The GO Zone: Investing in a Disaster Area

A year before Katrina hit, Ivan tore through the Alabama coastline. The coastal communities there, however, quickly recovered. Property values soared. The newest construction standards had proved their worth, and the older buildings were coming down. Then came Katrina-a distant storm that comparably had little impact on the area, at least physically. The financial repercussions of the storm, however, would soon dwarf Ivan. Katrina was about to change everything.

In areas outside the devastation zone, the effects of the storm were psychological in once sense, financial in another. Across the country, people saw a worst-case scenario unfold in Louisiana and Mississippi and in parts of Alabama. The snowbirds and retirees who were driving the Gulf Coast real estate economy suddenly grew weary of the sand and the sun, and decided to stay home. Overnight, reasons for investing in the area dried up.

The US government was quick to foresee the problem and to act upon it. They enacted the Gulf Opportunity Zone (GO Zone) Act of 2005, and suddenly what had become an investment ghost town was the money destination of choice for people in the know. The trouble was, and is, that the percentage of “people in the know” has been small. Locals do not understand the opportunity presented to them. Real estate agents are often ignorant of the Act. What industry insiders have proclaimed as a “once in a lifetime opportunity” is going to pass the majority of people by.

The GO Zone offers many incentives for hiring new people in the area, or putting new equipment into use, but one of the most talked about aspects of the Act is what it offers to real estate investors.

There are two fundamental options for investors who are willing to invest in new construction and use it either as commercial property or residential lease property. First, there is bond money available to fund such projects at below-market rates. Thanks to local housing authorities taking advantage of these bonds, there are also low-interest funds available to current renters who want to become homeowners. Second, and this is the ongoing major buzz, investors can take an accelerated fifty percent depreciation the first year. The protection that offers to other income is outstanding, and if it is too much depreciation to cover too little income, it can be carried back five years or carried forward for as much or more. Be sure to talk to your financial advisor about the details.

The GO Zone is applicable in many counties in Louisiana, Mississippi, and Alabama-and not just those hit hardest by the storm. Investors have an opportunity to help rebuild New Orleans and still make a profit, but they can also invest in areas as far away as Orange Beach, Alabama, where the buildings still stand, but the markets have suffered. It is an opportunity to purchase in a buyer’s market with the added bonus of low-interest funding or immediate fifty-percent depreciation.

A year after Katrina hit, investors are returning. Now efforts are underway to include locals and other would-be investors in on this opportunity. Even the media is beginning to understand that this is more than the means to rebuild local businesses. This is the way a large section of the United States will rebuild its economy and regain its market momentum. Nature and psychology left the area bereft. The GO Zone is returning both profitability and hope.