Zone Of Opportunity: Tiny Home Developer Uses This Economic Development Tool For Tax Benefits

Developer Justin Draplin is scouting the Sun Belt for opportunity zones that are suitable locations for tiny home communities where he can build his Eclipse Cottages.

Building in opportunity zones is a strategy that developers can use to defer or reduce taxes on capital gains. They were created under the 2017 Tax Cuts and Jobs Act to provide a tax incentive for private, long-term investment in economically distressed communities.

And Draplin doesn’t understand why more developers don’t take advantage of the economic development tool.

“Most people still have no clue what they are, how it works and what the long-term opportunities are,” Draplin said. “It’s mind-boggling to me what a lack of interest and knowledge there is in the real estate space on opportunity zones.”

Tax benefits for investing unrealized capital gains in opportunity zones include temporary deferral of taxes on previously earned capital gains until the end of 2026 or when the asset is sold, according to the Tax Policy Center. Investors pay no taxes on capital gains earned through their investment in opportunity funds — the vehicle that invests in opportunity zones — for investments held for at least 10 years.

Opportunity funds can finance commercial and industrial real estate, housing, infrastructure and existing or startup businesses. To qualify for opportunity fund financing, real estate projects must substantially improve a property.

Eclipse is building its tiny home communities in opportunity zones, which gives Draplin the ability to keep costs low for residents. It also ensures he is committed to the community long-term.

“What my residents like is they know I’m going to be around for at least 10 years,” Draplin said. “There’s an incentive for me to stick around.” 

Eclipse is a home technology company focused on energy efficiency. It uses patented solar roofing, wireless smart switches, water filtration and other housing technology so that its cottages produce more energy than they consume.

Start generating passive income through real estate

Check out these featured investments from Benzinga's Real Estate Offerings Screener.

After they purchase one of Eclipses’s cottages, the company charges residents one monthly fee that includes lot rent, utilities, outdoor maintenance, a community building, amenities and property taxes. 

Draplin also is looking for opportunity zones where he can locate boat and RV storage facilities powered by solar energy. Ideally, he’d like to locate the storage facilities and tiny home communities on one site.

Eclipse is looking for locations in Florida, Texas, North Carolina, South Carolina and Georgia, Draplin said.

“We want to do stuff where people are moving to, not moving out of,” he said. “Why fight uphill?”

Check Out More on Real Estate from Benzinga

• Bezos-Backed Startup Lets You Become A Landlord With $100
• Analysts Are Bullish On Industrial Real Estate: Here Are 2 Private Market Offerings To Gain Exposure
• This Little-Known REIT Is Producing Double-Digit Returns In A Bear Market: How?