What Are Qualified Opportunity Zones? Insights from Andy Lee

ANDY LEE (00:00)

the real carrot at the end of an opportunity zone.

is the sale 10 years after you invest in the property because the sale is tax free. In essence, it’s very similar to a Roth

the opportunity zone was a huge opportunity, but of course it was limited. It was going to stop and then, you know, 2026, everything was going to end.

Erika (01:57)

Hey everyone, welcome to the Real Estate Pro Show. I’m your host, Erika. And today I’m thrilled to be joined by Andy Lee, a powerhouse in real estate and tax planning. Andrew, thanks for being here.

ANDY LEE (02:12)

Thank you, Erika. I appreciate you having me on the program.

Erika (02:16)

So let’s dive on in, Andi. For folks who may not know about your world, give us a little bit of a rundown. How did you get started in real estate?

ANDY LEE (02:27)

Boy, that’s a story that took a while. I’m 64 years old, so I’ve been around the block a couple times ⁓ in this life and started basically in the hospitality industry for about 20 years and found a buddy of mine who said, hey, you need to kind of get a real career, so why don’t you get into real estate? So did the real estate thing, but having that hospitality background, I started getting into the commercial angle of it and helping people

put together restaurants and bars and hotels and that kind of thing. And it was a great start. I worked for a company called Centers Business Management. I don’t even know if they’re still in business. This was back in 1993. But it was a great experience for me kind of getting into the industry. from there, I had decided that we needed to raise money for some of these programs and projects.

And that’s when I decided to get securities licensed in 1995 and basically have combined my real estate securities along with the tax planning angle of what real estate offers. That’s why a lot of people invest in real estate, right? I mean, you get these tax benefits, you get to depreciate your property. Yeah. You get to do 1031 exchanges once your property grows out. So

That was just kind of a natural fit for me and here we are 30 years later

Erika (03:54)

Yeah, that’s awesome, Andy. Was there a particular moment that you realized that you wanted to get in the tax planning?

ANDY LEE (04:04)

I think that what I like is, I’ve always said, pay unto Caesar what’s due Caesar, but most people pay a lot more. And a lot of times people that are in that middle to upper middle income range, you know, they don’t have the, ⁓ the information or the wherewithal or the economic viability to figure out how to utilize the tax codes in a way that are beneficial to people.

you know, whether you believe in tax benefits for certain things or not, in essence, the tax benefits are there because the government stinks at doing a lot of stuff. So if you’re able to do that on the personal level and do it more efficiently than the government, the government tends to give you these different tax benefits, whether it’s giving to charities or building housing or something along those lines. I just felt that it was…

important, especially for those people in that middle to upper middle income range that really needed help kind of getting a leg up, you know, to keep 100 or 200 or $300,000 in their pocket on a transaction that they wouldn’t normally even consider. That can build a great benefit for their children down the line to help build their estate, you know, shoot it.

5 % cash flow and a 5 % compounded interest rate, $300,000, grows to a million bucks in 19 years. So I think it was more of my thinking for my clients, my existing ⁓ friends and network of people that I was working with to really dive into the tax planning angle of real estate. It’s a niche. Now I’m not a CPA.

For full disclosure, I’m not an enrolled agent. I’m not a legal, you know, I don’t have a law license or anything. I’m securities licensed and real estate licensed, insurance licensed, and I have a driver’s license. But I think the idea behind the tax planning is different than tax preparation. So we do train CPAs, we train real estate agents and all sorts of things on these different ideas and strategies on how to maximize the tax code.

Yeah, most people in the real estate industry know what a 1031 is but You know, we’re gonna look at about five or six other tax codes to see how it might massage into a Transaction as opposed to just doing a flat 1031 exchange 80 % of the time Okay, we’re gonna do a 1031 exchange, but I think it’s important to to at least analyze the other options out there because Everybody’s situation is different

and the needs and wants of your clients are really important to take care of. And you can do that much better when you have different avenues to take them down that path. It’s not all down one straight shot on the highway. Some people want to take the scenic route.

Erika (08:01)

Got it, got it. One thing that we were talking about earlier before we started recording were qualified opportunity zones. And my understanding is there aren’t a lot of advisors that deal with that. Can you talk more about that and how does that ⁓ influence the industry having the opportunity zones?

ANDY LEE (08:12)

you

Qualified Opportunity Zone came out with the Tax Cuts and Jobs Act in 2017. I just happened to stumble into a gentleman who was kind of a guru at the first Qualified Opportunity Zone workshop in Los Angeles. And it really kind of caught my eye. Nobody knew what it was all about when it first came out in 2018. In fact, I think the government had five pages on real estate opportunity zones and five pages on

business opportunity zones. So it took a long time to get any kind of traction. I felt that as far as, again, a tax planning strategy,

the opportunity zone was a huge opportunity, but of course it was limited. It was going to stop and then, you know, 2026, everything was going to end.

And when you started to really look into it, the end

the real carrot at the end of an opportunity zone.

is the sale 10 years after you invest in the property because the sale is tax free. In essence, it’s very similar to a Roth

If anybody is familiar with the differences between an IRA, which grows tax deferred and then you pay tax on it when you take it out, or a Roth IRA where you after tax money into it, it grows and then you sell it tax free.

And I think that it’s having a much bigger impact now with the big, beautiful bill that just came out.

We’re putting together some, some workshops on that and how those will affect your real estate clients. But the qualified opportunity zone that we have existing now, the actual zones will end in 2028.

So for us as real estate and investment professionals, we’re talking to people who own properties in opportunity zones now. Not that all of them will change, but there will be a change. They’re gonna change some of these zones. ⁓ Part of the reason that the opportunity zone is such a great program, not only from a tax side, but…

to be able to help society is these zones are specially geared towards economically depressed areas. So what’s happened over 10 years or so, those zones have been around for about eight or nine, we’ve really developed a lot of areas that are no longer economically depressed. So they’re going to be changing these zones going forward. So I think as a real estate professional, you know, it would

know, behoove anybody to find out where the real estate ⁓ opportunity zones are, you know, in your ⁓ local area or neighborhood, and maybe talk to some of these, these, ⁓ you know, real estate owners. ⁓ And a lot of them, you know, they may not be considering getting rid of the property because they want to die with a property so their kids get a step up in basis. ⁓ But I think there’s a whole bunch of opportunity there from a real estate side.

I think as far as where we’re at now, we’re at about $120 billion is the estimated amount that’s been invested in the zone since 2018. And they’ve built somewhere between 500 and 750,000 homes because of it. So it’s been a really big boon. And now that it’s permanent with the new law going forward, I think you’re going to see a lot more money coming into it.

And ⁓ it’s just going to be a big benefit for not only the clients, but the communities and ⁓ the investors that are investing in these types of properties.

Erika (12:59)

Your experience with all of this is so fascinating. And maybe you want to get a little bit broader with this next question, Andy, but what’s one critical factor investors often overlook when they’re evaluating a property?

ANDY LEE (13:17)

Well, we had talked earlier about the six D’s, which I call due diligence, due diligence, due diligence. I think that a lot of times, from a client perspective, ⁓ it’s the desire to have the property that can tend to over stimulate the decision, if you will, to purchase a property. ⁓ The key, I think,

for me, especially looking at a builder, ⁓ making sure that the builder has a good reputation. For example, we bought a house that was built in 2001. Just last week, we had to tear out a retaining wall that was failing and found some stuff underneath the foundation that we have to fix. And ⁓ my wife really wanted the house quite a few years ago. And we thought, okay, this is a great place to have. And ⁓ we did find out that the builder had a reputation that

you know, wasn’t exactly the best that’s out there. So, so I think that the due diligence on the properties that you’re purchasing is key. Now, if you’re looking at something that might be more of a syndicated deal, ⁓ where there may be more than one investor, you’re going to want to take a look at the sponsor. You’re going to want to know who’s involved ⁓ as far as raising the money and putting the project together. You’re going to want to know who the builder is and do due diligence on them.

There are third party firms that are out there that do this for people all the time. We have three or four that we work with and we have a pretty conservative approach to things.

So, know, somebody coming up and saying, hey, we’ll get you a 20 % IRR over the next five years and that kind of thing. That probably isn’t going to be something we put on the platform because usually there’s a lot of high risk if there’s a massive, you know,

return, there’s probably a lot of risk involved. So I think mitigating the risk in your investment through your due diligence is key because here we are, you know, in an age where pretty much anybody can buy a property. mean, you look at 2005, six and seven, if you could fog a mirror, you could get a loan. And that’s what blew up the industry back in, in 2008. It was funny. I used to have a little.

TV show down in the Bay Area years ago when Greenspan was still in office. It’s called Money Concepts, the &Ms of money, because you can make money and your money can make money, but you’ll never make as much money as your money can make. we were scolding Greenspan, knowing full well, and if you saw the big short, it wasn’t like that guy was more brilliant than a lot of people in the industry. We knew this thing was going to blow up, especially as interest rates keep rising.

And I think that’s another thing that investors can make a mistake on also is not understanding how interest rates are going to affect the investment that you have, whether it’s your personal residence or whether you’re buying an investment property. Because, you know, if you have a variable rate loan and you can buy into an interest rate and, and you’re, you’re able to afford maybe that interest rate or maybe a half a percent higher.

If it’s got a 2 % adjustable annual, you know, adjustment on it and interest rates are going up, you’re going to be in trouble. So the lending side is important. I think the due diligence side is extremely important. And then, you know, kind of understanding the geographics and demographics of where you’re at. I, that’s so important. And it always changes, right? I mean, everything changes. I go back to my hometown in Iowa where I grew up and I barely recognized the town. ⁓

And it does have geographic and demographic changes. So I would say probably again, kind of coming back full circle, due diligence is key. Find somebody that you know, and that you trust that can kind of have a second set of eyes to look at the property and then, you know, look at the developer and then take a look at how you’re going to finance the property if you are. Leverage is great by the way. It’s a great tool. You know, unless you ask Dave Ramsey.

But it can be a great tool depending on, I I locked in at 2.6 on my mortgage and I tell you what, to me that’s practically free money. I can get more than that in certain money markets right now. ⁓ and understanding how to use leverage is key.

Erika (18:40)

Yeah, yeah, totally. Andy, I want to pivot a little here because I know you’ve done quite a variety of things as far as real estate goes. Every pro has a story where things got tough. Maybe a deal went sideways or you had to pivot, whether it was for yourself or for a client. Do you have a moment like that that you can share on your journey?

ANDY LEE (19:08)

Yeah, well, ⁓ we’ve had quite a few escrows fall out. I know a lot of people have ⁓ high hopes that, hey, we’re an escrow. All right, we’re going to get paid on this deal as an agent. We’re going to make sure this thing happens. ⁓ We did have ⁓ a deal that recently, it was in a two and a half year escrow.

And we were working with the clients and ⁓ it was basically in an opportunity zone. It was an opportunity zone project. a hotel company was going to come in and build a hotel. They were trying to do a bunch more due diligence on it. And another hotel got built across the street. ⁓ This was in Kentucky. And then there was another one that was built just down the street.

So about two weeks before escrow was supposed to close, they decided to back out of the program. So I’m sitting here going, my gosh, you know, we had done our due diligence on the firm. mean, they had plenty of money. It wasn’t like they couldn’t afford it. I think they had just started looking at the geographic or the demographics of it and seeing that these other two hotels went up and now they were going to have some competition because they waited too long. So.

Of course, the client calls us and goes, my gosh, what are we going to do? We’ve been an escrow for two and a half years. We need to figure out how to get this done. And I think this just bodes well to having a network around the country of people you deal with. Of course, I’ve been in the business for 30 years. So, and, and as you can tell, I talk a lot. So.

I just talked to everybody and you know, you have this symbiosis with people whether they’re in real estate or lending or, you know, ⁓ even something as far as media goes. So we were able to find through our network of professionals and sponsors, another company that is a sponsor. They buy properties all over the place and bring them in.

to look at the property and the Opportunity Zone to create an Opportunity Zone fund to put this project together. And basically they’re doing a luxury ⁓ high rise part of it’s a hotel and the top are condos that they will sell and that kind of a thing. And it was kind of neat because I had come in as a referral from another advisor.

the real estate agent and the other real estate agents were working together. I was just coming in to help them put the tax plan together. And then I actually ended up coming in on the fee simple real estate side. I mean, it wasn’t a huge deal, but it was, you know, it definitely had some zeros behind it. And we were able to come in and help them find another buyer and another sponsor. Plus, you know, we’re able to help on the qualified opportunity zone with that project.

So it’s been a really neat life that I like to say that I created, God created it for me, of course. But to have these resources available and continually vet them, mean, we want to make sure that we have quality people that we’re working with. And to be able to have the avenues.

to help people out in certain situations. Had it been two or three or four years after I got in the business, I would have not figured out any kind of way to find another buyer for that property in Kentucky. I’m in Idaho, how would I have done that? So ⁓ I think as far as that going sideways and then keeping the client happy and actually being able to become more involved in the transaction, ⁓

was a happy story to a sideways transaction. And I don’t know if that answered your question or not, but that’s what popped into my head when you said that.

Erika (23:26)

Yeah, that was a great ⁓ answer and example. And the funny thing is, is it actually really transitions in the what I wanted to talk about next, because really you couldn’t have done that without building trust with your client and in building relationships with other partners. So what I was going to ask and still am is how have you found, you know, this is

ANDY LEE (23:43)

Exactly.

Erika (23:53)

more advice for people who are new in the industry. How do you build those impactful relationships? How do you build trust when you’re new?

ANDY LEE (24:04)

I think for me, after years of doing this, I think the key is managing your activities and being at activities. Going out and trying to find prospects is the pain in the keister. It just is. Nobody likes getting on the phone and smiling and dying. I mean, that was my first job, right? Here’s a phone book. Start going down this city and start calling people. I hated it. I hated it with a passion. So I…

I had figured that if I start working with other spheres of influence and even start doing certain things for them that may not be what I would like to do, but to work with a CPA on something, you know, to maybe help them find clients ⁓ or work with, of course, other real estate brokers or lenders, I’ve found

that going out and being amongst the people in the industry, you’re going to learn so much more. We have a ⁓ of a family-owned program with our security side who we work with. And it’s all about a culture of sharing. And I think the real estate industry, in its essence, it’s usually pretty good people that want to help others out. But go to the industry activities.

I was at 37 trips last year. Now, of course, a lot of those were due diligence trips for buildings and other parts of the country. But some of them are just big organizations where there’s 2000 securities and real estate people and you just go in and you talk to people. Next thing you know, it is really a small group. You think it’s a large group, but the people who are really into it and very successful.

pretty much know each other. I mean, I got a unique niche. There’s probably, you know, 50 to 100 people that do what I do. You know, there might be, you know, several thousand that do, you know, something similar to that. But these five or six or seven different organizations that I’ve connected myself with, and it costs a lot of money to go to these things. I mean, you know, you, I used to do it on the cheap and, you know, buy a van and sleep in the van and then, you know, take a shower at the.

health club and run in and, you know, pretend like I was paying 600 bucks a night for a room, but I was there and I was shaking hands and I was talking to people and please tell me how you do this. This is weird. 10 31 exchange. I’ve always done it this way. How can you do it this way? And, and you just talk to people and ask questions and that builds confidence and you can’t really gain trust in my opinion.

with anybody if you don’t have the confidence behind what you’re talking about. That foundation is based on truth and reality. Your life is about truth and reality because if you have truth and reality in your life, you have something to stand on. And when you’re talking to a client, you don’t have to let them know. You know absolutely nothing about a 1031 exchange. I tell my network partners all the time, I said, in fact, if you’re in over your head, that’s a good thing.

Build yourself a network of professionals and say, you know, I’ve got a solution to that. I don’t have to learn it, but I’ve got a solution to that. And if you’re licensed and they’re licensed, just take the referral fee. Make sure the client’s taken care of. Because once you get to four, 10, 15, 100, 250 clients that are happy because you found the niche that they needed, which is outside your expertise,

You’re the quarterback, right? You’ve got the team. So I would say build a team of experts and that you know are good, vet them to your due diligence, just like you would on your properties. And that’s what I have. I I get people who ask me about estate planning all the time. I got one of the best estate planning guys out in Kentucky. I just send them to him. And I know the client’s gonna be taken care of. ⁓ So.

I don’t know if that answers your question, but I think as a new person, going to events, shaking hands, asking questions and learning to build your confidence to build trust. Because again, the only way you’re going to build trust with the client is talking from your own truth and knowledge and intellect. And ⁓ you build that through your resource now.

Erika (28:53)

Yeah, Andy, this has been awesome. Your information today has been very insightful. I know we have a lot of people who are looking to be more smart with their investing. So thank you for dropping all your knowledge today.

ANDY LEE (29:07)

No, I appreciate it. was fun to chat with you, Erika.

Erika (29:11)

Yeah, yeah, if someone wants to connect with you and reach out, what’s the best way for them to do that, Andi?

ANDY LEE (29:18)

Probably through the website. It’s a tax wise 1031 comm it’s All our information is on there and I think that way if you Andy at tax wise USA is actually my email address if you want to do that I mean they you can get my phone number and everything from the website, but that’s probably the easiest thing to remember

be tax wise with your 1031 exchange because 1031 exchange isn’t always the best answer. know, when do you not want to do a 1031 exchange and do something else? So I think that that tax wise angle, kind of why we came up with that name was, was to take a look at these different ⁓ codes and mix and match them so we can, you know, maximize what the client wants to do with their transaction.

Erika (30:13)

Yeah, yeah, that’s fantastic, Andy. Thanks again for being on the show.

ANDY LEE (30:17)

Sure, thank you. Have a great day.

Erika (30:19)

Yeah, you do. If you got value from this episode, make sure that you’re subscribed to the Real Estate Pro Show. We’ve got more conversations coming up with pros like Andrew who are out there building incredible businesses in the real estate industry. We’ll see you on the next episode.