Considering investing in The Valley of The Sun? You most certainly should. The Phoenix real estate market has been named one of the US’ hottest markets for 2019. And data shows that it will continue to be one of the hottest real estate markets for 2020. According to a December Zillow report, Phoenix is one of the fastest-growing real estate markets in terms of home value growth, “up 6.1% year over year.” But what makes Arizona’s capital a great investment option? And what’s the Phoenix real estate market forecast for 2020? Read this blog to find out all you need to know about Phoenix real estate investing.
What Does the Phoenix Real Estate Market 2020 Look Like?
We thought 2019 was the year to invest in Phoenix real estate, but it seems like the city will remain one of the nation’s hottest markets in 2020! Generally speaking, the Phoenix real estate market trends for 2020 will not be very different from 2019, and that’s not a bad thing. The past few years have seen strong growth for the city’s real estate market. Let’s explore the following trends in Phoenix:
Phoenix’s population is growing
In 2019, Forbes named Phoenix the fastest growing city in the US. Today, Phoenix stands as Arizona’s most populous city. Moreover, the city’s growing business environment, job growth, good standard of living, affordability, and good universities are all factors that continue to drive more and more people to Arizona’s capital.
The above presents a clear opportunity for Phoenix real estate investors; wherever there’s population growth, there’s a spike in demand for rental property. And according to recent figures, almost half of the city’s population rents homes – which makes the Phoenix rental market a hot one.
Demand for Phoenix rental properties continues to increase
For both long term and short term rentals.
With Phoenix being Arizona’s most populous city, the Phoenix housing market comprises the fifth largest city in all of the US. And demand for rental property is so strong, it makes up a large part of the city’s inventory. With a price to rent ratio of 23 according to Mashvisor’s data, residents will continue to rent out properties rather than buy their own homes.
What continues to drive demand for Phoenix short term rentals is the thriving tourism industry. The city manages to draw in millions of tourists every year and with major events like the Phoenix Film Festival and the Arizona State Fair, 2020 will also see a high number of visitors, both domestic and international.
It’s a seller’s market, but…
Today, Phoenix is a seller’s market. However, real estate market conditions began to look good for buyers in 2019, which could mean that it may shift to a buyer’s market in 2020. This forecast is based on a stabilization in local house prices. Although home value will appreciate in 2020, it could be slower than it was last year. So start taking advantage of these changes as we move forward in the year and look for an investment property for sale.
What Are the Airbnb Regulations in the Phoenix Real Estate Market?
Unlike many US cities, Airbnb Phoenix is legal and is met with few restrictions. The home-sharing platform is legal in Phoenix for both owner-occupied and non-owner occupied residential real estate properties in the Arizona housing market. In 2017, Arizona passed a law banning cities and counties from regulating short term rental properties in the state. In August of last year, a new bill was passed to slightly regulate Phoenix short term rentals. So now, to invest in Phoenix vacation rentals, you need to acquire a transaction privilege tax (TPT) license. In addition, you need to pay taxes like a hotel/motel owner. For Phoenix, these taxes are a non-transient hotel lodging tax of 2.3% and transient hotel lodging tax of 3%.
The past couple of years have seen the passing of strict Airbnb laws for cities like New York City, San Francisco, Los Angeles, and Chicago – but not in the Phoenix real estate market. Because Phoenix Airbnb laws are rather lenient, more investors are turning to the city to invest in 2020 – making it a hot Airbnb market for this year.
Which Rental Strategy Should You Go For?
Traditional or Airbnb? The Phoenix real estate market is a profitable one regardless of whether you choose long term traditional investments or the short term (Airbnb) rental strategy. Of course, neighborhood performance can vary from one to the next in terms of the optimal rental strategy, so make sure to factor that in.
In general though, our data shows that the Airbnb rental strategy is more profitable in the Phoenix real estate market. Figures for cash on cash return are more than double the data for traditional real estate investments. Take a look:
- Median Property Price: $401,031
- Price per Square Foot: $202
- Airbnb Rental Income: $2,555
- Airbnb Cash on Cash Return: 3.1%
- Airbnb Occupancy Rate: 56.7%
- Traditional Rental Income: $1,490
- Traditional Cash on Cash Return: 1.3%
Moreover, the expected rental income is higher for Airbnb in most neighborhoods. Again though, Airbnb data can vary. So make sure to conduct neighborhood analysis in addition to property analysis when investing in Phoenix real estate.
Top Neighborhoods in the Phoenix Real Estate Market
Check out the best neighborhoods to invest in Phoenix real estate!
The Best Neighborhoods in Phoenix for Airbnb Rentals
The following are the top neighborhoods for an Airbnb investment according to Mashvisor’s data:
- Median Property Price: $262,564
- Price per Square Foot: $217
- Airbnb Rental Income: $2,957
- Airbnb Cash on Cash Return: 7.6%
- Airbnb Occupancy Rate: 66.6%
- Median Property Price: $346,050
- Price per Square Foot: $179
- Airbnb Rental Income: $2,912
- Airbnb Cash on Cash Return: 4.9%
- Airbnb Occupancy Rate: 49.6%
- Median Property Price: $325,134
- Price per Square Foot: $184
- Airbnb Rental Income: $2,566
- Airbnb Cash on Cash Return: 3.7%
- Airbnb Occupancy Rate: 52.3%
- Median Property Price: $391,861
- Price per Square Foot: $211
- Airbnb Rental Income: $2,735
- Airbnb Cash on Cash Return: 3.5%
- Airbnb Occupancy Rate: 53.1%
The Best Neighborhoods in Phoenix for Traditional Rentals
The following are the best neighborhoods for buying a traditional Phoenix real estate investment in 2020:
- Median Property Price: $210,353
- Price per Square Foot: $143
- Traditional Rental Income: $1,247
- Traditional Cash on Cash Return: 2.4%
- Median Property Price: $228,663
- Price per Square Foot: $141
- Traditional Rental Income: $1,258
- Traditional Cash on Cash Return: 2.3%
- Median Property Price: $450,294
- Price per Square Foot: $210
- Traditional Rental Income: $2,241
- Traditional Cash on Cash Return: 2.1%
- Median Property Price: $262,564
- Price per Square Foot: $217
- Traditional Rental Income: $1,178
- Traditional Cash on Cash Return: 2.0%
To start looking for and analyzing Phoenix houses for sale in the neighborhood of your choice, click here.
The Bottom Line
Based on the 2020 real estate forecast, investing in the Phoenix housing market is a good idea. The city has a growing population and demand for rental property and promises a high return on investment (ROI). And while the prices of Phoenix houses for sale are on the rise, it remains a relatively affordable real estate market. This, along with the above, has contributed to making the Phoenix real estate market among the most in-demand.