Is Arizona Land a Good Investment?

Investing in vacant land across Arizona, a southwestern state spanning over 113,000 square miles consisting largely of deserts, canyons, mountains and forests ripe for development, appeals to those seeking alternative tangible assets to own for building long term wealth. With over 71% of the state's acreage consisting of federal and Native American tribal lands permanently designated as parks and preserves, the 26 million acres in private hands drive Arizona's real estate market, especially now as population growth trends position this as one of the hottest emerging tech hub markets over the next decades. 

As of the 2020 census, Arizona grew by 11.9% over the prior decade, signaling expanding construction needs even as limited water supply constrains total buildable inventory in popular regions like Phoenix and Tucson. Understanding current pricing dynamics, demand drivers plus options to generate interim income from vacant property is key for investors evaluating the merits of acquiring Arizona land holdings in both metro periphery zones as well as thousands of acres holdings in the state's scenic rural interior.

This article will examine the overall Arizona land market and highlight the key factors to consider before buying undeveloped property in the state. We'll look at the pros and cons, dig into local market trends, and provide tips for selecting the best investment locations.

The Broader Arizona Real Estate Picture

Let's start with a snapshot of the Arizona real estate market heading into 2023. The state has seen incredible growth this past decade. Arizona's population grew by more than 16% between 2010 to 2020. Several major metro areas are expanding rapidly:

• Phoenix added over 130,000 new residents in 2022 alone.
• Tucson, Prescott, and Flagstaff have also seen double-digit population growth.

Not surprisingly, this influx of new residents has created major housing demand. Home prices rose over 30% statewide the past two years according to the S&P Case-Shiller index. Selling times have shortened and bidding wars are common.

This raises the natural question - have Arizona home values peaked? There are signs of slowing as mortgage rates have spiked above 6%. But most analysts believe the state still has room to run thanks to its strong job market, lifestyle appeal, and affordability compared to coastal cities.

Overall, Arizona real estate remains attractive for investors. Undeveloped land in particular can deliver strong returns if acquired strategically. But there are some headwinds to factor in.

Key Advantages of Investing in Arizona Land

Let's examine the bull case for buying Arizona land parcels:

#1 - A Growing Population Needs Housing

Arizona is forecast to add over 1 million new residents this decade according to the W.P. Carey School of Business. Metro Phoenix alone could grow by 600,000 by 2030.

This means demand for housing will remain robust for years to come. And more new homes require more land, driving up values for well-located parcels. Builders and developers are eagerly looking for ready-to-develop lots.

#2 - Retirees Flock to Arizona for the Lifestyle

Arizona has long been a retirement haven thanks to its year-round sunshine, low humidity, and abundance of golf courses and senior living communities. The aging Baby Boomer generation is now driving retirement growth even faster. Maricopa County saw move-ins of adults 60+ jump 43% over the past decade.

Since retirees have the flexibility to move where they want, this provides underlying support to Arizona's housing market. Many are buying homes or renting apartments in smaller cities like Prescott and Flagstaff to enjoy mountain views and small town living.

#3 - It's a Business-Friendly State

Arizona prides itself on having a low-tax, low-regulation environment to promote economic growth. This pro-business atmosphere has succeeded in drawing companies from high-cost states like California. Prominent examples include Intel, Lucid Motors, Carvana, and Microchip Technology.

This corporate expansion generates high-paying jobs and increases housing demand. It supports land values especially around employment hubs like north Phoenix and Chandler.

#4 - Tourism Dollars Stimulate Local Economies

Tourism is huge in Arizona, anchored by the incomparable Grand Canyon along with dozens of resorts, golf courses, spas, casinos, parks, and museums. The state welcomed 45 million visitors in 2021 who spent over $21 billion according to the Arizona Office of Tourism.

This influx of outside money helps keep local economies humming. Popular destinations like Sedona, Carefree, Flagstaff and the White Mountains rely on tourism dollars. This allows new restaurants, shops and amenities to be supported year-round.

Factors Causing Concern in the Arizona Land Market

While the overall thesis is bullish, investing in Arizona land also comes with risks to be aware of:

Property Sales Have Slowed Recently

After almost a decade of huge price gains, the market has begun cooling since mid-2022 as mortgage rates jumped and economic uncertainty grew. Home sales were down over 25% year-over-year in September per the Cromford Report. This indicates softening demand.

Tighter mortgage lending and construction loans will impact land investors relying on traditional financing. Expect lower offers from builders as well until the cycle picks back up.

Beware of Overbuilding in Some Areas

Phoenix in particular saw a development boom in outlying suburbs the past few years. Massive masterplans went up rapidly in areas like Buckeye and Maricopa. An oversupply could emerge as demand wanes, so study absorption data carefully.

Areas farther from employment centers have the highest risk of high vacancies if the job market slows.

Water Access Is a Limiting Factor

The availability and affordability of water access is an ongoing concern in Arizona's desert climate. Groundwater is scarce in many rural areas. Be sure to research regulations like the Assured Water Supply rules around Phoenix which require proof of 100-year water rights for developments over a certain size.

Evaluate if water and sewer already run nearby or substantial new connections would be required. This can make-or-break a project.

Beware "Best Places to Buy" Hype

Be cautious of national media hype about Arizona and other fast-growing states. Just because a town appears on a "10 Best Places To Invest in 2023" list doesn't automatically make it a smart buy. Do your own local market research.

Areas with the most speculative activity today likely have the highest downside risk if the market slows.

Which Areas of Arizona Offer the Best Opportunity?

Geography plays a major role in land investing. Even within hot growth states, some areas provide better opportunities than others. Based on demographics, job outlook, and infrastructure, here are some of the top Arizona markets to focus on for land parcels:

Southeast Valley (Chandler, Gilbert, Queen Creek)

The suburbs southeast of Phoenix offer a sweet spot of land availability, expanding employment bases, and popularity with families. Home prices are high but land costs still reasonable compared to the Northeast Valley. Infrastructure like the Loop 202 freeway provides access. Major employers include Intel, Orbital ATK, General Motors and Boeing.

Central Tucson (Marana, Oro Valley)

The northwest Tucson suburbs of Marana and Oro Valley remain a go-to for cost-conscious families and retirees. Home to bioscience and aerospace companies, the area offers proximity to jobs, outdoor recreation, and excellent healthcare. Land prices are very affordable compared to Phoenix.

Prescott Area

One of Arizona's up-and-coming small cities, Prescott attracts retirees, families and second homeowners drawn to its pleasant four seasons climate and recreational amenities like Whiskey Row and Watson Lake. New housing demand is outstripping supply. Look for parcels with views along the Highway 69 corridor.

Flagstaff Region

Flagstaff's appeal as a university town and gateway to the Grand Canyon and Sedona make it very attractive for developers. The market is extremely competitive for land listings but offers solid long-term potential. Parcels along major arterials have an advantage.

Tips for Evaluating Land Parcels in Arizona

Not all land is created equal when it comes to investment potential. Keep these guidelines in mind when assessing parcels:

• Carefully research recent comparable land sales to accurately estimate property value and growth runway.
• Verify all zoning designations and development restrictions on the land through the County Assessors office.
• Drive the property and surrounding neighborhood. Get a first-hand feel for the location, views, and nearby amenities.
• Evaluate access to existing utility and road infrastructure. How close are connections?
• Consider options to split larger parcels into multiple lots to maximize salability.
• Consult local zoning and water authorities to fully understand any hurdles to development.
• Weigh benefits of holding raw land vs. lot banking already improved parcels ready to build on.
• Look at future city and county plans for the area. Will more housing and amenities expand nearby over time?

Final Thoughts

Arizona remains one of the most attractive places to invest in real estate thanks to great weather, affordability, pro-business policies, and demographic trends that will drive housing demand higher for years to come.

However, its land market has begun showing signs of peaking after almost a decade of huge price gains. Investors need to be far more selective within local submarkets compared to the previous boom years. Focusing on communities with strong population and job expansion along key transportation corridors can lead to solid returns. But have realistic expectations around pricing and be ready to hold properties for the longer-term horizon.

Approach Arizona land investing with diligence around market analysis, cautious financing, and value-focused acquisitions. Don't chase exaggerated investor hype about hot deals in certain towns. If you take a disciplined approach and partner with a reputable local real estate broker, Arizona land can deliver strong cash flow and equity growth for your portfolio.

Frequently Asked Questions (FAQs)

What parts of Arizona are best for investing in land?

The most popular areas tend to be around the major metro areas like Phoenix, Tucson, Prescott, and Flagstaff. But there are also good opportunities in fast-growing suburbs such as Gilbert, Chandler, Queen Creek, Marana, and Oro Valley. The key is finding affordable land with good access to jobs, infrastructure, and amenities.

How much can land in Arizona appreciate over time?

Appreciation varies widely based on location and market conditions. In a strong market, raw land can see 10% annual gains or more. But in slower periods, 2-4% annual appreciation is more typical. High-demand areas near expanding cities generally have the most price growth potential if you buy at a reasonable cost basis.

What factors impact land values the most?

Access and desirability are huge. Parcels near major roads, utilities, shopping, schools etc. command the highest values. Views, trees, and other natural features boost appeal. Zoning and development capacity allowing denser projects also adds value. Supply and demand around competitive submarkets plays a key role too.

Should I buy land outright or look at seller financing?

Paying all cash is best if you can, as it maximizes leverage and flexibility. But seller financing can also be a good option with favorable terms. You may be able to pay 30% or less down and structure a mortgage over several years. This reduces cash needed upfront. Just be sure to model payments to ensure positive cash flow.

Is it better to buy raw land or improved/ready to build lots?

Raw land takes longer to develop but offers higher return potential if bought right. Improved lots command premium pricing but have faster turnaround to sell or build on. Investors just starting out may prefer improved lots for simplicity. Those with more experience can better tackle the raw land development process.

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