Updated January 22, 2024

Investing in Opportunity Zones as a “passive” limited partner investor, or LP, involves identifying an existing Qualified Opportunity Fund that is raising Opportunity Zone equity from investors to fund an OZ project or portfolio of OZ projects.

In general, Qualified Opportunity Funds are private placement funds that do not trade publicly on an exchange. That is to say, shares (or interests) in Qualified Opportunity Funds are not available at a brokerage in the traditional way stocks, bonds, mutual funds, or ETFs are bought and sold. Rather, Qualified Opportunity Funds are more similar to private equity funds or private equity real estate funds.

Private Placement Opportunity Zone Funds For Accredited Investors

Most private placement Qualified Opportunity Funds (QOFs) that are raising money from investors are issued under SEC Regulation D, Rule 506(b) or Rule 506(c). Funds that raise money under Rule 506(b) are open mostly to accredited investors. Funds that raise money under Rule 506(c) are open only to accredited investors. Here’s what this means: with very few exceptions, QOF investors must be accredited investors.

An accredited investor is an individual with annual income of at least $200,000 (or $300,000 of joint income with spouse) over the last two years, or net worth exceeding $1 million (not including primary residence). Financial professionals with Series 7, 65 or 82 licenses also qualify as accredited investors.

Investors in QOFs are usually required to provide proof of accredited investor status to the QOF manager. This can be a letter from the investor’s attorney, CPA, or financial advisor, or it can be performed through a third-party verification service such as VerifyInvestor.com. 

Investment minimums in most Qualified Opportunity Funds that are raising capital are often in the 5- or 6-figure dollar range. Typical investment minimums can range from $50,000 to $100,000, with some funds requiring a minimum investment of $250,000, or even $1 million.

At any given time, there are dozens if not hundreds of Qualified Opportunity Funds that are raising capital from investors. A list of Opportunity Zone funds is available on OpportunityDb.com.

Variety Of Investment Options

Any Qualified Opportunity Fund must meet the requirements summarized in the preceding pages. But those requirements allow for a wide range of asset classes and investment strategies. And, indeed, there are existing QOFs that invest in both operating businesses and real estate. 

Within the real estate asset class, there are funds that target specific sectors (such as multifamily, industrial, retail, etc.) as well as those that offer a more diversified portfolio. Similarly, some QOFs focus on a single city or region while others will invest nationally.

Typically, passive investors are referred to as limited partners (LPs) while the individuals who are managing the Qualified Opportunity Fund (QOF) are general partners (GPs). GPs will often charge a management fee as well as a carried interest (often referred to as a “carry” or “sponsor promote”) that allows them to participate in the profit of the project.

For example, a GP may charge an annual management fee equal to 1% of assets under management, plus a carried interest of 20% of the project profits over a preferred return, generally in the 8% to 10% range. But there is no set fee structure; rather, fees paid by LP to GPs can be arranged in numerous ways. 

Regardless of which strategy they are pursuing, QOF investors must file IRS Form 8997 annually with their tax return in order to properly claim the Opportunity Zone tax breaks.

Questions To Ask Before Investing As An LP

Below are several questions that investors who would like to invest in a Qualified Opportunity Fund may wish to ask as part of their due diligence: 

• What is the minimum investment amount?
• Is this a single-asset fund or a diversified multi-asset fund?
• What asset class(es) will the fund invest in?
• Is this a blind pool fund? Or is there an identified pipeline of projects?
• What geographic locations will the fund invest in?
• Who is the fund sponsor? Who is the developer? What are their track records?
• How much committed capital does the fund have so far?
• How much money have the GPs in the fund committed personally?
• What are the projected returns? When are cash distributions anticipated to begin?
• What are the fees and sponsor promote, and preferred return?

Qualified Opportunity Funds Now Open and Accepting New Investors

If you are a High Net Worth investor with capital gains, you may be interested in one or more of these OZ funds that have recently partnered with us on our OZ Pitch Day events.

Fund	Fund Type	Geographic Focus	Fund Size	Min. Investment
Urban Catalyst Opportunity Zone Fund II	Multi-Asset Ground-Up Real Estate Development	San Jose, CA	$200 million	$250,000
Caliber Tax Advantaged Opportunity Zone Fund II	Multi-Asset Real Estate	Greater Southwest	$500 million	$100,000
Phoenix Stadium OZ Self-Storage Development by YourSpace America	New Self-Storage Development	Phoenix, AZ	$9.4 million	$100,000

To view additional funds, visit our list of Opportunity Zone Funds.