The Advantages of Renting to Digital Nomads
Sometimes success with investing comes with targeting a specific niche and getting it right. One real estate niche we have been keeping an eye on for some time is digital nomadism.
As more and more of the business world moves online, some people choose to work from where they wish and explore the country or the world while doing so.
Catering to this audience with the right kind of rental property in the right location can be an interesting opportunity for investors looking to diversify with a self-directed IRA or Solo 401(k) Plan.
Who Are Digital Nomads?
Digital nomads are a growing cadre of people who have the flexibility to work anywhere. They may be remote employees, freelancers, or solopreneurs in fields from IT to creative endeavors.
For some, travelling is a full-time lifestyle, while others may have a home base and opt to go on the road for a portion of the year. Many choose to mark a transition in life with a one-time exploration stint of a few months to a few years.
Nomads may journey solo, as couples, or as small groups of friends.
Better than half of the folks who can be classified as digital nomads are over the age of 35, so it is not just single millennials who have taken this path.
What Type of Rentals are a Good Fit?
One of the core tenets of the nomadic lifestyle is flexibility. Digital nomads seek out extended stays that are mid-term in length, such as 1-to-6-months. Lease terms that allow for this type of flexibility are key.
Properties can be individual units such as studio condos or even co-living spaces where individual rooms in a larger property are rented out to separate tenants.
Location is key. Digital nomads want to immerse themselves in a place, make connections, and explore. Access to cultural or entertainment hubs and outdoor recreation are big draws.
The rental should be largely turnkey, meaning fully furnished with a functional kitchen. In-home laundry is a big plus too.
How to Attract Digital Nomads to Your Property
The fuel of the travelling lifestyle is being able to work from anywhere. For your property to appeal to this set, it needs to be a functional remote office.
Having dedicated workspaces and fast internet are a must. Providing other office necessities like a quality coffee station can be a big plus.
Be sure to showcase the features that make your property a suitable place to get work done, as well as a comfortable home base for local adventure.
Your marketing should also feature the types of local attractions that make the area special. Be sure to include photos of local events like theatre festivals or fairs. If your rental is in a beach or mountain community, show that natural beauty off.
You can even go so far as to create relationships with local vendors and offer coupons or discounts for their services. Tour or adventure guides, restaurants, and even the local gym or yoga studio could be open to this idea of co-marketing. Any type of event that offers adventure or the ability to meet and network will be appreciated by the exploratory personalities that choose this lifestyle.
Reaching the Audience
The internet makes it easy to reach this demographic.
The digital nomad lifestyle is a growing trend and has developed as a community of kindred spirits. As a result, there are many internet resources and specialty property listing sites that cater to this niche.
Be sure to list your property on sites like Anyplace, HouseStay, or 2nd Address.
You can also feature your property on popular short-term rental sites like Airbnb and VRBO.
A Great Alternative to Short Term Rentals
While similar in some ways to short-term vacation rentals, catering to digital nomads has several advantages for investors with a self-directed retirement plan.
Nomads are very different from tourists. They are not travelling for leisure. They are making the community a short-term home. As a result, they will often treat the property like their home and are a lot less likely to inflict the kind of wear and tear common with guests who are just in town to party for a week.
Nomads are also more likely to want to visit a city or town off season so they can enjoy less crowded beaches, trails, or restaurants. This give you the ability to keep a property rented year around.
The tradeoff for flexibility can be an above market rent. Nomads know they may pay a premium for the ability to pop into or out of a location as desire or opportunity dictate.
As we have written in the past, short-term rentals are not always the best option for a tax-exempt IRA or Solo 401(k). In some cases, these type of vacation rentals can be viewed as a services business more akin to a hotel and therefore subject to tax on Unrelated Business Taxable Income (UBTI).
When average stays are more than 30-days in length, this UBTI concern can be dismissed. In some locations, it may be feasible to offer short term rentals for a short peak season, then longer term rentals to digital nomads for the remainder of the year. This approach can balance out the average stay to a longer term and thereby eliminate the risk of being classified as a business. So long as extra services or amenities like housekeeping are not provided, you can rest assured that income to your plan will be tax-sheltered passive rental income not subject to UBTI.
A Newish Opportunity
As more and more people choose a mobile existence there is certainly interest in this type of lodging. Because this niche is still relatively new, however, a well marketed property in the right location should be easy to keep rented with quality tenants willing to pay a premium to live life on their terms.
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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.
