COVID-19 Driven Real Estate Trends for 2021
As we begin a new year, we can hopefully look in the rear-view mirror at the bleak reality that the coronavirus pandemic made of 2020. There are still many steps to recovery, but with vaccines now in use, we can see a more normal future coming. The new “normal”, however, will likely be very different from pre-pandemic times.
For residential real estate investors, an awareness of market trends can be a valuable tool to making the right types of investments in the right locations with their self-directed IRA or Solo 401(k).
Here are some of the high-level changes that experts are talking about.
Work from Home is Here to Stay
The ability of many workers to telecommute at least a few days a week has been happening for some time. The COVID-19 pandemic accelerated the trend and facilitated a more robust infrastructure to support remote workers. Zoom meetings are now common and more companies are comfortable with the technology, as an example.
While about 24% of workers telecommuted in 2019 according to the Bureau of Labor Statistics, that number is clearly a lot higher today and will likely remain well above that number in years to come even once the need to social distance is in the rear-view mirror.
Downtown office cores will be less of a draw, as will needing to live close to work for a short commute.
The Home Office as a Must-Have Feature
Work from home is not great when the kitchen table is doubling as an office and perhaps a schoolroom too. Telecommuters are looking for more room so they can have a dedicated workspace and some privacy. Whether this means an extra bedroom or just well-designed nook spaces depends on age and family makeup. For investors renting or selling properties, a focus on creating private workspaces can pay dividends and attract quality tenants and buyers.
If there is room for a home gym too, that is even better.
Big City Exodus
Another existing trend that was greatly accelerated due to COVID is the migration of tech and information workers away from expensive cities to more affordable suburbs and smaller metros. While rent rates are dropping in the most expensive cities like New York, San Francisco, and Los Angeles, they are rising in smaller “Zoom Towns” such as Spokane, Bakersfield, and Des Moines.
The data shows that most such moves are more than 2 hours away, so this is not the typical flight to the suburbs. A more significant migration is taking place.
While lowering cost of living is a priority for many movers, other factors such as access to nature or outdoor recreation are big draws when it comes to relocating.
Understanding this generational shift can put investors ahead of the curve. Buying properties in the right smaller cities that will appeal to families looking for more space and access to the outdoors will be a good move.
Real Estate Transactions are now Digital
Real estate data giant Zillow reported a surge in traffic of for sale listings of more than 50% in May of 2020. The numbers have remained well above historical levels for the platform.
More and more listings now include 3D virtual tours. Likewise, digital mortgage applications and title closings are becoming more common.
Shoppers can now compare more homes, more quickly, from the comfort of wherever they happen to have a good wi-fi connection. This will definitely change the way properties are marketed to buyers and tenants alike.
In addition to picking the right colors for a remodel, investors will need to become skilled at using the right search terms for online advertisement. Home office will certainly be near the top of the list, as will biking or hiking trails nearby.
Marketing efforts will also need to focus more on screen-friendly visuals. Virtual tours, quality photos, and even staging that highlights separate workspaces will all produce good results.
Low Mortgage Rates
Let’s not forget that home mortgage rates are at historical lows and likely to stay low for some time. This increases home affordability and will open the possibility of home ownership to a broader group.
Many younger households that have been trapped in high rent big cities can now think about purchasing an in-city condo or stretching out a bit in the suburbs.
Any time there is an increase in entry level home buyers, that means opportunity for smart investors. Home flippers can focus on renovating older homes to make them more appealing to a younger crowd. As inner-city rents continue to decline, the opportunity to purchase condos and townhouses at discount and resell or hold as rentals will increase.
The Delivery Economy
The impact of COVID on various economic groups has been very uneven. Professional workers and especially participants in the digital economy have been doing quite well and have the freedom to relocate to suit their needs. Other sectors like retail, dining, entertainment, and travel that typically provide a wide base of employment have been hammered. A lot of those jobs will not be coming back, either.
The flip side is that the delivery economy is booming. Warehousing and distribution services are seeing immense new investment as click-to-buy replaces a trip to the store. This has produced strong employment and corresponding renter demand in hub cities like Memphis, TN, Fort Worth, TX, and Ontario, CA that serve air freight and distribution facilities.
A Coming Construction Boom
Some indicators are pointing to a big increase in new home building. The demand for housing is far outstripping supply as it has for many years. Capital to build is relatively inexpensive. Questions remain around material supply chains and labor for builders, but it is clear that the building industry will be a real driver of economic recovery. Expect a lot of energy and capital to be dedicated to getting the building industry moving forward, perhaps including some relaxation of regulatory constraints in some areas.
For investors this can mean opportunity by providing capital to smaller builders in the form of construction loans, acquiring land in the path of growth, or just following the money to invest in rentals near where growth is happening.
The Only Certainty is Change
This list only touches the surface of the kinds of once in a generation shifts occurring in the real estate space. There will surely be many more changes in the ways that Americans choose to live, work, and play in the coming years. All of this will create movement of people and capital on a considerably larger scale than we have seen in a long time. All that movement means opportunity for those who can place their capital ahead of the demand curve.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
