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Why Opportunity Zones and Tiny Homes are a Perfect Fit

By Justin Draplin, Eclipse Cottages

For investors who want to make profits on real estate, tiny homes in Opportunity Zones (OZs) offer a rare chance to make money while doing good. OZs are a government program introduced in 2018 that encourages capital investment in low-income areas. Companies and individuals who invest in OZs receive special tax benefits.

Meanwhile, tiny homes are gaining in popularity. As the Motley Fool writes, “The global tiny home market is expected to grow by about 4% in 2022, with most of that concentrated in the U.S. The market is expected to hit $4.7 billion in global revenue by 2026.”

Add tiny homes to OZs, with a dash of solar power, and you get success.

A Great Investment

Perhaps the most important reason to invest in tiny homes in OZs is that you can generate both usable solar tax credits and depreciation as well as a tax-free capital gain when you sell the property. In addition, investing unrealized capital gains in opportunity zones comes with additional tax benefits. 

According to the Tax Policy Center, these include the temporary deferral of taxes on previously earned capital gains until the asset is sold or until the end of 2026. And, if you don’t sell that asset for at least 10 years, you won’t have to pay taxes on any capital gains earned from your investment in opportunity funds, which is the vehicle that allows you to invest in OZs. But perhaps the greatest benefit is that this can be done as many times as you want.

Tiny homes in particular are a great way to capitalize on OZs because they are less expensive to construct and maintain than traditional housing. According to Forbes, “A basic cabin kit can cost as low as $6,000 to $8,000... But HomeAdvisor estimates the average tiny home cost is about $45,000.” Tiny homes can be built in only a few days.

Finally, tiny homes may be turned into rental units for long-term tenants or hired out as vacation homes. Owners may also choose to live in one themselves to take advantage of their reduced maintenance costs.

Positive Social Impact

While investors benefit from putting capital into tiny homes in OZs, the community does as well. Tiny homes are a cost-effective housing solution that can help with the current housing crunch.

Many communities around the country struggle to provide enough affordable housing to meet demand. According to the National Low Income Housing Coalition, “Research shows that the shortage of affordable housing costs the American economy about $2 trillion a year in lower wages and productivity.”

Investing in Tiny Homes in OZs

As this map of OZs from the US Department of Housing and Urban Development shows, a large range of OZs exist in every state of the nation. If there isn’t one in your community, there’s probably one nearby. This means you have the chance to help your own region develop economically. 

Investing in tiny homes in OZs not only provides financial incentives but also allows investors to make a difference in the world. 

Justin Draplin is founder & CEO of Eclipse Cottages.

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