$610k gain from a note book. Fund a QOF now or wait for 2027?

The part I'd push on is the 190 units of ground-up. I run small multifamily and every lease-up I've watched takes longer than the model says, and that's on 12 units with existing comps. A brand new 190-unit building in a tract that qualified as an opportunity zone means the comp set is probably thin by definition. Ask Fund A what absorption pace they used and what happens to the pref if they miss it by six months.

Dumb question so I understand the timing, tender. The 180 days starts from the sale date of the notes, so March is fixed and there's no version where you get more room? I thought there were partnership rules that could shift the start date.

You mentioned enhanced rural incentives in passing and then dropped it. That's the piece I've been reading about since the bill passed. If Fund B is waiting for the new map anyway, are they looking rural or just better-located urban tracts? Those are very different projects and very different hold risk.

1.5% on committed capital is the line I'd read three times. If they call capital over 30 months and you're paying the full rate on day one, you're funding management fees on money that's sitting in your own account earning nothing. On $610k over ten years that's roughly $91k of fees before you count the 2.5% acquisition fee, and the acquisition fee is charged on the deal size, not your check, so it's levered by whatever debt they use.

Ask for the capital call schedule from their last two funds, actual, not projected. And ask whether the asset management fee steps down after the construction period. Some do, most of the PPMs I've read don't.

Concrete and electrical labor haven't come back down in my area. If their budget was written more than nine months ago it's already stale.

You're letting the tax structure pick the deal. I've done that once, on a much smaller scale, and I ended up in an asset I wouldn't have touched otherwise. Ten years is a long time to be married to a sponsor whose fourth deal is still a hole.

Agree with thicket on principle but the ground-up point matters more than the sponsor count. I do renovation, and scope creep on a rehab costs you weeks. On a 190-unit new build, one bad foundation surprise or a utility connection delay from the city is six figures and a season of carry. Ask who eats a cost overrun. Sponsor's balance sheet, a capital call on you, or a rescue tranche that primes your equity.

What happens to the tax side if the project just fails, tender? Do you lose the deferral benefit and take the loss, or does the deferred gain still come due on schedule?

@wren the deferred gain generally still has its own recognition event independent of whether the fund made money, which is the ugly version of this, but the exact treatment depends on the facts and belongs with a tax professional rather than us. tender, separate thing, both of these are private placements, so confirm you're being taken in as an accredited investor properly and that you get the subscription docs early enough to actually read them before a January close.

I've been looking at land in tracts that people expect to be redesignated in 2027, which is its own gamble. One thing worth asking Fund A: how much of the 190-unit basis is land? The improvement requirements the program imposes are measured against basis in ways that get technical fast, and land-heavy deals have tripped funds up before. Their counsel will have an opinion, and you want to see that it exists.

I'm reading this thread and I thought the new law meant everybody now gets the rolling five-year deferral, including money going in this year. Is that wrong?

@vellum yes, that's the part that trips people. The rolling five-year deferral applies to investments made after 2026. Money going in now sits under the older fixed deadline, which is exactly why tender's March date matters so much. tender, on thicket's point, I'd argue the other way. A merely fine project with the tax structure can beat a good project without it, but only if the tax structure actually survives ten years of the sponsor not blowing up. That's a sponsor bet, not a tax bet.

Is there any cash flow at all in years one through four, or is this ten years of nothing? I'd want to know that before I locked up $610k.

Four OZ deals since 2019 with two stabilized isn't much of a record for a ten year commitment. I'd want to talk to two limited partners from fund one and fund two, and I'd want the sponsor to hand me the names without curating them. If they curate, that's information too. This is the kind of decision I'd rather miss than rush, though your March date takes that option away, which is the real problem in your post.

Entitlements. Is the 190-unit site fully entitled and permitted, or is it zoned-and-hopeful? In the counties I work in, a rezoning plus site plan approval is easily 14 to 20 months, and that's before a single appeal. A ten-year hold that starts with two years of paperwork is really an eight-year hold with the same clock running against you.

Following this to learn. So a qualified opportunity fund is just a fund that agrees to only buy inside the designated tracts, and the investor's benefit comes from putting a capital gain into it instead of paying the tax right away?

Ten years doesn't scare me, it's the only part I like. What scares me is ten years with a manager you've already said you rate lower than the alternative. You wrote that yourself, tender.

Let me put numbers on fathom's point so we can argue about the right thing.

Say the tax you'd otherwise pay now on $610k is somewhere in the low-to-mid twenties percent all in, call it $140k for argument. Deferring that is worth the time value of $140k until the recognition date, not the whole $140k. If that's a couple of years, you've saved maybe $15k to $20k of financing cost equivalent. The big money is the exclusion on appreciation of the new investment after the long hold, and that number is zero if the project makes no appreciation.

So the real question is whether Fund A's deal clears a return you'd accept before any tax benefit. If it needs the tax benefit to be interesting, you're buying a coupon on top of a bad bond. What's their untaxed projected multiple, and at what exit cap?

@rigging that's roughly it as I understand it, with a pile of rules about what the fund can own and how much it has to improve it.

The new reporting requirements on funds got one line in your post. I've read that section twice now and I still don't know what it means practically for someone holding the units. Does the fund handle all of it, or do you end up with extra filings on your own return each year? That's the kind of thing I'd want in writing from both sponsors before choosing.

Ask for the hard cost per unit and compare it to what similar wood-frame product is actually going for in that submarket right now. If they're modeling below current bids they've already lost the deal and just haven't written it down. I've seen budgets carrying a 4% contingency on ground-up. That's not a contingency, that's a rounding error.

Nobody has said the plain thing: paying the $140k and buying something you actually understand is an allowed answer. It's boring and it ends the March deadline problem in one afternoon.

Ask who manages the building after delivery. If the sponsor self-manages and this is their first 190-unit asset, the lease-up plan is being written by people whose largest prior property was half that. I've seen the staffing model on those, and it's usually short by two people.

ledger asked the right question and you haven't answered it, tender. Give us the exit cap and the trend rent. On new construction in a low-comp submarket I'd want at least 75 basis points of cushion between entry yield-on-cost and exit cap, and I'd want to see the sensitivity table at plus 150 basis points on exit. If that table isn't in the deck, ask for it. If they won't produce it, that's your answer on manager quality and you can stop arguing with yourself.

Documents I'd want before January: transfer restrictions, because an interest you can't sell for ten years is a different asset than one with a consent-based transfer path. Also the removal provisions for the manager, the capital call default remedy, and whether they can extend the fund life past twelve years by manager discretion alone. On the last one, an OZ fund with an incentive to hold long has a built-in reason to keep charging fees, and I've read PPMs where extension needed nobody's consent but the sponsor's.

I recognize what you're doing here because I do it. You've had this decision for six weeks and you've built a model with an exit cap slider on it. The slider isn't going to answer it. Pick the two facts that would change your mind, get them from the sponsor, and decide the week you have them.

The compliance load on these funds is a real service line now, which tells you something about how much of it there is. If Fund A hasn't named who does their annual reporting work, ask.

Reading all of this from zero and the thing that stands out is how much of it is about the sponsor and not the tax rule. Is that normal for these, or is it because of the timing mess this year?

You've got a March deadline, a sponsor you don't love, and a hole in the ground on their most recent deal. That's three problems and the tax code doesn't fix any of them. Get sextant's sensitivity table, and if it doesn't hold at plus 150, pay the tax and go find Fund B with cash in 2027.