I was recently asked about investment property in Prescott. Since I wrote up answers for them, I thought I’d share them with you.
How does Prescott (Quad-Cities) rank among the real estate investment markets in Arizona? Why?
There are two ways to make a return on investment properties, as income property or long term appreciation.
Phoenix is the 5th largest city in the USA, so it has a large, diverse population, which is growing. That makes it the best investment market when looking at income property, because there are more rental opportunities with lower price points and higher rents.
Prescott will have the best appreciation of any city in Arizona because it’s a smaller market, but a higher demand. Demand will continue to grow in Prescott for the foreseeable future.
Is it a buyer’s market or a seller’s market? Why?
It’s more of a sellers market now than it has been in years. Between the general, nationwide trend of migration away from large, dense, urban cities to smaller rural cities, and the pandemic pushing people to social distance in smaller cities, Prescott has become a destination for people from both Phoenix and California.
When Californians look to Arizona for a better way of life, they find that Phoenix is like Los Angeles, without the beach, and hotter, so they look north to Prescott.
A seller’s market is defined by high demand and low supply. We’ve sold most of the homes available and the demand keeps growing. The number of listings has dropped from over 900 to less than 400, but buyers keep calling me.
In Prescott, we are currently selling about 300 homes a month with about 350 homes for sale. At that rate, we have about 1 month of inventory. We normally have 6 months of inventory.
What makes a good investment market?
Low price point to buy, with a growing population that will push prices higher and expand demand for rentals. Growth is the biggest factor in investment property and Prescott will continue to grow in the future.
How did the pandemic affect the market?
When the pandemic hit at the beginning of last year, I was worried that the market would crash and I’d have to find another job. In April, my phone started ringing and never quit.
A contractor friend wanted to buy a house to flip right as the pandemic hit. I told him to hold off until we knew what would happen, but he bought anyway. After putting in 3 months of solid work and about $50,000, he sold it for cash in 2 days, at a $100,000 profit.
The pandemic pushed the Prescott real estate market to the highest numbers ever. As people moved out of big cities to Prescott, more homes were sold, and sold faster, and for more money, than ever before.
3856 homes were sold in 2019. 4228 Homes were sold in 2020.
Average sales price increased from $388,277 in 2019 to $453,349 in 2020.
Active number of listings dropped from 843 homes in Dec. 2019 to 431 homes in Dec. 2020.
Average days on market dropped from 76 in Dec. 2019 to 41 in Dec. 2020.
How is the real estate investment market changing?
Higher demand for properties is pushing purchase prices higher. Rental demand is not quite keeping up with home ownership in Prescott. Short Term Rentals are becoming more popular.
How is it staying the same?
The fundamentals will always remain the same.
Buy low. Sell high.
You make your money when you buy, not when you sell.
What does the future of real estate investment in the area look like?
If you bought years ago, you can take your profit by selling now and moving to a lower cost of living location. Prices are higher now than you think. Homes are starting to sell for more than asking. We’re seeing bidding wars. Talk to a real estate agent to find out what your house is really worth, then add 5%, and you’ll probably get it.
If you want to buy now, find a good deal and buy it. Prices should be going up for the next 10-20 years. Even if you over pay now, you’ll make it back in the future.
More homes and apartments will be built to absorb the demand. More people will move here and prices will go up.
Prescott is a tourist destination, so buying property and doing Short Term Rentals has been popular and profitable, and will be more popular in the future. Buy property with character, or a unique location, then put it on AirBnB or VRBO. It’s higher maintenance to manage, but has a higher return than a long term rental.
Any other information you feel we should know about regarding real estate investment in Prescott?
The biggest trend in the United States for the last 2 or 3 years has been migration from large, densely populated urban cities to more rural areas, like Prescott.
New Yorkers are moving to Florida. Californians are moving to Texas and Arizona.
That trend should continue and accelerate for the next 10 to 20 years.
All real estate markets go up and back down. There is a correction coming, probably in the next year or two.
The correction will hit the larger cities harder than smaller ones. A correction in Prescott will be softened by the influx of buyers from larger cities. Los Angeles and New York will be decimated, losing a larger percentage of price than Prescott. They could crash 30%-40% while our prices only dip 10%. The recovery time will be shorter also.
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