How To Evaluate a Rental Property in Arizona Before You Buy

So, you’re thinking about buying a rental property here in Arizona. Maybe you’ve already been scrolling through listings, picturing which one has the best curb appeal or the coolest neighborhood.

But before you get too attached to any one property, we want to ask you a question that matters way more than how cute the kitchen is: Does the math actually work?

We talk to investors all the time who are trying to figure out if a house is a good investment or just a money pit. And look, a rental property is a business. Plain and simple. If you buy it because you fell in love with it, but the numbers are shaky, it’s going to quietly drain your bank account instead of building your wealth.

The investors who do this well aren't just guessing or crossing their fingers. They’re looking at two specific numbers: cash flow and rate of return. Let’s break those down in plain English.

1. Cash flow: What’s actually left in your pocket?  This is the big one. Cash flow answers the question: After I pay all the bills, is there money left over?

You start with the rent you can realistically charge. Then, you subtract everything else:

• Your mortgage payment

• Property taxes

• Insurance

• HOA fees (if there are any)

• And please, please include a cushion for maintenance and repairs, because water heaters will break.

Let’s say you rent a place for $2,000 a month. If your total monthly bills are $1,500, you’re left with $500. That’s your cash flow.

Now, the next question is: Does that $500 actually move the needle for you?

Is it enough to build up a reserve for when the place is empty for a month? Can it cover a surprise repair? Positive cash flow gives you breathing room, and breathing room is what keeps you from stressing out every time you get a text from a tenant.

If you’re not making money each month, you’re betting everything on the hope that the house goes up in value. And that’s a risky game to play.

2. Rate of return: How does this stack up?  Okay, so you know you’re making $500 a month. Great. But now you have to ask: Is that a good use of my money?



This is where we look at your rate of return, the percentage you’re making on the cash you put in. This lets you compare this house to other things you could do with that money.

For example, if this rental is projected to give you a 3% return, but you could throw that money in the stock market for a potential 7% return, you have to ask yourself why you’re choosing the house.

Sometimes the answer makes sense. Real estate gives you things stocks don’t like: tax breaks, the ability to use leverage (other people’s money), and the potential for the property to go up in value. But you need to know what you’re getting. You need to see the trade-off clearly.

The goal isn't just to chase the highest number. It’s to make sure the return you’re getting actually fits what you’re trying to accomplish.