The Arizona housing market is one of the nation’s best states to invest in real estate in 2020. The state is home to many profitable markets, such as the Scottsdale housing market and the Phoenix housing market. However, these two cities are not the only ones worth investing in. The Tucson housing market is actually one of Arizona’s rising rental markets. Why and where should you invest in Tucson real estate? That’s what this blog is all about!
Should You Invest in the Tucson Housing Market? Why?
The answer is yes, you should consider investing in Tucson real estate. Tucson income properties will make for a great real estate investment. Let’s take a look at the four most important Tucson real estate market trends to find out why.
Positive Economic Indicators Point to a Healthy Real Estate Market
The Tucson housing market will continue to benefit from the city’s economic environment in 2020.
For starters, Tucson’s population has seen great growth in the last few years. In 2018, the Tucson metro’s population hit 1 million. Between 2018 and 2019, the population continued to grow at a rate of 1.59%. This trend will likely continue in 2020. Many new-comers are attracted by Tucson’s low cost of living, which is 8.4% lower than the US average, as well as its strong economy.
The area’s population growth coincides with its job market growth. Over the last year, Tucson’s economy grew by 2%, trumping the national average. As a result, the metro’s median household income grew by 3.96%. The city’s economy is wide and diversified. Institutional and government foundations, health care, the University of Arizona, and the Department of Homeland Security make up Tucson’s economic backbone. The University of Arizona, in particular, is Tucson’s largest employer. UA also provides a large tenant pool of students, faculty, and staff. Student housing, therefore, has become a common niche in the Tucson real estate market.
Related: How to Rent Out to College Students – A Beginner’s Guide
The Tucson Real Estate Market Is Hot
A good strategy is sometimes to go where other US real estate investors are going. If others are getting into Tucson real estate investing, there must be a good reason, right? With the economic and population growth, Tucson real estate investors are finding an ever-growing tenant pool. This is because the Tucson housing market is fairly pricey. With a price-to-rent ratio of 22, the average resident finds that renting a home is more affordable than buying one. As a result, over half of the city’s residents live in Tucson rental properties.
Naturally, the Tucson housing market is a very hot seller’s market. Tucson’s real estate supply is lower than its demand. For context, take a look at the Tucson Association of Realtors’ January 2020 Report. Between December 2019 and January 2020, there was:
- a +12.1% change in closed sales
- a +4.6% change in median sale prices
- a -29.3% change in homes for sale.
There is good news regarding Tucson homes for sale in 2020, however. Tucson’s homebuilding prospects are high for the year. According to the PwC, the Tucson real estate market ranks 18th in this regard. In addition, the Tucson Association of Realtors projects a 10% increase in new home construction in 2020. So although it’s a hot seller’s market, you will be able to find more options throughout the year to take advantage of the profitable rental properties. And Mashvisor’s data shows how profitable long-term rental properties are in the city:
- Monthly Traditional Rental Income: $1,758
- Traditional Cap Rate: 1.7%
Related: Will the 2020 US Housing Market Be a Seller’s Market or a Buyer’s Market?
Tucson Housing Prices Will Increase
Our Tucson housing market forecast would not be complete without discussing housing prices. Currently, the median price of a Tucson investment property is $458,300, according to Mashvisor.
Historically, investing in Tucson real estate did not yield high appreciation. In the last 10 years, the Tucson housing market was in the top 50% nationwide for real estate appreciation. However, this trend has changed as of late. With the increased demand for Tucson investment properties, Tucson housing prices started to increase. In 2019, house prices grew by a whopping 7.3%. For 2020, a rental property in Tucson will likely appreciate by 4.9%.
Buying property in Tucson could be expensive, but it doesn’t have to be. By using a heatmap analysis, you can quickly identify the cheapest neighborhoods with profitable Tucson investment properties for sale. To learn more about Mashvisor’s heatmap analysis tool, read: Real Estate Heatmap: A Revolutionary Tool for Neighborhood Analysis.
Arizona Is Landlord and Airbnb Friendly
Buying a Tucson real estate investment will be excellent in 2020 for two more reasons. Firstly, the Tucson housing market is located in Arizona, a well-known landlord-friendly state. As per the state rental laws, Tucson investors are free to charge any rent price, since there are no required rent limits. The eviction process is generally more lenient for investors in Arizona as well.
Related: Invest in Real Estate in the 5 Most Landlord-Friendly States
Secondly, the Arizona State Legislature bars its cities from restricting short-term rentals. As a result, Airbnb cannot be legally forbidden in the Tucson housing market. Fortunately, Airbnb has been fully legalized in Tucson since 2016. Tucson Airbnb laws are very straight forward. There are no restrictions on using a non-owner occupied property as an STR. Airbnb Tucson hosts must also obtain a business license and tax of 2.6%. In addition, Tucson Airbnb regulations dictate a 5.5% Arizona Transaction Privilege Tax. Even with these additional costs, an Airbnb rental property in Tucson is quite profitable, according to Mashvisor’s data:
- Average Airbnb Daily Rate: $223
- Monthly Airbnb Rental Income: $3,115
- Airbnb Cap Rate: 3.7%
- Airbnb Occupancy Rate: 52.6%
The 5 Best Neighborhoods in Tucson for the Traditional Rental Strategy
Rosemont West
- Median Property Price: $195,633
- Price per Square Foot: $144
- Price-to-Rent Ratio: 6
- Traditional Rental Income: $2,006
- Traditional Cap Rate / Cash on Cash Return: 5.8%
Avondale
- Median Property Price: $191,975
- Price per Square Foot: $140
- Price-to-Rent Ratio: 14
- Traditional Rental Income: $1,152
- Traditional Cap Rate / Cash on Cash Return: 2.3%
Arroyo Chico
- Median Property Price: $138,500
- Price per Square Foot: $146
- Price-to-Rent Ratio: 12
- Traditional Rental Income: $930
- Traditional Cap Rate / Cash on Cash Return: 1.9%
Richland Heights West
- Median Property Price: $135,000
- Price per Square Foot: $95
- Price-to-Rent Ratio: 13
- Traditional Rental Income: $888
- Traditional Cap Rate / Cash on Cash Return: 1.8%
Sierra Estates
- Median Property Price: $177,000
- Price per Square Foot: $134
- Price-to-Rent Ratio: 17
- Traditional Rental Income: $877
- Traditional Cap Rate / Cash on Cash Return: 1.2%
The 5 Best Neighborhoods in Tucson for the Airbnb Rental Strategy
Dunbar Spring
- Median Property Price: $383,000
- Price per Square Foot: $207
- Price-to-Rent Ratio: 27
- Monthly Airbnb Rental Income: $2,777
- Airbnb Cap Rate / Cash on Cash Return: 9.8%
- Airbnb Occupancy Rate: 61.6%
Richland Heights West
- Median Property Price: $135,000
- Price per Square Foot: $95
- Price-to-Rent Ratio: 13
- Monthly Airbnb Rental Income: $2,304
- Airbnb Cap Rate / Cash on Cash Return: 9.0%
- Airbnb Occupancy Rate: 57.6%
Panorama Estates
- Median Property Price: $122,300
- Price per Square Foot: $121
- Price-to-Rent Ratio: 20.86
- Monthly Airbnb Rental Income: $1,764
- Airbnb Cap Rate / Cash on Cash Return: 9.0%
- Airbnb Occupancy Rate: 59.9%
Barrio Anita
- Median Property Price: $172,000
- Price per Square Foot: $131
- Price-to-Rent Ratio: 16.14
- Monthly Airbnb Rental Income: $2,777
- Airbnb Cap Rate / Cash on Cash Return: 8.8%
- Airbnb Occupancy Rate: 62.2%
Julia Keen
- Median Property Price: $147,592
- Price per Square Foot: $141
- Price-to-Rent Ratio: 17
- Monthly Airbnb Rental Income: $2,616
- Airbnb Cap Rate / Cash on Cash Return: 8.7%
- Airbnb Occupancy Rate: 70.4%
All in all, the Tucson housing market is one of Arizona’s top markets in 2020. Its positive economic indicators, growing demand, increasing prices, and Airbnb and landlord friendliness make it a must-consider for Arizona real estate investors.
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