Home AZ Real Estate Investments Have Bright Future
July 25, 2016
If you’re planning to buy a home in Phoenix, Flagstaff or Prescott, do it now, because prices are going up for the next few years. Investments in single-family rental properties have good potential mainly in Phoenix. Apartment developments have the best potential in Phoenix, where splitting homes into rental units is also attractive, and in Tucson. Mortgages and construction loans have average risk. Best bets for investments in retail are Phoenix, especially the southeast suburbs; worst bets are Tucson and Prescott.
Investing in Arizona no longer means dubious retirement projects in the desert – a kind of Florida West with sand instead of swamp. You can find those too, if you like taking a flyer, but Phoenix and Tucson have grown up and offer investors a range of possibilities. In addition to the big cities, Prescott does cater to retirees, Flagstaff has a younger demographic, and Yuma has a heavily immigrant population; all have different housing needs.
The strongest economic growth, and therefore strongest demand for housing, is in Phoenix, where jobs are being added at twice the national rate – many of them in healthcare, retail, and the large finance sector. Job growth has also been strong in Prescott, mostly in the retail and healthcare sectors as you would expect from the retiree population. Growth in Tucson, on the other hand, has recently been slow. Flagstaff depends heavily on the cyclical tourist trade.
Home prices in all Arizona markets rose and fell sharply in the boom and bust; but afterwards prices in Phoenix – and somewhat in Prescott – went through a mini-boom of speculation in foreclosed properties. It looks like those have now been flushed through the system, so we can take at face value the recent price increases – strongest in Phoenix, Flagstaff and Prescott, weaker in Tucson and Yuma. I expect Phoenix prices up at least 25 percent over the next three years, which means you shouldn’t wait if you plan to buy there. Prices have been strongest in Phoenix itself, slightly weaker in the southeast suburbs.
Flagstaff, Tucson and Phoenix have a high proportion of renters, almost 40 percent, but because home prices in the former two are high compared to rents, investing in single-family properties to rent them out is most feasible in Phoenix – where the ratio is much more favorable and where housing needs encourage splitting single-family homes into multiple rental units. The relatively lower pay in the growing retail and healthcare sectors will expand renting in future years.
Mortgages are a good investment right now. Because home prices will keep rising the next few years, the equity cushion for new mortgages will grow quickly; yet prices are in balance with local incomes, so the risk of default will stay average. Construction loans also will have average risk in the growing markets, especially Phoenix, where I expect 60,000 new single-family homes built over the next three years and 60,000 apartments. In Prescott I expect a modest 5,000 homes built and in Tucson 5,000 apartments. In Flagstaff and Yuma I expect less than a thousand new housing units, mainly apartments.
Because of the rapid population growth, investments in retail stores and restaurants are favorable in Phoenix; the suburbs in Pinal County are greatly underserved for both. Such investments in Flagstaff face stronger competition and the cyclicality of tourism. The retail sector has been flat in Prescott and has actually shrunk in Tucson. The large growth of finance and healthcare in Phoenix will probably call for more office space.
Courtesy of www.forbes.com
If you want to learn about some financing options, or if you’re looking to get pre-qualified, contact Parker Turk at Sun American Mortgage Company: 602-616-3774.