Arizona is one of the best states to invest in real estate. Not only is it landlord and Airbnb friendly, but property taxes are relatively low and home values, high and rising. And Mashvisor can show you the numbers to back this up. Here’s how profitable buying a house in Arizona as a real estate investment can be:
- Traditional Monthly Rental Income: $1,705
- Traditional Cap Rate: 2.4%
- Average Airbnb Daily Rate: $170
- Airbnb Monthly Rental Income: $3,250
- Airbnb Cap Rate: 4.3%
- Airbnb Occupancy Rate: 64%
You have already identified this great opportunity and now, we’ve confirmed it with a few real estate facts. So it’s time to learn how to buy a house in Arizona.
10 Steps to Buying a House in Arizona for Investment
To help you get started, we put together this 10-step buying a home in Arizona guide.
Step #1: Figure Out How You’ll Finance an Arizona Real Estate Investment
The first question you need to address when you start the home buying process in Arizona is “How will I pay for it?”
The Arizona housing market is not the most affordable place to invest in real estate. According to Mashvisor’s data on the market, the median property price is $515,327 with a price per square foot of $420. Compared to the national median of $380,000, an Arizona investment property might cost you.
Of course, we will note that Arizona real estate prices naturally differ depending on the city you choose to invest in, the exact neighborhood, and the property type. For example, if you were thinking of buying a condo in Arizona, it might be cheaper than a single-family home. Here’s a condo for sale in the Phoenix real estate market that is significantly cheaper than this single-family home for sale that is located in the same neighborhood.
So at this stage, it’s best to decide what your investment property financing strategy will be. Here are a few follow up questions to help you figure it out:
How much cash do you have saved up?
Is it enough to cover an entire Arizona investment property for sale or just a down payment? A large portion of Arizona homes falls in the price range of around $133,000 to $399,000. That range gives you an idea of the minimum amount you would need to have saved up if you were hoping to pay in cash. And don’t forget about additional costs like inspections, insurance, or closing costs.
Will you need to apply for an investment property loan?
Only have enough cash to cover the down payment and the extra fees (around 30 – 35% of the price)? Remember, there are benefits to taking out a loan as opposed to buying a rental property with cash.
If you do need a loan, check your credit score. When it comes to the requirements for buying a house in Arizona, the minimum credit score will depend on the lender you choose as well as the type of loan. Be sure to research both lenders and loan options. However, for a conventional loan, you will likely need a credit score of at least 620.
There are a few other numbers you will need to review as well like your debt to income ratio and the current mortgage rates. As of this writing, the mortgage rate in Arizona is 2.99% for a primary residence. Real estate investors typically get higher rates. Also, consider how you will cover future mortgage payments.
Will you take advantage of other investment property financing strategies?
Buying a house in Arizona with cash or a loan is not your only option. Real estate investors have plenty of other financing options to consider. For example, you might want to find a good partner who is also interested in owning an investment property in the Arizona housing market. This partner may front all of the needed costs but expect you to do the legwork. Or perhaps they will require you to pay a percentage. This is just one example of the possibilities for investment property financing.
After completing this step, you should know exactly where the money for buying a house in Arizona will come from.
Step #2: Determine the Best Place to Invest in Real Estate in Arizona
It’s quite difficult to start your search for houses to buy in Arizona if you don’t pinpoint a city first. That’s why the next step in our guide is to find the best place to invest in real estate in Arizona.
There are 91 cities and towns in the Grand Canyon State to choose from. So make it simple and look at the numbers- where can you get the highest return on investment, based on your rental strategy of choice? Luckily, the answer doesn’t require a ton of research as this is exactly the kind of data Mashvisor has on hand. Here are the best cities in Arizona for buying a long-term or Airbnb rental property (based on cap rates):
3 Best Cities in Arizona for Buying a Long-Term Rental Property
#1. Green Valley
- Median Property Price: $351,379
- Price per Square Foot: $197
- Price to Rent Ratio: 16
- Traditional Monthly Rental Income: $1,805
- Traditional Cap Rate: 4.8%
#2. Show Low
- Median Property Price: $414,812
- Price per Square Foot: $255
- Price to Rent Ratio: 14
- Traditional Monthly Rental Income: $2,475
- Traditional Cap Rate: 4.5%
#3. San Luis
- Median Property Price: $203,794
- Price per Square Foot: $165
- Price to Rent Ratio: 15
- Traditional Monthly Rental Income: $1,163
- Traditional Cap Rate: 4.4%
3 Best Cities in Arizona for Buying an Airbnb Rental Property
#1. Sierra Vista
- Median Property Price: $267,186
- Price per Square Foot: $148
- Average Airbnb Daily Rate: $101
- Airbnb Monthly Rental Income: $2,627
- Airbnb Cap Rate: 6.7%
- Airbnb Occupancy Rate: 69%
- Median Property Price: $418,654
- Price per Square Foot: $232
- Average Airbnb Daily Rate: $212
- Airbnb Monthly Rental Income: $3,949
- Airbnb Cap Rate: 6.6%
- Airbnb Occupancy Rate: 67%
- Median Property Price: $286,880
- Price per Square Foot: $174
- Average Airbnb Daily Rate: $114
- Airbnb Monthly Rental Income: $2,846
- Airbnb Cap Rate: 6.4%
- Airbnb Occupancy Rate: 66%
One or two cities may stand out to you now for buying a house in Arizona. However, be sure to continue your research. You need to take a look at factors like the economy, local regulations, and more. We can’t emphasize how important this is. In fact, we put together a separate guide on real estate market research. Check it out once you have a few cities in mind: How to Research Real Estate Markets: The Beginner’s Guide.
Step #3: Find the Best Neighborhood in the Arizona City of Your Choice
By Step #3 of our guide, you should have a city in mind for buying a house in Arizona. You could conduct a city-wide search for an investment property for sale. However, it’s best to first narrow down a neighborhood where rental properties are generating a profit.
For this, it’s best to use one of Mashvisor’s most popular real estate investment tools – The Heatmap. The Real Estate Heatmap lets you find a great neighborhood based on a few different filters:
- Traditional Cash on Cash Return
- Airbnb Cash on Cash Return
- Airbnb Rental Income
- Traditional Rental Income
- Listing Price
- Airbnb Occupancy Rate
If you are on a tight budget, for example, set the Listing Price filter. Neighborhoods highlighted in red will be the most affordable and those in green will be the most expensive. Now that you know which neighborhoods fit your price range, find the ones that will help you earn the highest cash on cash return and rental income by setting the respective filters for your rental strategy of choice. Green neighborhoods generate the highest returns and income, while those in red will provide the lowest.
With the Real Estate Heatmap, you’ll have a list of a few of the best neighborhoods in Arizona for buying an investment property for sale. Sign up for Mashvisor and try it out today.
Step #4: Get Pre-Approved for a Mortgage
It may be tempting to start looking at Arizona investment properties for sale in your chosen neighborhood. But it’s best to get pre-approved for a mortgage first. This will give you an idea of whether or not you’re actually eligible to get a loan (although it doesn’t guarantee that you’ll qualify down the line). Plus, sellers typically want to see a pre-approval letter from potential buyers.
Begin by researching and finding the best mortgage lender for you. U.S. News provides a list of the best mortgage lenders in Arizona for September 2021. Here are the top 10 according to this analysis:
- Prime Lending
- Axos Bank
- PNC Bank
- New American Funding
- Carrington Mortgage Services
- Freedom Mortgage
- Quicken Loans
You may want to shop around and apply for pre-approval with a few different lenders. That way, you can find the best mortgage rates and loans for your investment property.
The process starts with filling out a mortgage application. You will also need to prepare a long list of documents before you can be pre-approved including bank statements, tax returns, pay stubs, an ID, and more. However, lenders typically let you know what you need to gather. If a lender pre-approved you, you’ll get a pre-approval letter. This document outlines the loan amount you could receive, the loan type, interest rates, and more. With the pre-approval letter in hand, you’re ready to move onto your investment property search.
Step #5: Start Your Investment Property Search
Not only does a pre-approval letter expire, but in a hot market like Arizona, you want to be able to quickly find the best investment properties for sale before they are snatched up by other buyers. So rather than using traditional property search methods, take advantage of the real estate investment tools that the pros use.
Of course, we are talking about Mashvisor’s Investment Property Search Tool. You have all the necessary filters on hand that will help you instantly pull up a list of Arizona houses for sale that match your criteria:
- Investment Property Financing Method (Cash vs Mortgage)
- Cash on Cash Return
- Cap Rate
- Number of Bedrooms and Bathrooms
- Year Built
- Square Feet
- Airbnb/Traditional Rental Income
- Property Type (Single-family, multi-family. condo/coop, townhouse, etc.)
- Property Status (For sale, pending, sold, foreclosure)
Once you set the necessary filters, you’ll have the ultimate list of top-performing properties that fit your budget and promise your desired returns. Sign up for Mashvisor and try it out today.
Step #6: Conduct an Investment Property Analysis
Remember, you’re not buying a home in Arizona. You’re buying a house in Arizona that you plan on using as a rental property. And so your focus needs to be on the numbers – what kind of return on investment (ROI) can an Arizona house for sale bring you?
Figuring this out might seem complicated, especially if you’re a beginner real estate investor. Luckily, Mashvisor has another great tool for you: our Investment Property Calculator. For any Arizona rental property for sale on the platform (or even one you add to the platform), the calculator will automatically present to you its potential for returns. Just set your financing and adjust any costs that you wish to and you will instantly see the following ROI metrics for both the traditional and Airbnb rental strategy:
- Comparable Rental Income
- Monthly Expenses
- Cash Flow
- Cash on Cash Return
- Cap Rate
- Occupancy Rate
You can also see rental comps as well as the investment payback balance. Mashvisor’s Investment Property Calculator will ensure you find the best possible Arizona real estate investment.
Step #7: Hire an Arizona Real Estate Agent
You may want to hire a real estate agent earlier in the process but we’ve included it as Step #7 because some investors like doing their own research and analysis before involving an agent. Just know that an agent can be essential to buy a house in Arizona. At this point in the process, they can help you land a good real estate deal. But if hired earlier, real estate agents can offer advice on lenders and other key services that you’ll need as a buyer.
Not sure where to start your search for an Arizona real estate agent? Check out Mashvisor’s Real Estate Agents Directory for the State of Arizona.
Step #8: Make an Offer on a House
If you’re following this guide for buying a house in Arizona closely, then your real estate agent will mostly handle Step #8. They will help you put forth the best offer possible and land you the best price.
But if you insist on going it alone, we have a few separate guides to help you out here:
- How Much to Offer on a House: An Investor’s Guide
- How to Make an Offer on a House That Is Overpriced
- Writing a Real Estate Offer Letter: 9 Things to Include
- 5 Real Estate Negotiation Tips for Investors
Step #9: Get a Home Inspection and Real Estate Appraisal Done
It’s necessary to get an inspection and an appraisal done after a home seller accepts your offer. Both will be carried out by professionals but you should still have a general understanding of the purpose of each and what will go down.
Home inspections will ensure there are no issues with the house. An inspector will look at the major systems like electrical, HVAC, and plumbing. They should also inspect the roof and the foundation of the home. There are additional inspections you may want to get like one for termite infestations. The State of Arizona recommends that all home buyers have Radon testing done as well. If any serious issues are found, you may be able to walk away or renegotiate a lower price.
The appraisal will let you and your mortgage lender know the market value of the investment property. You may end up having to renegotiate if the value is much lower than your offer. And if you are dealing with a lender, they may ask for a larger down payment if the appraisal is low.
Step #10: Close the Deal
You will be able to do a final walk-through before closing to ensure everything is as it should be. You can check for things like leaky faucets, drafty windows, faulty keys or locks, cracks in ceilings or walls, air conditioning, and heating systems, etc.
And now get ready for some paperwork! Your real estate agent will help you understand all of the documents presented during closing. However, when buying a house in Arizona, it’s required that you hire a real estate lawyer for this last step.
We’ve outlined the basic process of buying a house in Arizona as a real estate investor here. Just continue to do your research every step of the way and don’t underestimate the importance of involving professionals and using real estate investment tools like Mashvisor. Such resources can make your investment journey in the Arizona housing market a lot easier.
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