I bought the tax benefit and ignored the deal. Fund is at 0.71x on my $600k.
Gain came from selling a portfolio of three rentals in 2021, $612k. I put $600k into a QOF because I'd spent about nine months talking to my CPA about deferral and roughly nine hours looking at the actual projects.
The fund: four ground-up multifamily assets, two markets, sponsor with a decent completed track record on smaller deals and nothing at this size. Fee stack was 2% management on commitments, 1% acquisition fee, 20% promote over an 8% pref. I read all of it. I told myself the fee load was the price of the tax treatment.
Where it went. Two of the four projects went over budget on hard costs, one of those refinanced into a rate that made the pro forma coverage laughable, and the sponsor put a capital call in front of us in year three that I partly funded. Latest reported NAV puts me around 0.71 of contributed capital. Nobody's stealing, they just built at the wrong price and paid too much for two sites.
Here's the math that actually stings. If I'd paid the tax in 2021, I'd have had roughly $460k after federal and state, and almost anything boring would have beaten where I am. The deferral bought me the use of about $150k of tax money for a few years, and the ten year appreciation exclusion is worth exactly nothing on an investment with no appreciation.
What I'd do differently: underwrite the fund as if there were no tax benefit at all, and only then add the tax layer on top. If it doesn't clear my normal bar as a plain real estate investment, the code isn't going to save it. I'd also weight sponsor experience at the specific deal size far higher than track record in general.