Underwriting in Arizona is unique. We’re a fast-growth Sun Belt state with sharp seasonality, a strong pipeline of in-migration, employer expansions, new-build activity, and submarket-specific nuances that can make or break returns. Investors who underwrite the same way they would in the Midwest, California, or the Southeast often miss key factors that materially impact performance here.
Below is a clear, investor-friendly framework specifically designed for Arizona properties—single-family rentals, small multi-family, townhomes, condos, and small commercial.
Start With Hyper-Local Rent Validation (Don’t Use Statewide Averages)
Arizona rent growth varies dramatically by submarket. Even within Phoenix, the difference between Tempe, Maryvale, Central Phoenix, Gilbert, and Queen Creek can be night-and-day.
Before plugging rents into your spreadsheet, validate:
- Current rent comps within 0.5–1 mile (or same school district in suburban markets)
- Product type (avoid comparing detached SFH to 1980s condos)
- Amenity premiums (pools, updated interiors, garages, proximity to ASU, etc.)
- Seasonality – Rents peak April–August; Q4 is historically soft
- Student influence – Tempe, Tucson, Flagstaff behave very differently from standard SFR markets
Arizona is both competitive and data-rich—so the investor who validates rents correctly can avoid the most common underwriting mistake: inflated pro forma income.
Always Underwrite One Level Below Pro Forma to Stay Conservative
A simple Arizona-specific rule that works exceptionally well:
Underwrite each property as though rents will stabilize ~3% below top-of-market.
Why it works here:
- New construction supply can temporarily soften rents
- Lease-up velocity changes quickly in Phoenix
- Concessions appear unexpectedly when big developers release units simultaneously
- Value-add timelines often run longer in Arizona due to contractor backlogs in peak season
This keeps your DSCR stronger, protects your debt strategy, and reduces surprise vacancies.
Adjust for Property Age and “Arizona Wear-and-Tear”
Arizona’s sun ages homes faster than most states. Investors often underestimate:
- Roof aging (underwriting a 25–30 year replacement cycle is risky—20–22 years is more realistic)
- HVAC strain (5-ton systems work harder here; budget for earlier replacement)
- Stucco maintenance due to heat cracking
- Pool equipment that cycles much more frequently than in cooler climates
For older homes (especially 1970s–1990s Phoenix builds), include:
- A CapEx reserve of at least 8–10%/yr
- A near-term HVAC contingency, especially for homes older than 20 years
- A pool maintenance estimate that reflects summer load, not annual average
These avoid mid-year hits that crush cash flow.
Plug in Authentic Arizona Property Taxes and Insurance—Not National Averages
Arizona property taxes are reasonable compared to high-tax states, but the tax rate resets on sale, and many new investors don’t model this correctly.
You should:
- Underwrite taxes at full market value (not the seller’s current amount)
- Account for district-specific add-ons (schools, bonds, fire districts vary significantly)
Insurance has also changed:
- Heat-related claims
- Water damage from monsoons
- Roof/wind claims increasing premiums in some zip codes
Don’t use outdated insurance numbers from national calculators—get a quote or plug in a realistic Arizona baseline.
Stress Test Your Deal for Seasonality and Vacancy
Arizona is seasonal. You don’t want a vacancy to hit in November–January.
Model:
- One month of vacancy minimum each year
- Lower lease-up speed if buying during Q4
- Higher competition around major move-in cycles (May–August)
For student rentals, apply:
- Pre-leasing cycles
- Potential turnover risk
- Higher annual wear-and-tear reserves
Seasonal vacancy is not a risk—it is a certainty. Strong underwriting predicts it.
Evaluate Tenant Pools Honestly (and Match Them to the Asset)
Arizona has diverse tenant pools:
- Remote workers
- Students
- Healthcare workers
- Hospitality/service employees
- Corporate relocations
- Snowbirds looking for furnished rentals
Underwriting should reflect:
- Who will rent this home?
- How quickly do renters move in this area?
- What income band are you targeting?
- Does the unit size/layout match local demand?
Example:
A 1-bed condo in Old Town Scottsdale can outperform a 3-bed SFR in Buckeye on cash flow per dollar spent—but only if the underwriting aligns with renter demand.
Run a DSCR-Style Analysis Even for Conventional Loans
DSCR logic keeps you disciplined.
Regardless of financing:
- Run DSCR as if the lender is evaluating it
- Set minimum acceptable DSCR (e.g., 1.15–1.20+)
- Check DSCR using realistic P&I payments assuming current rates
- Stress test DSCR by dropping rents 5% and raising expenses 5%
If it still pencils?
It’s likely a strong Arizona investment.
Verify Local HOA Conditions Carefully (Arizona Has Thousands of HOAs)
HOAs can dramatically impact returns depending on:
- Monthly dues
- Rental restrictions
- Exterior maintenance responsibilities
- Short-term rental rules
Underwrite:
- Dues with a 3–5% annual increase
- Special assessment risk—especially for older condo complexes
- The full impact of rental caps or minimum lease terms
Arizona investors overlook HOA influence more than almost any other factor.
Check for All-in Carrying Costs During Renovation (Heat Makes This Expensive)
Summer renovations cost more due to:
- HVAC usage
- Faster material degradation outdoors
- Higher labor pricing
- Slower city/permit processes during peak
If you plan a value-add:
- Add 5–10% to renovation cost if working June–September
- Add extra days for permitting in Phoenix, Scottsdale, and Tempe
- Budget a cooling plan for crews—Arizona heat is a safety factor
This protects your timeline assumptions.
Build a Local “Reality Check Spreadsheet” Before Submitting Offers
This should include:
- Verified rents
- Vacancy assumption
- Seasonality impact
- Insurance + full tax reset
- HOA dues
- CapEx adjusted for Arizona conditions
- Stress-tested DSCR
- Renovation cost adjusted for Arizona seasonality
When you apply this framework consistently, your probability of “surprises” drops dramatically.
Final Thoughts: Arizona Rewards the Prepared Investor
Arizona is one of the most predictable—and profitable—states for long-term rental investing. The fundamentals are strong: population growth, employer demand, limited infill supply, and a business-friendly environment.
But the investors who succeed here don’t guess.
They underwrite with Arizona-specific discipline.
DTD Realty — Do The Deal.
Driven. Trusted. Dependable.
602.702.3601
https://www.dtdrealty.com
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