Phoenix’s Hot Housing Market

Phoenix’s Hot Housing Market and the Surging Demand for Multi-Family Housing

In Phoenix, Arizona, the only thing hotter than the desert weather is the current housing market. A steady stream of new residents lured by the mild winters, lower cost of living, outdoor recreation, and a rebounding job market have turned up the heat on the demand for housing in the Arizona capital and its surrounding cities. With so many residents in Phoenix and still waiting to buy, multifamily investors are uniquely poised to satisfy that unmet demand.

Phoenix is America’s fifth most populous city, with a population of about 1.73 million, which is expected to double by 2040. Its surrounding area, Maricopa County, boasts a population of almost 4.5 million and includes rapidly growing cities such as Scottsdale, Mesa, and Sun City. While greater Phoenix was a popular destination for newcomers during the pandemic, even before 2020, the area had been seeing new residents arrive in droves. In 2019, the Phoenix area attracted about 57,000 new residents. The trend continued in 2020, with about the same number of new arrivals, many of them transplants from California and other pricier markets.

That swell of new residents, combined with historically low-interest rates, has created unprecedented demand for real estate. According to Redfin, In May of 2021, Phoenix home prices were up 31.9% compared to last year, selling for a median price of $376K. In Maricopa County as a whole, home prices appreciated at about the same rate but the median home price is even higher, at $400,000. On average, homes in greater Phoenix sold after 24 days on the market compared to 40 days last year. The average home in greater Phoenix is selling for 1.8% above the asking price, while more sought-after properties can sell for 6% or more above asking. Many homes are getting multiple offers, often with waived contingencies.

Those appreciating home values present an excellent opportunity for multifamily real estate investors. Multifamily housing offers the highest risk-adjusted returns of all real estate investment products, and Phoenix has a huge base of renters who are paying increasingly more every year. According to Rent Café, the average rent for an apartment is $1,252, with a 10% increase in just the past year. That rapid appreciation leads to an even greater ROI for investors. With a quickly rising population and only about five weeks’ worth of supply on the market, this is a market that will offer exciting opportunities to multifamily investors for the foreseeable future.  

Using Your IRA to Invest in Real Estate

Did you know that you can use your IRA to invest in real estate? In a traditional IRA, you invest in a fund comprised of stocks, bonds, and other common types of investments chosen by a plan administrator. With a self-directed IRA, investors have the freedom to pick the exact assets that they’d like to hold in their account. That can include REITs (real estate investment trusts), or even entire properties.

In order to add real estate to your self-directed IRA, you will need to work with an IRA custodian, which is a person or company who will manage your IRA. Not all custodians are created equal, and they will differ on the types of investments they can handle, so you may have to talk to a few of them to determine if they are experienced with REITs or using an IRA to purchase property.


REITs vary in size and nature but tend to be comprised of large commercial and residential properties. While REITs are often traded on the stock market, they don’t reflect ownership of a company like a stock does. When you invest in REITs, you’re purchasing pieces of buildings. This means they will be subject to the same booms, busts, and fluctuations of real estate, including the ability to hedge against inflation. In times of high inflation, when rents and property values increase, the value of REIT shares will also increase.

Buying property

When you buy a property using your IRA, the IRA is the buyer acting on the investor’s behalf. Purchasing real estate through an IRA usually means being a cash buyer, because securing financing to purchase property inside an IRA isn’t easy. Therefore, the buyer’s IRA balance will have to be high.

The IRA custodian completes the purchase by wiring the funds, including all closing costs, from the buyer’s account to escrow. The IRA now owns the property. The title to the property will read something to the effect of “John Doe Trust Company Custodian [for benefit of] (FBO) [Your Name] IRA.” Once you rent out your property, the lease agreement with the tenant is signed by the self-directed IRA custodian, and rental payments are made payable to the SDIRA account. Similarly, any operating expenses must be paid out of the IRA.

When you purchase real estate using an IRA, it’s important to know that you will have a lot less leeway to use the property than if you bought the property with cash or traditional financing. You can’t use it as a home office, vacation home, a second home, or a place for your children to live. The reason for this is that IRA’s have a firm “no self-dealing” rule, which prohibits you from using an IRA asset in any way that benefits you personally. That includes borrowing money from your IRA, selling property to it, or you or your family spending the night in your property. 

The no self-dealing rule also bars even minimal first-hand involvement with your property. For example, if your property needed a minor repair, you may be tempted to fix it yourself. Unfortunately, the IRS considers this “furnishing services” to the IRA, which is strictly prohibited. The penalties for this are pretty steep. The entire IRA would be considered distributed to you, and therefore taxable, plus you’ll owe a penalty. Of course, this also means that you’ll need enough capital in your IRA to cover any repairs or other expenses your property incurs. To avoid violating the “self-dealing” rule, always keep in mind that your IRA owns and operates the property. So if you need to have work done on your property, your IRA must pay someone else to do it.

When your property generates rental income, all of that income goes straight back into your IRA. Because you do not personally own the property, you can’t access any of the income. Of course, you will eventually get the money when you make withdrawals from your account at retirement.

The Bottom Line

If you do decide to buy property using your IRA, you will have the advantage of collecting rent from your tenants and letting it grow tax-free in your IRA. Having said that, purchasing property through an IRA is an especially risky prospect. If you encounter significant repair or maintenance costs, you might need to make additional contributions to your IRA, which could also subject you to penalties for contributions that exceed the annual contribution limits. If you decide this is for you, make sure that you have a self-directed IRA custodian who is experienced with real estate transactions.

The Future of Apartments: Smart Home Technology

Smart technology has become a common feature in residential spaces over the past decade. During that time, a growing number of homeowners have been controlling their homes remotely, or enjoying voice-activated features at home. Currently, 69% of U.S. homes have at least one smart home device. Multifamily housing was a little slower to jump on the bandwagon, with the prevailing attitude being that smart features are luxuries out of most renters’ budgets. That seems to be changing, with an increasing number of renters living in smart apartments. The global smart apartments market was $1.67 billion in 2020 and is expected to reach $2.68 billion in 2025.

So, what are smart apartments? A smart apartment is defined by three key elements:

  1. Connectivity. Buildings are wired to connect residents, management, devices, and building systems.
  2. Smart Amenities. This includes devices such as smart lights and smart locks, as well as integrated services like dog walking and package delivery.
  3. Community Management. Incorporating services for residents that save time, money, and hassle.

While there are appliances and add-on devices you can buy for your home to give it some smart features – think Ring cameras, Echo and Alexa devices – smart apartments are wired with connectivity from their inception. During construction, smart buildings are outfitted with an IoT (“Internet of things”) network. An IoT network is a network of physical objects—a.k.a. “things”—that have sensors, software, and other technologies installed to allow connecting and exchanging data over the Internet. It’s a booming market, with global spending on IoT across markets estimated to exceed $1 trillion in 2020. 

While the expense of smart apartments may seem daunting, according to IOTAS, a smart building tech provider, smart apartments can drive rents up by 3 percent to 10 percent while also reducing a 250-unit community’s labor and energy expenses by $5,000 and $4,000 per year, respectively. In addition, smart-home technology’s ability to detect water leaks can save up to $11,000 per avoided leak. 

When it comes to constructing smart apartment buildings, the industry consensus is that real estate developers need to bring IT experts on board from the get-go. Developers not only have to consider a building’s current connectivity needs, but they must also forecast what future renters will come to expect. And renters’ expectations can change a lot in a few years. While most renters may be fine with manually operating their lights and appliances today, it’s possible that that would be seen as a drawback in a few years.