How to analyze a deal.
Most losing deals in Phoenix were losers on the day they were signed — the arithmetic just had not been done. This guide is the arithmetic: what a flip really costs, what a rental really earns, the test a lender applies before funding, and two worked examples with 2026 numbers — one thin, one that fails.
If you read one part, read the ten ways an analysis lies to its owner. Then run your own numbers in the free deal analyzer, which opens pre-filled with the examples on this page.
How this was built
Every rate, fee and market figure here comes from our September 2026 briefings on the mid market and small landlords, where each was checked against the lender’s or programme’s own page on 8 and 9 September 2026. The worked examples apply those market figures to round numbers: they show the shape of the arithmetic, not the price of your deal. Re-run everything with a lender before you commit money. This is information, not investment, legal or tax advice.
Read this first
Three truths shape every deal you will ever run.
You make the money at the buy. The resale value is set by the market and the rent is set by the tenant pool; the only number in the whole stack you can negotiate is the purchase price. In the worked flip below, paying $20,000 less turns a $27,600 profit into $48,960 — because the saving lands straight in your pocket and shrinks the note, the points and the interest with it. If a deal only works at the asking price, it does not work.
The carry is a meter that never stops running. Interest-only money at twelve percent on a $250,000 note is about $2,500 a month before taxes, insurance, utilities and draw-inspection fees. Every month your schedule slips, the meter takes it out of your profit — and many notes guarantee the lender three to six months of interest however fast you finish. Time is not money in this business; time is your money.
The exit is underwritten, not hoped. A flip exits at what sold, not what is listed — in a metro on track to end 2026 down more than six percent. A rental exits through a refinance at a lender’s coverage floor of 1.20 to 1.25, not yours. Both exits belong to other people: an appraiser, an underwriter, a buyer. Run their numbers, not the seller’s.
The flip arithmetic
Seven lines decide a flip. Here they are on a real-shaped deal.
A $300,000 house, a $60,000 renovation, resold at $460,000 in six months on local hard money at the published September 2026 terms — twelve percent, two points, an 85 percent advance.
| Line | Amount | What to know |
|---|---|---|
| Purchase price | $300,000 | The one number you can negotiate |
| Rehab budget + 12.5% contingency | $67,500 | A priced, line-item scope — never dollars per square foot |
| Points, 2 on a $315,000 note | $6,300 | The note is 85% of the purchase plus the rehab |
| Interest, 6 months at 12% | $18,900 | On the full note — the conservative reading |
| Holding costs, 6 months | $3,600 | Property tax, insurance, utilities |
| Buy-side closing + 4 draw inspections | $3,900 | Title, escrow, appraisal; inspections at $225 each |
| Selling costs, 7% of resale | $32,200 | Commissions, title, escrow, concessions |
| Total cost | $432,400 | Against a $460,000 resale |
| Profit | $27,600 | 6.0% of the resale value — thin |
Now stress it, because the market will. If the resale appraises five percent lower, profit falls from $27,600 to $6,210 — one miss from zero. If the sale takes three months longer, the carry takes $11,250 and profit is $16,350. If the rehab runs fifteen percent over, the contingency absorbs all but $1,500 of it — which is the contingency doing its job. The deal survives each test, barely. That is what “thin” means, in numbers.
And this is why the buy is the lever. The same house bought at $280,000 — one negotiation — returns $48,960, a 10.6 percent margin on the resale value, and passes every stress test with room. Experienced flippers hold out for roughly ten percent of the resale value as profit; the old “seventy percent rule” screen (offer no more than 70 percent of the resale value minus the rehab) would have said offer $262,000 here. Use the screen to sort a pile of leads in minutes; use the full stack before you sign anything.
Where each term comes from, and what to push on: local lenders published 11–13 percent plus one to three points in September 2026, advances of 75 to 95 percent, draw inspections at $150 to $300. The four questions that move the number are in the deal analyzer, which runs this exact stack live.
The rental arithmetic
One ratio decides a rental, and in 2026 it fails at the asking price.
First, build the income honestly. Start from the effective rent — what leases nearby actually signed for, after the one to two months free that is a routine Phoenix concession in 2026. Take off vacancy at the metro’s own disputed range, 8.4 to 11.3 percent. Then subtract the operating costs people skip: property tax off the Assessor’s page, a landlord insurance quote, maintenance at eight to ten percent of rent, and management at the published $99–129 a month even if you plan to do it yourself — because the lender underwriting your refinance will. What is left is net operating income, and it is always smaller than the listing flyer says.
Then divide it by the year’s debt payments. That is the debt-service coverage ratio, the number a lender actually applies: most want 1.20 to 1.25. At 1.0 the property exactly breaks even; below it, the rental loses money every month it is rented.
Here is the honest 2026 result. Take the median house this tier of buyer actually paid — $368,000 — renting at an illustrative $1,900 a month. With twenty-five percent down and a 7.25 percent thirty-year loan, net operating income is about $12,500 a year against $22,600 of debt service. Coverage is 0.55 — the house loses about $840 a month. To reach a lender’s 1.25 floor at those rents, the house carries only about $122,000 of debt: a two-thirds-cash purchase.
That result is not a reason to quit; it is the explanation of the market. It is why 43 percent of Phoenix’s small landlord companies paid cash last year, why the ones who borrow buy below market through wholesalers and auctions rather than off the portal, and why the cheapest real door for a first investor is occupancy: FHA takes 3.5 percent down on a two-to-four-unit you live in and counts three-quarters of the other units’ rent as income. (Home in Five does not cover 2–4 units; the programmes that do are in the small-landlords briefing.) A deal that fails the coverage test at the asking price is the market telling you what the price should have been.
If the plan is buy, renovate, refinance — test the bridge and the exit separately. Our published sixteen-unit worked example covers only 0.86 to 1.10 during the bridge, needed a $60,000–90,000 interest reserve on top of roughly $1M of equity, and its refinance exit assumed about a 25 percent lift in net operating income — an assumption to underwrite with a lender, not a result of arithmetic. The full walk-through is in the mid-market briefing, and the analyzer’s BRRR mode runs the same test on your numbers.
Verify before you trust
Five free public records check every claim in a deal.
The Registrar of Contractors shows licence status, class and complaint history for any contractor — the one you are hiring, and you, because every lender and property manager will run the same check. In Arizona any job over $1,000 in labour and materials, or any job needing a permit, requires a licence, and an unlicensed contractor cannot sue to collect.
The County Recorder shows liens against the property and the seller, the chain of title, and the timing of every loan. A recorded deed of trust means a loan just funded; a mechanics lien on the seller’s other projects tells you how they pay their contractors before you become one of them.
The County Assessor shows what the seller paid and when — your negotiating base — and the real tax bill for the holding-cost line of your analysis. Guessing the tax is how carry estimates go wrong by hundreds a month.
The city permit record answers one question: does the finished square footage match what was permitted? An unpermitted addition or casita will not appraise, will not insure, and can stop your resale in escrow — whether you are buying it or comping against it.
And if the deal is a trustee sale, pull the chain of title and the lien position first, because senior liens survive the sale, the deed carries no warranty, and the winner pays the full price by five o’clock the next business day with no inspection and no right of redemption. The title work is not optional; it is the analysis.
Pitfalls
Ten ways an analysis lies to its owner.
Every one of these is a real mechanism with a dollar figure attached, and every one is avoidable before you sign.
Pricing the exit from listings instead of closings
An asking price is a hope; a closed sale is a fact, and the appraiser will use the facts. Pull sold comparables from the last ninety days, same beds, baths and square footage, and price below the prettiest one — metro Phoenix is on track to end 2026 down more than six percent, so last spring's comp flatters you. In our worked flip, a five percent appraisal miss cut the profit from $27,600 to $6,210.
Treating the draw as an advance
Rehab money is reimbursed, not advanced. You finish the phase, submit invoices and lien waivers, pass a $150–300 inspection, and are paid three to five days later — while suppliers run net-30. On a typical job you carry one full phase of labour and materials at all times. Small rehab firms die solvent, not unprofitable; the float is why. Negotiate a mobilisation draw before you start.
Signing the note without four answers in writing
Is interest charged on the whole note or only on drawn funds? Is there a minimum interest period — three to six months of guaranteed interest kills a fast flip? What does an extension cost and how many can you have? Are there exit or back-end points? Ask all four before you sign, because the answers change the arithmetic by thousands.
A rehab budget with no contingency
Ten to fifteen percent, stated in the budget, top of the range on pre-1978 houses — where cloth wiring, cast-iron drains, undersized panels, missing roof sheathing, failed slab plumbing and asbestos in ceiling texture are the norm, not the exception. In the worked example a fifteen percent overrun cost only $1,500 because the contingency absorbed the rest. Without it, the same surprise costs $9,000.
Forgetting the government's line items
Arizona taxes contracting, and it taxes ground-up and substantial-alteration work differently from maintenance and repair — bid the wrong treatment and you bid at a loss on your own paperwork. Flip profit is ordinary income and carries self-employment tax; it is not a capital gain. And disturbing paint in a pre-1978 house requires a federally certified renovation firm. One hour with an Arizona accountant prices all three into your template permanently.
Underwriting the advertised rent
One to two months of free rent is a routine Phoenix concession in 2026, and two-bedroom rents are down 3.2 to 8.3 percent year over year depending on the city. Twelve times the ad is not the income. Use the effective rent off leases actually signed nearby, then take vacancy off that.
Vacancy at five percent because the spreadsheet came that way
Phoenix's own second-quarter 2026 vacancy readings disagree — about 8.4 percent by one source, 11.3 by another. Nobody can honestly tell you which is right, so run both. A deal that only works at five percent vacancy in this market is not a deal; it is a wish with a spreadsheet.
A debt coverage below 1.2 with no interest reserve
Below 1.0 the property loses money every rented month; between 1.0 and 1.2 it fails most lenders' floor. If the plan is renovate-then-refinance, the months in between are the danger: our published sixteen-unit example covers only 0.86 to 1.10 going in and needed a $60,000–90,000 interest reserve on top of the equity. Budget the reserve before you need it.
Paying for square footage the appraiser will not count
An unpermitted addition or casita will not appraise, will not insure, and can stop a sale in escrow. Check the permit history against the finished square footage before you buy — and before you trust a comparable, because a comp inflated by unpermitted space poisons your resale value too.
Making a trustee sale your first deal
Arizona's foreclosure auction wants a $10,000 deposit for standing and the full price by five o'clock the next business day. No inspection, senior liens survive, the deed carries no warranty, no title insurance until you buy it, and no right of redemption after. Experienced buyers with title work and cash do fine here. It is not a first deal.
Now run yours
The analyzer runs this whole method live, for free.
Both worked examples on this page are the analyzer’s starting values, so you can watch the arithmetic move as you change one number at a time — then replace them with your deal. It stress-tests the result, flags the Arizona traps as you type, and your numbers never leave your browser.
And when you have a real one, bring it to the room. Members meet in person — site visits and workshops where a real deal gets taken apart line by line, with people who have signed a few. The research stays free for everyone either way; membership is what funds it. How membership works
The fine print that matters
The worked examples apply published market averages to round numbers; your deal will differ, and lender terms quoted here were checked on 8 and 9 September 2026 and move in weeks. The vacancy figures are genuinely disputed and we publish the conflict rather than picking a side. Nothing here is a quote, an offer or a commitment to lend, and nothing here is investment, legal or tax advice — before money moves, the numbers go past a lender, a title officer and an Arizona accountant, in that order.