within an OZ. OZ Criticism and Potential Changes The OZB and OZBP requirements lend themselves to realty, which is stationary within an OZ. Consequently, most OZ projects are real estate based. Critics of the OZ incentive have noted that its heavy real estate usage leads to problems of gentrification and results in few, if any, jobs for residents of low-income communities. While