For most real estate investors—especially beginners—cash flow is the metric that matters most. It’s the money that hits your bank account every month after paying all the bills. In a rising-cost environment like Arizona (insurance, taxes, and HOA fees all trending upward), knowing how to correctly calculate cash flow has never been more important.
This guide will walk you through what cash flow really is, what expenses matter in Arizona, and how to think about long-term performance—not just month-to-month profit.
What Is Cash Flow? (Simple Definition)
Cash Flow = Monthly Rental Income – All Monthly Expenses
If the number is positive, you have positive cash flow.
If it’s negative, you have an alligator property that eats cash.
Cash flow is what pays:
- your mortgage
- your reserves
- your future renovations
- your long-term wealth-building strategy
And most importantly, it’s what provides financial stability when markets cool or vacancy increases.
Cash Flow vs. NOI (Don’t Mix These Up)
Many beginners confuse these two metrics.
NOI (Net Operating Income):
Income minus operating expenses
🚫 Does NOT include mortgage
Cash Flow:
NOI minus mortgage payments (principal + interest)
This means:
A property can have a strong NOI and still have weak cash flow once financing is included.
What Expenses Should Arizona Investors Include?
Arizona investors often underestimate certain expenses—this is where deals fall apart.
Here’s what should always be included:
1. Mortgage Payment
Principal + interest.
If it’s an adjustable rate loan—pay attention to future risk.
2. Property Taxes
Arizona’s tax rates vary by county and school district. Maricopa County rates have shifted upward in certain areas due to rising assessed values.
3. Insurance
Insurance costs in Arizona have been climbing due to:
- extreme heat impact
- roof claims
- industry-wide premium hikes
- wildfire exposure in rural/Flagstaff areas
Never plug in last year’s premium—get a fresh quote.
4. Property Management Fees
Typically 8–10% in Phoenix, with leasing fees on top.
5. Maintenance & Repairs
A healthy reserve is 5–10% of rents, higher for:
- older homes
- homes with aging roofs or HVAC
- homes with pools
6. HOA Fees
HOAs are extremely common in the Phoenix metro.
Many investors underestimate:
- special assessments
- transfer fees
- rental restrictions
7. Vacancy Allowance
Even in a low-vacancy market like Phoenix (3–5% is typical), ALWAYS budget at least 1 month per year.
8. Utilities (if paid by owner)
Common for small multis or homes with landscaping, water, or trash included.
9. CapEx (Capital Expenditures)
Major long-term items like:
- roof
- AC
- water heater
- flooring
- exterior paint
This is not monthly maintenance.
It’s long-term replacement planning.
Ignoring CapEx is one of the top mistakes new investors make.
Arizona Cash Flow Example: Surprise, AZ Single-Family Rental
Income:
Rental income: $2,250/month
Expenses:
- Mortgage (6.75%): $1,940
- Taxes: $165
- Insurance: $110
- Management: $180
- HOA: $50
- Maintenance reserve: $150
- Vacancy reserve: $180
- CapEx reserve: $100
Total Expenses: $2,875
Cash Flow:
$2,250 – $2,875 = –$625/month (Negative)
A lot of Arizona investors end up here without realizing it.
Same Property, Different Strategy: Stronger Cash Flow Using a DSCR Loan Structure
If the investor used:
- 40-year DSCR
- Interest-only (IO) for first 10 years
- Higher interest rate but lower monthly payment
Example payment: $1,540
Revised expenses: $2,475
Revised cash flow: $2,250 – $2,475 = –$225 (still negative, but improved)
This is why Arizona investors increasingly rely on:
- lower down payment
- DSCR terms
- creative loan structures
- multi-property portfolio balancing
Cash flow in 2025 often requires optimized financing, selective markets, and long-term planning.
Where Cash Flow Still Exists in Arizona (Current Trends)
Cash flow is harder than it was in 2012–2018, but it’s not gone. If you can buy off-market or via wholesalers and force rent appreciation, your odds improve.
These pockets often produce better numbers:
1. Tucson
More favorable price-to-rent ratios.
Class B/C multis often outperform Phoenix equivalents.
2. Pinal County (City of Maricopa, Casa Grande)
Lower purchase prices, decent rents.
3. West Valley
Buckeye, Maricopa, and El Mirage can produce near breakeven or slight positive cash flow.
4. Small Multifamily (2–4 units)
Especially in Glendale, Mesa, and parts of Phoenix.
5. Purpose-built STRs (If Allowed)
Must meet IRS use guidelines if you ever plan to 1031.
Cash flow in Arizona is now about selectivity, not volume.
Cash Flow Is Important, But Not Everything
Cash flow protects you.
Appreciation builds wealth.
Debt paydown builds equity.
Tax benefits amplify returns.
Portfolio balance creates stability.
A truly strong Arizona portfolio has a mix of:
- cash flow plays (Tucson, multis)
- appreciation plays (Phoenix, East Valley)
- tax plays (bonus depreciation, cost segregation)
- risk-balanced assets (lower CapEx, newer builds)
Cash flow is the foundation—but not the whole house.
How DTD Realty Helps You Analyze Cash Flow
Our investor-focused analysis includes:
- 10-year cash flow projections
- DSCR eligibility screening
- Insurance + tax forecasting
- Tenant profile analysis
- Rent comps by zip code
- CapEx mapping for older AZ homes
- Cash-on-cash and DSCR stress testing
Cash flow isn’t a guess.
It’s a model—and we build the model for you.
DTD Realty — Do The Deal.
Driven. Trusted. Dependable.
📞 602.702.3601
🌐 https://www.dtdrealty.com
📩 [email protected]
