Running the numbers on a Phoenix rental should not feel like guesswork. You want predictable cash flow, but shifting rates, new construction, and HOA rules can make it hard to know what a property will actually net. This guide gives you a simple, repeatable framework, Phoenix-specific costs to include, and a worked example you can reuse to screen deals fast and then underwrite with confidence. Let’s dive in.
Why Phoenix investors need a simple framework
Phoenix is a fast‑growing Sun Belt metro with steady population inflows and active new construction. That mix supports rental demand while also creating near‑term price and rent swings across submarkets. Results can differ by location and property type, so you should compare central Phoenix, East Valley, and West Valley assets on their own terms.
Seasonality also matters. Winter activity can lift demand from seasonal residents and workers. A simple cash‑flow process helps you adjust for vacancy, property type, and neighborhood dynamics without getting lost in noise.
The core cash‑flow math
Definitions you will use
- Gross Scheduled Rent (GSR): Total rent at full occupancy (monthly or annual).
- Effective Gross Income (EGI): GSR minus vacancy and concessions plus other income.
- Operating Expenses: Taxes, insurance, management, maintenance, HOA, utilities you pay, and routine admin.
- Net Operating Income (NOI): EGI minus Operating Expenses.
- Debt Service: Principal and interest payments for the year.
- Cash Flow Before Taxes: NOI minus Debt Service.
- Cap Rate: NOI divided by purchase price.
- Cash‑on‑Cash Return: Annual cash flow divided by total cash invested.
- DSCR: NOI divided by Debt Service. Many lenders want 1.2–1.3 or higher for investment loans.
Quick screening rules
- 1% Rule: Monthly rent near 1% of price can signal easier cash flow for SFRs. Use it only to screen. It is not a decision rule.
- 50% Rule: Expenses often land near 50% of gross rent for a conservative first pass. Actual costs vary by age, taxes, HOA, and who pays utilities.
- Cap Rate: Use cap rate to compare similar assets in the same submarket. It does not reflect financing.
Step‑by‑step: screen to a working model
- Start with price and expected monthly rent to get GSR.
- Apply a vacancy rate. In Phoenix, many stabilized rentals use 4–8% as a starting point; adjust for your location and product.
- Estimate operating expenses:
- Property taxes. Pull current assessed values from the Maricopa County Assessor and confirm billing with the Maricopa County Treasurer.
- Insurance. Get a landlord policy quote; flood coverage can be extra where required.
- Property management. Budget 8–12% of gross rent for SFRs or a flat monthly fee.
- Maintenance and reserves. Use 1% of property value per year or 5–10% of gross rent as a planning guide.
- Utilities and HOA dues if you pay them.
- Compute NOI.
- Add your loan terms to calculate annual debt service.
- Compute Cash Flow, Cash‑on‑Cash, Cap Rate, and DSCR.
- Stress‑test. Shift rent by ±5%, vacancy up 2–5%, the interest rate by ±1%, and add unexpected repairs to see how your cash flow holds up.
Phoenix‑specific costs to include
Property taxes and assessments
Arizona’s overall property tax burden is relatively low compared with many states, but your bill depends on assessed value and local rates. Always validate the parcel’s current and prior assessments with the Maricopa County Assessor and confirm payment schedules with the Treasurer’s Office. You can also review statewide property tax guidance at the Arizona Department of Revenue.
Insurance and flood risk
Standard landlord policies vary by property age and construction. If a property is in a FEMA flood zone, lenders may require flood insurance, which can be material. Check a parcel’s status using the FEMA Flood Map Service Center.
HOAs, utilities, and maintenance
Many Phoenix subdivisions have HOAs. Dues and any rental restrictions affect cash flow and strategy. The desert climate also means more HVAC wear. Plan for preventive maintenance and eventual AC replacement, and adjust your model if you cover any utilities.
Laws and rent policy
Arizona’s landlord‑tenant rules are set by the Arizona Residential Landlord and Tenant Act. Review notice periods and remedies in the Arizona statutes (Title 33). Arizona does not have statewide rent control, and Phoenix has not enacted broad rent control as of mid‑2024. Still, confirm current local ordinances in the Phoenix City Code, including any rules for short‑term rentals or licensing.
Financing notes
Investment loans often require 20–25% down with higher interest rates than owner‑occupied loans. Some lenders look at DSCR in addition to your income. Ask about reserves, rate options, and seasoning rules if you plan to refinance or convert a home to a rental.
Worked example with assumptions
The numbers below are for illustration only. Use them as a template, then plug in quotes for taxes, insurance, HOA, and management.
- Purchase price: 300,000
- Expected monthly rent: 2,400
- Vacancy: 6%
- Operating expense ratio: 45% of gross rent (assumes tenant pays utilities and no HOA)
- Financing: 25% down, 30‑year fixed; interest rate is a placeholder for modeling only
Step 1: GSR = 12 × 2,400 = 28,800
Step 2: EGI = 28,800 × (1 − 0.06) = 27,072
Step 3: Operating Expenses = 28,800 × 0.45 = 12,960
Step 4: NOI = 27,072 − 12,960 = 14,112
Step 5: Debt Service (example): loan amount 225,000. If your quoted rate produced annual payments near 18,420, keep that figure here as DS.
Step 6: Cash Flow Before Taxes = 14,112 − 18,420 = −4,308
- Cap Rate = 14,112 ÷ 300,000 ≈ 4.7%
- DSCR = 14,112 ÷ 18,420 ≈ 0.77
- Cash‑on‑Cash (if total cash invested is 90,000 for down payment, closing, and initial repairs) = −4,308 ÷ 90,000 ≈ −4.8%
What this shows: with these assumptions, financing creates negative leverage at this rent‑to‑price ratio. That is exactly why you screen quickly, then fine‑tune with local quotes and explore options.
Stress‑test your numbers
A good model answers “what if” before you write an offer. Try these toggles to see the impact on cash flow:
- Rent change ±5%. Small shifts in rent can move your NOI meaningfully.
- Vacancy +2–5%. A longer leasing period or renewal loss matters in an SFR, which is single‑tenant by design.
- Interest rate ±1%. Higher rates increase debt service and lower DSCR.
- Capex shock. Add a one‑time AC or roof cost and spread it over several years.
You can also test different strategies:
- Increase down payment to reduce debt service.
- Target assets with stronger rent‑to‑price profiles, such as select multifamily in submarkets with stable demand.
- Seek energy‑efficient properties or budget upgrades to reduce HVAC wear and utility exposure.
What to do next
- Build your own calculator with the steps above. Save it as a template you can reuse for every property.
- Pull actual taxes from the Maricopa County Assessor, check due dates with the Treasurer, and confirm lease rules in the Arizona Residential Landlord and Tenant Act.
- Check flood and hazard considerations using the FEMA Flood Map Service Center and get insurance quotes.
- Talk with a lender about down payment, DSCR requirements, and rate options for investor loans.
- Compare similar assets by submarket. SFRs in Peoria, Gilbert, and Avondale can have different rent‑to‑price dynamics than central Phoenix or small multifamily.
If you want help sourcing options, pulling local quotes, and pressure‑testing the numbers with a property‑management lens, schedule a consultation with Gabriel Santellano. You will get practical guidance, local comps, and a clear next step.
FAQs
What vacancy rate should I use for Phoenix rentals?
- Many stabilized rentals in Phoenix model 4–8% vacancy; adjust up if you expect longer lease‑ups or seasonal gaps.
Does Phoenix have rent control that affects my projections?
- Arizona has no statewide rent control, and Phoenix has not enacted broad rent control as of mid‑2024; always verify current city ordinances.
How do Maricopa County property taxes impact cash flow?
- Your tax bill depends on assessed value and local rates, so pull the parcel’s data from the Maricopa County Assessor and confirm bills with the Treasurer.
What should I budget for property management in Phoenix?
- For SFRs, 8–12% of gross rent or a flat fee is common; multifamily can be lower if stabilized.
How should I account for HVAC costs in the Phoenix climate?
- Budget ongoing maintenance plus reserves for periodic AC replacement, and consider energy‑efficient systems to reduce wear and costs.
