Mike Hardy’s Terrific Tax Loophole … And Philosophy for a Balanced Life
When Mike Hardy began to learn about Opportunity Zones, a relatively new innovation in the tax code, he thought they were too good to be true.
Adopted in 2017 to help drive investment to areas in decline, this little-known temporary initiative allowed states to designate regions as “opportunity zones,” and private investors would enjoy tax benefits until at least 2026 — longer, if the government decides to extend it.
Hardy told Michael Duncan of The Road to Financial Freedom Podcast:
“The Opportunity Zone investment strategy allows me to sell a property and harvest the capital gains, move [the capital gains] into a fund, defer paying that capital gains tax until April of 2027, and then the best part in my mind … all of the growth that takes place as long as the money’s invested for a ten-year window can grow and exit capital gains tax-free. Mind-blowing.”
Better Than a 1031 Exchange
The “fund” he’s talking about is a “Qualified Opportunity Fund,” or “QOF” for short. Hardy was so impressed by the strategy that he founded his own QOF — the Cyros Opportunity Zone Fund.
This kind of fund is particularly interesting for investors considering a 1031 exchange — the famous provision in the tax code that allows real estate investors to indefinitely defer paying capital gains taxes as long as they flip the gains into bigger and bigger properties.
This strategy is popular, but it has its downsides. Investors who use it might never have to pay capital gains taxes. Their cash flow might get bigger and bigger. But they never get to lay a finger on the capital again … at least, not without paying taxes. If they pocket even a single dollar from the sale, it is considered “boot” and gets taxed at the capital gains rate.
While the tax code allows for it, a QOF like Cyrus offers investors an elegant workaround — not only to defer the taxes but also to reclaim the principal.
“If there’s not the ideal 1031 exchange,” Hardy said, “they can sell a property, take the gains, push only the gains into the opportunity zone fund, take their basis back off the table and invest it elsewhere. So there’s, it’s kind of the best of all worlds in my mind.”
Falling To the Level of Your Systems
If you couldn’t tell, Hardy is a fan of systems. He quotes James Clear from the book Atomic Habits — “We don’t rise to the level of our goals. We fall to the level of our systems.”
“I had a mentor of mine years ago tell me something that was life-changing for me,” he said. “And it was, ‘If you want to earn a good living, be custom … But if you wanna truly build wealth and build a business, you have to create systems for everything in your life. And so I’m super systematic.”
Some of his favorite systems have cute acronyms or mnemonics. For example, there’s the “Five C’s,” which he uses for his hiring and firing decisions — character, competence, compassion, concern, and consistency.
Then there’s the “Core Four,” a holistic approach to quality of life — body, being, balance, and business. Four B’s, if you will.
Learning to Stop Chasing Rabbits
This system was especially important, because balance doesn’t come naturally to Hardy. His entrepreneurial spirit makes him extremely susceptible to “shiny object syndrome” — the tendency to chase every opportunity, and as a result focus on none of them.
“I feel like a dog in a park where there’s rabbits running everywhere,” he said. “So part of what I’ve had to discipline myself to do is to be very strategic about which ones to go after.”
Hardy went into the mortgage business prior to the Great Recession — not exactly good timing. He survived through brute force … but there was a cost.
“I had to just turn it on overdrive just to survive,” Hardy said, “and ended up coming out the other side of that and had a tremendous amount of business because I was one of the few folks that didn’t go out of business.”
“But as a result of that, [I] got some very bad habits in place … I was a workaholic, I was disconnected on the home front … I was an athlete all through high school and in college, and I just kind of let that go. And so it was kind of going through that, that I had to rewire a lot of habits and get those things refocused.”
Today, he is clear on what matters. He is a husband and father first. He has completed an Iron Man challenge. He tries to spend part of each day working on each corner of the Core Four … because otherwise, all the money in the world is pointless.
“I’ve come to the conclusion over the years that more money only makes you more of what you already are,” Hardy said. “And so it’s really important to me to be healthy on the inside and have healthy relationships.”
