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Over Looking the Diamond In the Rough

The Luster of the Go Zone Is in the Background

Greg Grahn

Too often articles are written with the ultimate message buried deep in the final paragraphs. The message to this article is simple and up front: Take a fragment of your time to see how the tax benefits of the Go Zone (Gulf coast Opportunity Zone)1 GoZone Opportunityapply to your financial situation. The potential benefit of investing with free money is available, but only available to those who go out and seek it. The Go Zone can either be a strong investment, or it can be the best investment you will find over the next several years. The question is do you want to get the information to see how great it can be?

For the past several years the Go Zone has been one of the nation’s strongest potential markets for real estate investing2. Yet the overall increase of investment spending in this area has been modest. For 2008 – despite the nationwide economic meltdown – the Go Zone maintained a constant increase in profitability and appreciation (with Biloxi, Mississippi taking top national honors)3, yet again, investment spending remained modest. No matter how one measure’s the dynamics of this area, the unjustified outcome is clear -- the economic and investment strength of the region is vastly stronger than what is appreciated by today’s common investor. There is more than what meets the eye with the Go Zone . . . but the average investor is just not seeing it.

As an economist, it is easy to explain the basis for such a chasm between strong economic forecasting and tepid actual investing; the former deals with numbers, while the latter includes human emotions and skepticism. Regardless of how many investors claim to remain dispassionate and objective about their investing, all too often, investors subjectively overweigh factors that they do not fully understand. Rather than increase their efforts to obtain more answers, investors often prefer to turn the other way and make an uneducated retreat. For the Go Zone, this dismissive attitude is prevalent for a variety of reasons; most notably, because the Go Zone deals with one of the leaders of misunderstood financial factors -- taxes4.

By now most investors should understand that in theory the Go Zone can provide for tremendous tax benefits through accelerated depreciation. But most investors may also have heard that not all benefits necessarily apply to them, or that some of the tax benefits may have to be repaid back to the government (called recapture). So when investors add up both sides of the equation, the investment seems contradictory and sketchy at best (as if taxes were ever straight forward). In truth, there is no contradiction; there is just a lack of specific information5. The Go Zone tax benefit is not a concrete pre-determined windfall; rather it is a relative benefit based on individual circumstances. As the Go Zone name suggests, it is simply an “opportunity” – an opportunity to invest with free money, an opportunity to recoup some or all of one’s initial capital, an opportunity to alleviate much of the personal risk, or an opportunity to buy multiple properties without over extending personal finances. The opportunities are tremendous; the investor just needs to seek them out to see how many they can apply.

Because the tax benefits of the Go Zone can provide for capital reimbursement, developers and sellers have been better able to structure their “seller’s concession” to further enhance opportunities. For example, several developers provide for full payment of closing costs, others guarantee net-positive monthly income (some developers even offer both). In reality, transactions can be structured in a way to create potential capital reimbursement while guaranteeing positive monthly income (so it is ultimately taking little to no money to make guaranteed free money). And as for “location, location, location,” the area remains one of the top appreciating markets in the nation6. Furthermore, it is not the rollercoaster ride of Arizona, Las Vegas or California . . . it is just a steady climb (above national averages) that continues to be outpaced by its economic indicators – meaning that the region’s stable growth has far more room to increase before it starts to decrease.

There are a lot of external reasons why the Go Zone has been touted as the nation’s best areas for real estate investing; and there are only a couple internal reasons why investors have not seized their claim -- they are too encumbered with generalized information to seek out the specific information that they need. Whereas a majority of investors see a possible void in the tax benefits –and thus assume it is not the right investment for them; a minority of investors —who consult with their tax advisers—discover that regardless of the actual amount, some of the tax benefits surrounding the accelerated depreciation are indeed beneficial. And when coupled with liberal concessions allocated by developers/sellers, they are able to create an investment opportunity that reduces long-term capital, reduces short and long term risk, increases overall gains, and provides for positive monthly income in the process. In short, when considering the Go Zone, it should not be a mental thought process of whether you may qualify for a benefit . . . instead it should be a mental realization that there is free money to be had, and all you have to do is educate yourself on how much you can get. So if you deem yourself as an investor, do what true investors are supposed to do – perform the due diligence necessary to make an accurate and educated decision. Today’s real estate market is poised for upward movement; the Go Zone is an area that leads the charge; SO GET IN.

1Go Zone states include parts of Florida, Alabama, Mississippi, Louisiana and Texas, which were damaged from hurricanes Rita and Katrina.
2“Rated one of the top 3 Investment Opportunities in the county” - Forbes Magazine, June 2007
3Source: Housing Predictor (11/15/08) See also: Realtor Magazine Nov. ’08 and Realtor.org, Nov. 17, 2008.
4The majority of today’s investors do not include taxation into their investment planning. Yet it is not the money you make, but the money you keep that should be most important. While many investors focus on the amount money received, over 85% of them fail to retain half of their full potential by squandering their money away in taxes.
5For more information on the benefits of the Go Zone tax treatment, see my former article, “Are There Really Benefits to the Go Zone’s Tax Benefits?” (Click here for a link to that article.)
6Source: Housing Predictor (11/15/08) See also: Realtor Magazine Nov. ’08 and Realtor.org, Nov. 17, 2008

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