Phoenix Real Estate Investment
Should you consider Phoenix real estate investment? Many real estate investors have asked themselves if buying a property in Phoenix is a good investment? You need to drill deeper into local trends if you want to know what the market holds for the real estate investors and buyers in 2020. If you are looking to make a profit, you don’t want to buy the most expensive property on the Phoenix real estate market and expect to make a good profit on rents. Perhaps you are looking for a slightly different hold-over, an investment property in Phoenix that you might move into or sell at retirement in the future. Either way, knowing your profit potential and purpose is the first thing to consider.
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Top Reasons To Invest In The Phoenix Real Estate Market |
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Let’s take a look at the number of positive things going on in the Phoenix real estate market which can help investors who are keen to buy an investment property in this city. We’ll address the biggest factor pulling people to the Phoenix housing market next.
Growing And Affordable Real Estate Market
While California and Florida are seen as hot real estate markets, one of the major attractions of the Phoenix real estate market is the affordable real estate. During 2018 and 2019, Arizona was one of the top three states in the nation for population growth. Only Texas and Florida outpaced it, in terms of year-over-year growth. Population growth is particularly high within the Phoenix metro area. Homes in the Phoenix housing market are approaching the 2006 record. Home-price appreciation appears to be slowing a bit in the Phoenix area and most experts agree that prices will continue to climb for the foreseeable future.
According to data provided by the U.S. Census Bureau, the population for the city of Phoenix rose by nearly 15% from 2010 to 2019. That’s well above the nation’s growth rate for that same timeframe. Population growth increases the demand for housing on both the purchase and rental side. With all other things being equal, steady population growth tends to put upward pressure on home prices. The median home’s value has crossed $300,000 but that’s still cheaper than a starter home in coastal California. Don’t forget that the large retiree market means there is strong demand for one and two-bedroom houses and condos here, and those units are a fraction of the cost of a three-bedroom home.
Phoenix Rental Market is Huge
There is always going to be high tenant turnover in student housing markets. The presence of universities also influences local home prices and rents. The capital of any state will be home to its flagship university, and Phoenix is no exception. Phoenix is so large that it doesn’t just host the flagship Arizona State University campus in Tempe.
There are secondary campuses in downtown Phoenix, northwest Phoenix, and neighboring Glendale. These schools alone have more than seventy thousand students. The Arizona Summit Law School, Grand Canyon University, and several others are located here. There are easily 100,000 college students renting in the Phoenix housing market. You could invest in large single-family homes or multi-unit buildings to rent to students at any of these campuses.
Rental Trends: According to RentCafe, the average rent for an apartment in Phoenix is $1,141, a 10% increase compared to the previous year. 36% of the households in Phoenix are renter-occupied while 63% are owner-occupied. About 89% of the apartments can be rented for less than $1500. Only 2% of the apartments fall in the price range of more than $2,000/month. This shows that the Phoenix rental market is also affordable.
The average size for a Phoenix, AZ apartment is 801 square feet with studio apartments are the smallest and most affordable, 1-bedroom apartments are closer to the average, while 2-bedroom apartments and 3-bedroom apartments offer more generous square footage.
These are some of the most affordable neighborhoods where the rent prices are below the average Phoenix rent of $1,141/mo.
- Estrella Village, where the average rent goes for $879/month.
- Maryvale, where renters pay $926/mo on average.
- Alhambra, where the average rent goes for $942/mo.
- North Mountain Village ($1,017).
- Deer Valley Village ($1,096).
- Camelback East ($1,111).
- Encanto, where the average rent goes for $1,126/mo.
According to RentJungle, as of July 2020, the average rent for an apartment in Phoenix, AZ is $1318 which is a 9.86% increase from last year when the average rent was $1188, and a 2.05% increase from last month when the average rent was $1291.
- One-bedroom apartments in Phoenix rent for $1186 a month on average (an 11.13% increase from last year).
- Two-bedroom apartment rents average $1416 (a 10.52% increase from last year).
- The average apartment rent over the prior 6 months in Phoenix has increased by $153 (13.1%).
- One-bedroom units have increased by $158 (15.4%).
- Two-bedroom apartments have increased by $154 (12.2%).
Phoenix's Growing Short-Term Rentals
There are more than 200 golf courses in Arizona, but most are located in and around the Valley of the Sun. There are several sports teams located in Phoenix and a wealth of tourist attractions. What makes Arizona unusual is the state’s open relationship with rental sites like Airbnb. A law that went into effect in 2016 made Arizona a leader in Airbnb rentals. The sites are required to collect taxes on the rentals, simplifying revenue collection for the state and the landlords.
That probably explains why Airbnb guests grew by 150% in 2016 alone. The Airbnb market has exploded in Arizona during the past five years. In late 2014, Phoenix only had 687 properties for rent listed on Airbnb. By March of 2019, that number had grown to 4,224 listed properties. This makes Phoenix a great place to buy a single-family home or condo to rent out to tourists (as a short-term rental).
However, there are some restrictions on short-term rentals. In May 2019, the state government passed a bill allowing for more regulations of short-term rental operators in the state of Arizona. In the bill, municipalities were allowed to restrict rentals to overnight stays and prohibit events that otherwise would require a permit, like weddings. Under the new law, owners of short-term rentals should have a sales tax license and they must list the sales tax license number on any advertisements (online/offline) for the property.
Phoenix is Landlord Friendly
If you want to invest in real estate, you typically want to do so in a market where you can quickly evict people who don’t pay their rent or damage property. You’ll be glad to know that the Phoenix real estate market is among these compared to surrounding states. Arizona, unlike California, allows landlords to serve an unconditional quit notice. If the tenant violates the rental agreement or doesn’t pay rent, they can be evicted quickly. Renter-friendly rules like requiring a landlord to return a rental deposit within two weeks are not a burden. Conversely, laws that say you can evict a tenant within ten days for lying on a rental application are a definite plus.
The Massive Snowbird Market
The snowbird movement is somewhat different than the conventional tourist market. Arizona has long attracted retirees who couldn’t afford Florida or wanted a cleaner, allergy-free air that never included storm clouds. Quartzite, Arizona in particular draws two million snowbirds and tourists. The city stands out for its sixty-plus RV parks. An estimated 300,000 people stay all winter before returning home. Some own second homes in Arizona communities restricted to active adults, while others stay in trailer parks. This creates an unusually diverse opportunity for those considering investing in the Phoenix real estate market.
Phoenix Growing Retiree Market
The same things that attract many people to Phoenix as snowbirds cause many to retire here permanently. This means that many snowbirds end up staying permanently in the Phoenix housing market. Sun City stands out as a mecca for seasonal and year-round retirees, but it is far from the only retirement community in the Phoenix real estate market. The aging of the U.S. population makes investing in communities catering to older adults an excellent idea. Suppose you buy a house to renovate and rent out. Phoenix deals with a large retiree population, both permanent and seasonal.
To accommodate aging in place, they’ve loosened the rules on building “accessory dwelling units”, commonly known as mother-in-law suites. The city also recognizes the need for affordable housing, and they allow people to build and rent out ADUs as affordable housing, especially if the property is within walking distance of public transit. Buy a house, rehab it, and build a granny flat, and you have two rental properties for not much more than the price of one. And the city is almost certain to approve it because they want denser development.
Low Taxes in Arizona
Kiplinger listed Arizona as the 8th most tax-friendly state in the U.S. in 2018. The state income tax is 2.59% for low-income earners, 4.54% for wealthier families. The median home is worth around $177,000 and came with a property tax bill of around $1400, well below what you’d pay in Texas. Arizona has been lowering its capital gains tax rate, as well. The state has a relatively low transfer tax on deeds or land contracts, too.
The Major Wave of Renovation in Downtown Phoenix
The section of Phoenix wedged between Seventh Street and Seventh Avenue is undergoing a wave of commercial redevelopment, fueled by more than five billion dollars invested to date. High rise developments and mixed-use projects have been built, and several more are underway. Public transit in this area is significantly improved. That is making this area and neighborhoods bordering it an excellent place to invest in the Phoenix housing market.
Phoenix isn’t just redeveloping downtown to create a dense, walkable urban core. It is cultivating fifteen complete walkable communities across the metro area with strong public transit, denser housing, and locally provided services. This is a radical shift from the suburban sprawl the area has long been known for.
Phoenix, AZ Real Estate Investment Opportunities
Investing in Phoenix's real estate can be a worthy investment due to a steady rate of appreciation. It’s only wise to think about how you can and should be investing your money. In any property investment, cash flow is gold. The Phoenix housing market is one of the hottest markets for 2020. Don’t let memories of the Great Recession bust that cut home values in the Phoenix housing market keep you away.
There are plenty of reasons to invest in the Phoenix real estate market, only ten of which we’ve provided above. Have a look at the Phoenix real estate investment prospects we have provided from various real estate sources and make the best possible decision for yourself. Good cash flow from Phoenix investment properties means the investment is, needless to say, profitable.
The three most important factors when buying a real estate anywhere are location, location, and location. The location creates desirability. Desirability brings demand. There should be a natural and upcoming high demand for rental properties. Demand would raise the price of your Phoenix investment property and you should be able to get a good return on your investment over the long term. The neighborhoods in Phoenix must be safe to live in and should have a low crime rate. The neighborhoods should be close to basic amenities, public services, schools, and shopping malls.
A cheaper neighborhood in Phoenix might not be the best place to live in. A cheaper neighborhood should be determined by these factors – Overall Cost Of Living, Rent To Income Ratio, and Median Home Value To Income Ratio. Some of the popular neighborhoods for buying a house or an investment property in Phoenix are Vistancia, Laveen, Deer Valley, South Mountain, Biltmore, DC Ranch, Arcadia, McDowell Mountain Ranch, Anthem, North Scottsdale, Cave Creek, Old Town, Litchfield Park, Trilogy at Vistancia and North Phoenix.
Phoenix real estate prices are well above average cost compared to national prices. It depends on how much you are looking to spend and if you are wanting smaller investment properties or larger deals such as duplex and triplex in Class A neighborhoods. The inventory is low, but opportunities are there.
Even as Phoenix home prices have reached new heights, the market remains attractive to residential real estate investors. As they continue to compete for potential investment properties at the lower end of the market, the challenges for first-time homebuyers will remain. The homebuyers won’t be able to outbid real estate investors and would end up renting.
The asking price of single-family homes in Phoenix can start from $130,000 and can go up to $9.9M (Realtor.com) for a luxury property located in the Arcadia neighborhood. Camelback East has a median listing price of $489.9K, making it the most expensive neighborhood in Phoenix. Maryvale is the most affordable neighborhood, with a median listing price of $214,900.
You can find affordable new construction homes located in the North Phoenix neighborhood. North Phoenix neighborhood has a low crime risk and a median price of $351,000. As with any real estate purchase, act wisely. Evaluate the specifics of the Phoenix housing market at the time you intend to purchase. These prices are from Realtor.com and can vary from time to time.
The super-hot housing market in Arizona has many other places for real estate investment. The Tucson real estate market is good for investment. Tucson like Phoenix sees a massive influx of snowbirds, retirees who flock here during the winter. That creates a large, seasonal rental market.
The need for many retirees to sell their second homes when they can no longer travel or live independently provides an opportunity to snap up properties at a bargain rate. Better yet, a large number of those properties don’t have a mortgage on them. Other snowbirds sell their condo and move into a single-family home when they decide to stay in Tucson year-round.
Similarly, if you are an investor, Scottsdale has a track record of being one of the best long term real estate investments in the nation. The area contains a mix of families, young professionals, and retirees. There are several reasons to consider investing in the Scottsdale real estate. You’ll see better than average returns on the average Scottsdale real estate investment property, and its value will be bolstered by a variety of factors.
The Scottsdale housing market has a more diverse rental market than just catering to those who can’t afford to buy a single-family home. For example, the area is famous for its snowbirds, retirees who come for the winter before returning home. This makes Scottsdale a good place for real estate investing.
Chandler is bordered by the cities Tempe, Mesa, and Phoenix. It is home to about a quarter-million people. There are not suburbs to Chandler, because it is a suburb of Phoenix surrounded by other cities of similar size. However, Chandler has several points in its favor that make it a better choice for real estate investors than surrounding cities.
The Chandler area offers strong market fundamentals in addition to a favorable tax and regulatory climate. This is in addition to a plethora of high paying jobs that attract new residents and niche markets that are willing to pay higher rents in exchange for convenience and proximity to amenities.
