Phoenix rental at $1,355,000 and $8,474/month — do the numbers hold up?

I’m sanity-checking a Phoenix rental being offered at $1,355,000. It’s a 1-bed detached home with expected rent of $8,474/month, giving the broker’s headline gross yield of roughly 7.5%.

The building appears sound, but gross yield is doing a lot of work here. My conservative model includes vacancy, management, routine maintenance and a reserve for one larger repair. I have not yet settled on realistic allowances for insurance, property tax or tenant turnover, and I want to avoid treating financing costs as though they were operating expenses.

What Phoenix-specific ownership cost am I most likely to underestimate? Also, what unlevered net yield would you require before accepting the vacancy and concentration risk of one tenant in one high-value property?

Start with post-purchase property tax and a firm insurance quote rather than the seller’s current figures. Then clarify who pays every utility and any exterior upkeep. For Phoenix, I would also give the cooling system its own repair and replacement allowance instead of burying it in general maintenance. One failure could consume a meaningful part of a month’s rent.

How solid is the $8,474 rent assumption? Is it supported by an existing lease, comparable signed leases, or just an asking figure? On a 1-bed detached home at this price, a small tenant pool could make turnover more expensive than a simple vacancy percentage suggests. Leasing costs, cleaning and time between unusually high-rent tenants should be modeled together.

Agreed on testing the rent, but I would not automatically reject it because the tenant pool may be narrow. The arithmetic gives a useful hurdle: annual gross rent is $101,688, and each $13,550 of annual costs removes about one percentage point of yield on the purchase price. A 5% net yield would allow roughly $33,938 for vacancy, management, taxes, insurance, maintenance and reserves. Is that remotely enough once actual quotes are inserted?

That $33,938 allowance is the right way to expose the issue, although I would separate predictable annual expenses from irregular capital work. Otherwise a quiet year can make the deal look better than it is. I’d run a second case with one turnover, a longer vacancy and a significant cooling or building repair occurring in the same year. If financing is involved, stress the debt payments afterward; borrowing changes cash-on-cash returns, not the property’s unlevered net yield.

Before choosing a required yield, I’d make a one-page schedule with evidence beside every number: lease support for $8,474, current and expected property tax, an insurance quote, management terms, responsibility for utilities and exterior care, turnover costs, and separate routine and major-repair reserves. Then compare the base case with zero rent growth and a downside vacancy case. If the deal only works when every uncertain item lands favorably, the 7.5% headline is not providing much protection.