Opportunity zones are still littered with potholes: OZ maps can be inaccurate. The wrong fund structure can end the game. Not every property or financing method is eligible for tax breaks. In this new realm of opportunity, the rules are still being studied, and mistakes are easy to make.

Many investors are pooling money into a new landscape of opportunity funds, according to Bill Smith, managing director at CBIZ MHM National Tax Office. Choosing the wrong fund could mean unexpected tax liability or other consequences that nullify the benefits.

“It's been nearly two years now since the TCJA legislation passed, but still, most opportunity funds are new and, so far, unvetted,” Smith said. “Investing in a trusted fund can be much more appealing than taking on the risk in this new space alone. Of course, these funds present their own risks and complexities.”

Opportunity funds must do their due diligence to determine where they want to invest and what approach they want to take. They must communicate that strategy to potential investors via marketing and other channels. Smith said investors must do their due diligence, too.

“There are steps investors should take to make sure the fund is run in a way that will yield good results," Smith said. "This includes conducting thorough research and asking the right questions.”

First, he warned, some of these funds’ structures may not be fully compliant. There are myriad statutory requirements that fund managers need to be aware of, and they will need to manage their acquisition process to ensure the financing methods they’ve chosen don’t accidentally negate the tax benefits offered.

Then, investors need to choose their fund based on where and how the fund manager intends to participate in the OZ market.

From city to city in Massachusetts, investment strategy will differ greatly. There are now 138 OZs spread across the state. Nearly half are in Gateway Cities. A fifth are in rural communities. Some are in Boston proper.

Boston officials cautiously selected just 13 census tracts — far fewer than they could have — expressing uncertainty about the effects the program could have on gentrification and displacement issues and stressing an interest in development without displacement.

“It’s important to understand what the investment strategy of the fund is. Is it a match for your own?” Smith said. “And then: Do you agree with their end goals?”

Smith pointed out that in Boston, some opportunity funds exist to develop affordable housing. One fund investing in OZs along the I-95 corridor including Boston exists to develop sustainable farms with the aim of bringing jobs and fresh produce to distressed neighborhoods. Others have yet entirely different development plans.

“Investors have to choose not only the fund they think will make money, but one that resonates with their ideology,” Smith said.

Of course, all funds have at least one goal in common — to return profit to their investors — and that too involves complexities an investor should understand before diving in.

“With investment strategies designed to produce income, there are always issues of tax liability,” Smith warned. “Some current liabilities might not be covered by OZ legislation for underlying investors. You could end up offsetting the perks and end up losing instead of gaining.”

He added that whether the fund is structured as a corporation or a partnership can be critically important for underlying investors, as can geography.

“Investors also need to consider state tax obligations and the effect those could have on the ROI they’re expecting,” Smith said. “In short, this policy is new, and it’s complicated, and parts of it are still getting hammered out. It’s worth exploring, but as the rules are still under review, it’s important to learn everything you can and then talk to a tax adviser about each detail of a fund before you commit to it.”

This feature was produced in collaboration between Bisnow Branded Content and CBIZ. Bisnow news staff was not involved in the production of this content.