Following years of major population growth that took place alongside a very stagnant rate of new home construction, Phoenix has emerged as a top place for real estate rental investment. While this in itself is not breaking news, the fact that the city (and much of the state of Arizona) continues to be a great place to invest is breaking news, but only if you buy into this market soon.
With the price of real estate set to climb over the next few years, there are several reasons why it makes sense to invest in Phoenix rental properties now, the two most important factors being: affordable purchase prices and strong rental demand.
Buy Homes in Phoenix Before Prices Rise
According to Trulia.com the median sales price for Phoenix is around $211,000 which equates to $140 per square foot. Prices have risen quite significantly over the past year, climbing from a median sales price of just under $187,000 in November 2015, so that’s an increase of $24,000, while the average price per square foot has gone up by 10% over that same period.
And, experts are predicting that these prices will continue to climb over the next three years by at least 25%. So, if we take today’s median sales price of $211,000 that figure in three years’ time could be as much as $263,750. However, if demand continues to climb, with somewhere in the region of 80 to 85,000 new residents moving into Phoenix each year, that median sales price could well rise at an even higher rate.
Strong Demand for Rental Properties in Phoenix
With so many new families moving into Phoenix year on year, demand to purchase homes remains high as new residents compete with existing residents over a somewhat limited market. The same can be said for rental properties. Phoenix has a high proportion of renters, close to 40%, and a median rent per month of $1,309 (according to Trulia.com), but that median has also been rising as the rental vacancy rate across the city has dropped to a low 5.7%. Strong rental demand and lower inventory results in pushing rents higher. This is great news for investors but not so great for the families who are renting.
One of the best rental property investments in Phoenix right now is in single family homes. This is because relatively low purchase prices coupled with strong demand for single family rental properties provides investors with a good ROI. And, single family homes can offer an even greater ROI if split into multiple family units. The demand is certainly there for this to be done.
Will Demand for Rental Properties in Phoenix Decrease?
While it’s impossible to give a definitive answer, all the signs point to continued strong demand for rental properties in Phoenix. So, even though now is the best time to invest in a Phoenix rental property from a purchase price point of view, your investment should continue to bring you good rental rates for years into the future. Our Phoenix property management company knows this from analyzing economic growth in the city – jobs are being added at twice the national rate and many of those are within the retail and health sectors. As these two sectors commonly pay less, employees are more likely to rent than buy, especially with sale prices set to continue to rise.
In summary, if you’re considering buying a rental property in Phoenix, don’t wait! Buy now before sale prices climb any higher so you can take advantage of low vacancy rates, strong economic growth, and rising rental rates.