How to Set Up a Qualified Opportunity Fund

The American Government established opportunity funds in 2017 to help cut down taxes and boost people's investment in real estate. It's mostly offered in areas that are economically underfunded and need stimulation.

Through opportunity zones, the government can quickly boost any distressed community's economic growth and development while creating jobs and a way for the people to invest in property.

For this to happen, a Qualified Opportunity Fund (QOF) is established. A QOF refers to an investment entity such as a corporation responsible for investing in opportunity zone properties that are at least 90% qualified.

If you are interested in investing or setting up a QOF, you are in the right place. We will detail in steps how to set up a QOF and the requirements needed to ensure safety and compliance.

Before setting up the QOF, carefully select a manager or sponsor responsible for the collection, management, and distribution of funds. It is essential to consider how you will work out the payment or distribution structures. Before setting up the QOF, you should agree on all the terms under which the sponsor will operate. Make sure you agree on the payment structure for your sponsor/manager for all the services rendered.

Lay down the investors' qualifications coming on board your entity, determine the terms and conditions of the contributions and distribution structure. Some of the guidelines you need to determine are:

• The minimum amount to be contributed

• The minimum hold time for the principal investment

• Rate and frequency to disburse savings After the foundation has been laid out with clear structures and guidelines, you can launch your QOF.

Learn which documents you need to register your entity and present to the appropriate agency. For instance, you must fill and submit Form 8996 from the IRS and attach it to your entity's US federal income tax returns from the previous year. This shows that your entity is compliant with the law.

You will then need to obtain an EIN, register in your state, and have a bank account. Ensure your documents include a clear statement of how much each member contributed and how profits will be distributed among each member. Register with the SEC as interests in a QOF will be considered as securities.

4. Check where you can invest 

After certification, the QOF must ensure that it holds 90% of its assets in the geographical location defined by the Qualified Opportunity Zones. This is whether you choose to invest in a business property, buy stock in another QOF, or have a partnership interest in another QOF. After this, meet your investors and present all the information they need on the QOF. This includes projected returns and investor agreements for all to review.