Phoenix has blossomed in the last several years. Inward migration from California has fueled growth across asset classes. While residents have moved to the market for better affordability, investors are running from the stringent regulation in California. However, as Californians move into Phoenix, the political environment is changing.

Late last year the change was evident. Arizona passed a wealth tax to fund education in the state, and the state swung blue in the presidential race. "I wonder if because Arizona is now a blue state and has passed a wealth tax, will the state start trending toward rent control and other regulations? That would slow down a lot of the momentum of investors living in Phoenix," Tom Jonsson, multifamily director at James Capital Advisors, tells GlobeSt.com. "The appeal of Phoenix from Southern California investors is that you are 250 miles away and you have fundamentals that are so similar to L.A. with population influx, shortage of housing, low vacancy rates and strong rent growth. If the state increases regulations, investors might as well stay in California. That will create a slowdown."

At the moment, there are many compelling reasons for investors to increase exposure to the Phoenix market. "There are investors that are selling out of California across the spectrum," says Jonsson. "You can buy a 20 to 30 unit building in a $5 million deal. Investors can sell a $3 million 10-unit building in Los Angeles and can go and buy a 30-unit building in Phoenix. So, the long-term cash flow in the market is substantially greater. The bonus is that they no longer have to deal with the regulatory issues in Los Angeles, like rent control."