1234: Potential Pitfalls of Third Parties & Opportunity Zones, The Good, The Bad & The Ugly by Mauricio Rauld, Esq

I first started reading the rich dad books. That led me to looking at different motivational speakers. And I stumbled on Jason's podcast about seven years ago. And then from then I was hooked and after listening to him and I really got us sold on his philosophy on how he looks at the market and real estate in general. And I wanted to jump in seven years ago, but I decided to open up a few businesses that went pretty well, but you know, I live in New York, so there's a lot of expenses over there. So those went not as according to plan. So now I saved my money up again and I'm here. Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He, he's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1234. 1234. Today we will be talking with an attorney. And hey, if there's one bit of advice I can give any of you, try to minimize the involvement of attorneys in your life. I say this because they can be expensive. And the worst part about them is a lot of times they just don't do their job. Remember something? I remember this from real estate school many years ago. And it's very unfortunate that things work this way in the world. We. But it's called the law of agency. The law of agency. And this applies to anybody. You hire a property manager. And we're going to talk with one of our clients here in a moment. You've heard her on the show before. She's kind of a client extra. We'll call.

With benefits.

Client extra. Oh, God. Okay. The show is going down the tubes already. Yeah. So anyway, I'm calling it client extra. Like those Mexican beers they have, like extra, like Corona extra, you know, whatever that means. Anyway, okay, we'll get to this in a moment, folks. Bear with us. Bear with us. All right, so we're going to talk with an attorney. But here's the law of agency. Here's what I Want you to know, remember what I learned years ago, and this has come back to bite me many, many times. Is that the principal? That is us, right? If we own the property or if we're hiring the attorney, we're hiring the accountant or hiring the. Whatever, we're hiring someone as our agent. The principal is. Can be liable for the agent's actions. And so when I made the attorney reference, yes, attorneys can get us into trouble. You know, they don't do their job. A lot of times they'll mess things up for you, and then ultimately you're holding the bag because they screwed up. This can happen with any type of professional, including a property manager. So we're going to complain about property managers here a little bit. And our case study will be with my girlfriend, Carmen. She is actually a client. That's how we met, right? Yes. Okay, I agree. Yes, I agree. All right. So I have been. I'm going to say I've been mentoring you a bit lately, and it's sort of with this launch that is coming soon of what I've talked about with you, the empowered investor community, more coming on this. I know a lot of you have asked about it. We are not ready to launch, and we will sell no wine before it's time, as the saying goes. So we are working on this community diligently. It's going to provide a ton of resources for investors. If you have property managers, we don't want you taking any more crap from them folks. We want you to stand up for them, to stick up for your rights and to get the best deals, to get good value for your money. And so Carmen's been dealing with a couple of properties she has and dealing with the property managers. And, you know, we were on the cruise in the Baltic Sea and you were showing me things. I'm saying that's ridiculous. Don't do that. That. Don't do that. Right. Some of these charges, they just, you know, a lot of you listening, I think you're just paying for this stuff. Don't pay for it. Don't agree to this stuff. Get competitive bids, shop around, push back. Okay. You just don't want to be in the position where you're letting someone nickel and dime you to death. And it's a little more than nickels and dimes a lot of times, isn't it?

Yeah. Well, I want to give you a little background as far as where I'm coming from in terms of a being an investor. My original idea, which I still partially support, is I wanted to be Hands off. My idea of having a property management, it was simply because I did not want to deal with it, which for a while it worked. Until now I'm in the situation where I'm having to deal with them, and it's probably so much more work than having to do it myself.

Yeah, because if you did it yourself, if you were self managing, you would be dealing direct. Whenever, in any area of life, whenever there's an intermediary party in the middle, it can really. Sometimes it's beneficial. And look, we got to have intermediaries. We live in a complicated world. It's hard to do things without having intermediaries. But sometimes managing the intermediary person, in this case the property manager, can be more difficult than just going direct and solving the problem yourselves. Sometimes delegating makes sense, sometimes delegating doesn't make sense. I think the distinction here is when we're in the position where we have the technology and the resources to easily do it ourselves, we should consider not delegating. And today, because we have all these Internet and technology tools, we can do it ourselves much more easily. But tell us about some of these intermediary party frustrations. Is it just the money, Carmen, we. Or is it other things just kind of getting stuff done?

No, it's a combination of things. So I'm going to use one of the properties. In this case, the tenant stopped paying for the rent and we eventually had to move to an eviction process, which the property management did by themselves. Since that, I've been having problems with the property being in terrible condition because I believe the tenants are pets. That pretty much.

I saw the pictures. So here's the thing. I saw these pictures and they said that the property had a dog, a French bulldog, I think. Right. And then they said it didn't have a dog. I mean, which one is it?

Right. And that's part of the problem here. So it's. There's a. The part where they're giving me all kinds of numbers, you know, for all these fixes. I mean, and some things they ask, they ask about. They. They're very careful about getting my approval to move forward. And then some others, they just do without even telling me. Another frustrating part is the communication. So they, you know, they use a portal that is only limited to a certain amount of people.

Let me stop you there. So these tenant portals that the managers use, I don't like them very much. They're great for the managers. I just don't know that they're so great for us as the clients. And the reason I say this is the portal can be manipulated. If they're emailing you, you have that email. When that email comes to you, it's in your possession and you have that thread, that conversation thr in the portal. They can just change things. Right? And so I don't like that very much. You know, you might think like I'm using all their portals. No, I'm not. I don't use those portals myself of the managers. I just like them to communicate in the regular methods with me. But it's like sometimes the story keeps changing. Right, right.

And it's very hard to maintain a chain of communication. I mean there's always more than one person involved and these portals limit you to. There are two contacts and yourself. There's no way to include anybody else, right.

Like us. You can't include your investment counselor on there. And we want you to rope us into things, folks. We want to be here to help you. We are your support mechanism. And so if you're communicating with the manager inside of their portal, you can't CC your investment counselor on the email to get some help. Now please do not cc us on everything, okay? Only when you really need some help. And that's one of the things we offer. We offer lifetime support. As long as we're around, we're going to be here to support and help you with your properties. But take that to the next level with the empowered investor community, that's going to be like a deep level of support.

And then with that, I mean it's a lot related to communication. Like you mentioned before, they originally told me this tenant had a pet. They actually had given a pet deposit. And then on another communication they said there wasn't a pet and that wasn't on the lease agreement. So very confusing messages coming from the same people. So it's just taking forever now to deal with this situation. It's been three months since the tenant stopped paying rent and the property is still not ready to rent again.

Right? Right. So it's still not rent ready, but you are. I am glad you are pushing back, which is exactly what I've been telling you to do. And listeners, you've got to push back. If you are not self managing and you have a manager, you need to ask. Number one, I'm going to say it. I require all my managers to give me the actual quotes from the vendor doing the work. Now this is not new. I've been telling you this for years. Okay. When they give you one of these, say a rent Ready quote. For example, they give you maybe a spreadsheet, and it shows you this item, that item, that item number one. They're not itemized well enough. They're not specific enough. One example on one of yours, right? And we want you to learn from us folks. Learn from our problems, okay? They don't have your own problems. Learn from ours. And so they sent you a rent ready quote. And it was a spreadsheet. It didn't have the names of any of the vendors doing the work. I told you to write back and say you want the quotes from the vendors actually doing the work. One of them was change the air conditioning filter and service the AC. Okay? I think it was $115. Now, an air filter cost about three bucks, okay? They're like nothing changing them incredibly easy. Anybody can do it. And I don't know what servicing the air conditioning means. What does that mean? Who's doing the work? Who is the contractor? Look, folks, you know, I have been litigating with these sleazy property managers that I've told you about before who created, you know, I'm alleging fake invoices and all kinds of stuff. They set up this shell company to bill me. And, you know, I just called them out. And, you know, I've been. I've been fighting this fight, and I'm really not doing it on my behalf. I'm doing it on behalf of the industry, okay? Because something has got to be done here about this type of abuse. You've got to get the invoices from the actual vendors doing the work. Because in that example, we don't know what service the AC means, who's doing it, what are they servicing, what specifically are they doing? You know, it's like saying, tune up your car. Well, what does that mean? Does that mean, you know, just change the oil, or does it mean a complete diagnostic tune up? You know, when you go into the doctor for a physical exam, there can be a very basic physical exam or a very comprehensive one. You've got to get the specifics on that kind of stuff.

Just overall, the numbers are so high.

I mean, they're ridiculous. They're just quoting absurd numbers.

Ultimately just leave me with a feeling that I'm being taken advantage of. And some other part of this deal was the lawsuit against these tenants who have not paid for three months. And this is money that the paperwork is written for the management company. My name is nowhere in that contract, and I just don't know. I mean, would I ever see that money?

Well, that is a Yet another scam we believe we have uncovered and we're going to expose. And this is the rent collection, okay? So more to follow on this. But the basic idea is these property managers and this may be a big thing, it may be going on left and right. We don't know how significant it is. But basically what they're doing we believe is they are going after these tenants, suing them, trying to collect for back rent and damage. And the owner may be long gone, okay? And they may have sold the property, they may have moved on and changed managers. They might be self managing, they're not in contact with that manager anymore. And three years, five years, whatever later, that property manager collects on a judgment. That is your money, people. That is your money. It is not their money, it is your money. And what I said, because they said, well, we're going after the tenant. I said, well, you need to put the owner, okay, you need to put Carmen's name as a plaintiff on that court complaint so that judgment when it comes is in your favor. And they said, well, we can't. The contract, the lease was signed between the management company and the tenant. But no, you can name another tenant, okay? I can't imagine you can't do that anywhere in any state. So these are the kinds of things and why we really, really want to teach an army of people to self manage their properties. Now look, if you're going to have a manager and I have managers, okay? So I don't self manage everything. I self manage some, you know, if the manager's good, I love them and I keep them and I appreciate them. I don't want to cast a wide net against all managers, but a lot of them are abusing the system. They got their hand in the cookie jar in one way or the other. So we're going to keep you up to date on all these different and make sure you, the investors are protected. We thought we'd have time to talk about the new cruise, but I don't think we're going to. So we'll mention it, but we wanted to play you a little video anyway. You were raising your hand with another point.

Yeah, no, I just wanted to mention one last thing. So I still would like to have a company manage my properties, especially if you have big portfolios and things like that. But part of the challenge is not having necessarily the resources to do it myself because I simply not in the location, I don't know the contractor, things like that. So having a place where I could go and find that information and that support that will be very helpful.

That's exactly what the empowered investor community is going to be, among other things. And you know, Carmen, interestingly, I've hardly talked to you about this at all. My plans for this community, we just haven't talked about it. I know I've mentioned it to you. But this is going to be a network, a community. We're going to be able to exchange information about the best and the worst vendors in any given area. We're going to open it for only one market at first. And I'm pretty sure our first market we're going to do it for is either Memphis or Indianapolis. Then we will add another market later and another market after that. This is going to be something you're all going to love. It's going to be great. Okay, look, we got to get to our guest today, but let's just talk about the cruise. So as you probably know, listeners, a lot of you emailed me on this. The feds, the cold war is starting up again, I guess. No cruise ships, American cruise ships can go to Cuba now or American ported cruise ships. They're all registered in the Bahamas or whatever. So, you know, I'm not being technical here. Anyway, you can't go to Cuba. There are Russian warships in the Cuban harbor right now. Crazy stuff going on in the world. So we have changed our cruise and we have got a beautiful new cruise planned. Go to jason hartman.com Cruise this is a Venture alliance event, but people can come as a guest. It is going to be a fall foliage tour and it is on a gorgeous, gorgeous, very new ship, Cuba. One of the downfalls is on that cruise is the big, grand, incredible ships can't get into the ports there. Well, hey now, nobody can get in with those Russian battleships there. But we're gonna go to Newport, Rhode Island, Boston, Massachusetts, Bar Harbor, Maine, Saint John, New Brunswick, Halifax, Nova Scotia. These places are absolutely beautiful. Fall foliage tour October 12th leaving from New York and returning to New York. So Jason hartman.com Cruise for more info on that. And let's get to our guests without further ado. And Carmen, just in case we had a new listener to the show, tell everybody where your accent is from. You speak four languages, but where's that accent from?

Venezuela.

Okay. And I want you to say one word for people because it's just really funny the way you say it. I love it. What is a shirt that bothers your skin like a wool shirt? Itchy. Ichi. Say it again. It is itchy. I love it. Okay, without. Without further ado let's get to our guest and let's hear about some important legal and real estate information. Here we go. It's my pleasure to welcome Mauricio Raul to the show. And he is an attorney and he specializes in syndications. He's been involved a lot lately in opportunity zones. And today we are going to talk about opportunity zones, the good, the bad, and the ugly. Mauricio, welcome. How are you?

I'm doing great, Jason. Thanks for having me. Appreciate it.

Good to have you on. So there's a lot of hype about these opportunity zones. And, you know, I guess any deal can be good or bad, right? What's going on in this landscape of opportunity zones?

Yeah, so this is a relatively, obviously a relatively new law. In fact, we're still in the phase where the government's kind of trying to figure things out. In fact, it wasn't just until about a month ago that we came up with the next set of regulations that brought a lot of clarity, because a month ago, there was so much confusion and so much gray areas that people weren't really comfortable moving forward. And so we just now have gotten rules that we feel comfortable moving forward. But by no means is this completely settled. This was part of Donald Trump's tax reform bill back in 2017. And essentially what it was is the government, the IRS and the Treasury Department, along with all of the governors of each state, started designating particular zones. And these zones are essentially just communities that are really in need of capital. They're dilapidated communities. No one's really investing there. And they're in desperate need of jobs or desperate need of capital. And so what they did, which is what they often do, is they use the tax code to alter our behavior. As, you know, our good friend Tom Wheelwright likes to say, the tax code is just a series of incentives to make the government do what they want you to do via the tax code. And this is one of them. And so they've given us a lot of tax incentives to put money into communities that we otherwise would not be looking at because they're just, you know, I always knock on Detroit, Michigan, but I just think Detroit, Michigan, right. They've had a really hard time over the last 10 years.

Over the last 10 years? Over the last 40 years. What are you talking about?

Yeah, 40 years. And so getting capital in there, getting some economic activity, getting jobs, getting some of these real estate properties that are, you know, really dilapidated and get those renovated, that's kind of the idea behind the. The opportunity zone. And the way they've done that is through the tax code and given us some, some pretty nice tax benefits, which I'm sure we'll go through.

Okay, good. So can you do this alone? Can you just buy a property in an Opportunity Zone and do whatever needs to be done to take advantage of this tax break? Or is that not possible?

No. So there's two things that need to happen for you to do an investment in Opportunity Zone. Number one, you have to. We don't have to, but in order to get the benefits, you have to take money that is obtained from capital gains. So this is not new money that you just write a check from your bank account. This is money that you've sold an asset, whether it's real estate, you know, stocks, your Ferrari, precious metals, whatever it is, and now you have a capital gain, then it's that gain that you're going to roll over. Similar to a 1031 exchange. You've got a certain amount of time to roll it over into an Opportunity Zone in order to make the thing. So that's number one and number two, and it has to be through what's called a qualified Opportunity Zone fund. And not to discourage anybody, when I say a fund, that basically just means an llc, for example, that's a partnership. So you need a minimum of two people. You don't have to do a syndication or a full fund or have a million people in it. You know, you and I, Jason, can get together and start this fund and the two of us can own it and we can then roll our capital gains into this llc and then that LLC goes out and buys property and fixes it up.

Okay, so why would that be? Why can't you just buy a property? I mean, for example, I remember what I think was a much better deal years ago was the Go Zone. You were around in the days of gozone, probably remember that. That was a great deal. I mean, what happened unfortunately is ultimately after the beginning stages, I don't want to say toward the latter stages. It was sort of after the beginning stages of the gozone. All the investors came in to take advantage of the tax benefits and they bid the prices up and they over inflated. You know, tax incentives always distort market.

Yes.

Okay. And I think the same thing's definitely happening with Opportunity Zones. You know, all these investors rushed in to get the tax break on the Go Zone. And the people who got in early made out like bandits. I was one of them. I, I did well with it. A bunch of our clients did. But after a while we stopped Promoting it because the deals were starting to look really good, crappy. And it was like people were doing these dysfunctional deals just to get the tax benefit. And my rule is a deal has to make economic sense before any tax benefit. If, you know, the tax benefit's a great incentive for sure. But I don't think you should ever do a deal just based on tax benefits. I don't know. Just my rule.

Not only do I 100% agree, but you've stolen a little bit of my thunder. That's one of my ugly things in my report that I put together. I spent a lot of time putting a report together because I wanted to get of this. And that's definitely one of the things I stress that you should never. What's the saying? You should never let the tax tail wag the dog.

Yeah, that's good. You want to make.

Yeah, you want to make sure that the investment stands on its own merits. And. And yes, the tax benefits are great, but I always say, you know, capital gains or free taxes on zero or if you lose all your money, that's not going to do anything for you. So you're looking for an investment that's going to appreciate and bring value to you. And so you've got to look at that independently and do the exact same due diligence you would do anywhere else. If you're going into somebody else's fund, you want to make sure you're, you know, doing your due diligence on the sponsor. And if you're doing it on your own, or when I say on your own in this, you know, with a partner, at least one partner, that you are doing your due diligence on the property and understand what you're doing.

All right, so don't invest just for tax benefits. But where did we start that part of the discussion? So you can't do it alone. Yeah. What could be the logic of that? You know, the law, and the tax law especially, is usually kind of has some logic to it. I think it's rather logical. You know, they want to incentivize certain things. Why can't you do a deal alone?

I was going to argue logic and Congress in the same sentence may not make all the sense in the world.

You know, I know that sounds. It sounds kind of funny to say, but it seems mostly logical to me.

The answer is, I don't know. One of the things I can think of is, again, the whole point of this is to drive as much capital as possible to these areas so that they're definitely Encouraging not one person to do this, but people that group large amounts of money and put it together. And so I'm guessing that's part of it, but honestly, I don't, I don't know specific answers to why it has to go through an llc, LLC or corporation or something and can't just do it on your own with your own personal capital gains and roll it over.

Yeah, that's where it's like they want to encourage funds and not individual investors. And I'm not sure why that is.

They want more. They want the most amount of money in those things. I mean, that's the whole, the whole idea behind this is obviously to spur economic activity. So the more money they can get in there, the better.

Okay, so the good, the bad and the ugly continue.

Yeah, so the good, obviously the good of the tax benefits. Right. And there's really for the way I break this down and because my mind, that's how I always like to break things down. The good, the bad, the ugly. It makes, makes these good. These are incredibly. Let me just take a step back. I mean, these are incredibly complex tax laws. Usually there's a tax attorneys involved and this is, this is really complex stuff. So I'm trying to distill this in sort of simple ways, but this is definitely not a do it yourself project. You want to have make sure you have a, at a minimum, a really good, only an attorney working with you, but somebody that's a, that's a CPA or a tax professional that can help you through that. Because this is a very complex tax law. But the good, the bad, the ugly to me is a good way to organize my thoughts. And so the good is obviously the tax benefits. And there's four incentives for you. The first one is deferral. So again, we're talking about capital gains, right? So you're taking money that you've, you've sold an asset, whether it's real estate, precious metals, what have you, stocks, whatever it is, you can sell that. And then within 180 days, you must then roll that over into an Opportunity Zone fund or qualified Opportunity Zone fund. And at that point you get to defer that capital gains tax until whatever comes first, either December 31, 2026, which is approximately seven years from now, seven and a half years from now, or whenever you sell the asset. So obviously if you sell the asset in year three, then that's when you're going to pay the capital gains. And so there's a deferral benefit for you. It's not Indefinite, it's not forever. So it's not potentially not as great as a 1031, which you can potentially do, you know, almost indefinitely. But it is a deferral. It's always better to pay taxes later than to pay taxes now. So that's benefit number one. The second benefit is if you hold that investment in the Opportunity Zone for a minimum of five years, they will give you a 10% discount on that capital gain. So for you tax geeks out there, it's technically a step up in basis. So they give you a 10% step up in basis. And so if you had a $200 capital gain, then they're going to knock that down to $180 in capital gains if you hold that investment for five years. And again, the idea is they want you to keep that money in the, in the dilapidated economic zone as much as possible. So that's the second benefit, so to speak. The third benefit is if you hold the investment for a couple more years, for a total of seven years, then you get an additional 5% discount on that initial capital gain. So you get a total of 15%. So again, if you've got. I should probably use better math. If you've got $1,000 in capital gains, then your basis will be reduced and you'll only have $850 in capital gains. And so you've got a 50% discount on your taxes. Again, a nice little benefit for that. So that's number three. The last one really is the main benefit, which is if you hold that investment for a total of 10 years or more, then the entire capital gains from that investment in the Opportunity zone is tax free. So if you go out there and you buy a single family home for $100,000 and fix it up, and 10 years later you sell it for $300,000, then that $200,000 capital gain will be tax free.

Do you have to sell it in a certain time frame? Is there like this sweet spot where you got to sell it at these certain points or something?

No, you've got to hold it for over 10 years. So as long as you sell it, technically 10 years and one day, then that's when that triggers the complete capital gains elimination.

But it could be 20 years later.

Oh, yeah, yeah. There is a limit. You can actually, it's. I think it's 2046, where that's where it kind of stops. And at that point, any capital gains you get above 2046, you start paying that, your basis stops going, stops going up there at that Point.

I sort of worry about this, you know, phase two of this where on the back end, at 10 years in a day, a bunch of properties are going to dump on the market in these opportunity zones, you know.

Yes. All at once. We were talking about this a little bit offline. I mean, I'm talking a lot about the opportunity zones and by no means am I here to endorse the opportunity zone and saying it's a good deal or not a good deal. I think everybody needs to evaluate them themselves. I'm just trying to point out all the good, the bad and the ugly and, and certainly that's just skipping a handle a bit. There's no reason we have to go in order, but that's certainly one of the bad. There's really a couple of bads, which is, you brought one up, which is it creates an artificial demand. Right now money's flowing, people are investing in communities they otherwise would not have invested purely for the tax reasons and that's going to drive up prices and it's creating an artificial demand. And number two is just that if you've got a rush and there is going to be a rush, and I'll talk about that in a second, but there's going to be a rush of people coming in before the end of the year. And so there's going to be a lot of people who are doing it in this, you know, in 2019. So, yeah, in 2029, you're going to see a, you know, a nice chunk of properties are going to hit the market. Yeah. You know what happens when you've got a flood of properties for sale?

Yeah, that's. Then the prices decline. Yeah. Okay. Interest, interesting stuff. So should someone listening be thinking, hey, I should set up an opportunity zone fund? I mean, these things are growing like weeds. I mean, I, it seems like every day I'm seeing some pitch for an opportunity Zone fund, which also scares me because it's like a mania. Right. And.

Right.

I have learned through many years and mistakes to walk away from manias, you know, but should someone listening be thinking, well, I should set up a fund or I should just invest in someone else's fund? What should they be thinking?

Well, that's a great question. I'm, you know, I'm not in the business of giving investment advice, but. No, that's a great question. I think it's the same analysis as if you're looking to invest in real estate. I mean, do you go out and buy real estate on your own? Do you go buy single family homes? Or, you know, fourplexes or small apartments or do you join?

Yeah, you know what I'm gonna say? Do it on your. Be a direct investor. Always.

Yeah, I think that goes, I think that goes to your sort of your personal investment philosophy. Right. You know, our good friend Robert Helms talks a lot about your personal investment philosophy. Some people. Yeah, some people don't have the time or the, you know, a lot of busy professionals have a lot of money but don't have a lot of time. And so it's very appealing to partner with somebody who does have the knowledge and the time and other people, you know, have the time or don't trust other people and they want to do their own due diligence and have more control over the property and spend the time and they have the time. So, so it's really an individual decision. And I just, I think depends on your, just like any other investment, your personal investment philosophy.

Yeah. Where can people find out more from you and, you know, any, anything else they should know?

One more thing and then, and then they can get all the details in my reports. I'll give you the info on the report if you email me@oz PremierLawGroup.net oz PremierLawGroup.net, you can get a copy of my full report, which I call the Anti Lawyers Guide to Opportunity Zones. The the good, the bad, the ugly. One of the bads, and I'm kind of debating whether it's a bad or an ugly, is that you do have this, what's called a substantial improvement thing that you have to do, which means you have to, once you buy a property in the opportunity zone, you must invest the same amount of money that you, that you attribute to the building. You have to invest that in the next 30 months. So if you buy a real estate, let's say you buy a piece of property for $100,000, you determine that $80,000 is attributable to the building and 20% is attributable to the land. Then you have to invest an additional $80,000 in the next 30 months into improving that property. Because again, the idea here is to stir economic growth. And so they want to create jobs, they want you to hire contractors and stuff like that. So there is that substantial improvement test that you want to keep in mind. So you can't just invest 100 grand and then walk away. You're going to have to put a little bit more money into it. So keep that in mind.

Yeah. Okay. Okay, good. There must be more things. I mean, we've Done some other shows on this and it feels like there's just more ground to cover maybe. And I know you're not in the investment advice area, but some of the areas that are opportunity zones, some of them are pretty blighted areas, some better than others.

Yes.

I sort of wonder, Mauricio, are these areas ever coming back how much improvement the Opportunity Zone Fund sponsors need to make? I mean they pretty much need to be developers it seems, seems like versus investors.

The developers are for sure. This is probably the most attractive for the developers because obviously if you buy a piece of land and you're going to be putting a substantial amount of money into that, into building it, obviously construction is expensive, so that makes sense. You know, if you're buying a huge multifamily, there's some questions as to whether, you know, if you're buying a $3 million building or even a million dollar building, you know, that's a lot of capex to put in if you're going to put another $800,000 into the building. And then the other thing that you, I thought you were going to. But not all opportunity zones are created equal. So the, one of the criticisms of this law is that there's some, I mean there's, first of all there's an opportunity zone in every single state and every single major city. So there's actually an opportunity zone in Manhattan, in la, in Oakland. And some of these areas aren't as dilapidated as you think when you're, when you're envisioning this. And so there's been some criticism. And that's where I think the rush to, you know, obviously the first ins are going to get those, those zones that are a little bit better off. And you are going to get this rush into properties not only because of the opportunity zone, some being better than others, but remember, in order to take advantage of this seven year tax to hold it for seven years in order to get that full 15% discount, you have to make your investment by the end of this year because in order to hold that investment for seven years, you've got to get it in before the end of 2019 because you've got till 2026. So there's going to be a rush of people who want to get that full benefit. So you're going to see a lot of people going in in the second half of this year now that the regs have come out and we've got some clarity. But so yeah, that's kind of where we're at. And like I said, my report goes in a little bit more detail. I'm happy to share that with anyone who wants it.

Yeah, good stuff. Mauricio, thanks again for joining us. Really appreciate it.

Thanks for having me Jason. Appreciate it.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and Our General Website HartmanMedia.com for appropriate disclaimers and turns Terms of Service Remember that guest opinions are their own and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that and be sure to make make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.