Two Phoenix tenant-occupied condos, 4.6%–7.6% cap — sanity check my numbers?

Question

Hey BP community,

I'm a broker in the Phoenix/East Valley market with two small investment condos I'm listing directly, and I'd love a sanity check from people who buy this asset class regularly — am I pricing these right, or is there something I'm missing?

Property 1 — 4037 S 45th St, Phoenix 85040

• Price: $159,000 (appraised at $160,000)
• 2bd/1ba, 924 sqft
• Long-term tenant in place, $1,300/mo month-to-month (slightly under market)
• HOA: $287/mo
• Recent updates: new AC, upgraded flooring, partial kitchen/bath
• NOI: ~$12,156/yr → ~7.6% cap rate

Price: $159,000 (appraised at $160,000)

2bd/1ba, 924 sqft

Long-term tenant in place, $1,300/mo month-to-month (slightly under market)

HOA: $287/mo

Recent updates: new AC, upgraded flooring, partial kitchen/bath

NOI: ~$12,156/yr → ~7.6% cap rate

Property 2 — 4450 E Pueblo Ave, Phoenix 85040

• Price: $189,000 (appraised at $190,000)
• 2bd/2ba, 792 sqft
• Long-term tenant on active annual lease, $1,075/mo (also under market)
• HOA: $348/mo
• Recent updates: new flooring, updated kitchen, newer roof
• NOI: ~$8,724/yr → ~4.6% cap rate

Price: $189,000 (appraised at $190,000)

2bd/2ba, 792 sqft

Long-term tenant on active annual lease, $1,075/mo (also under market)

HOA: $348/mo

Recent updates: new flooring, updated kitchen, newer roof

NOI: ~$8,724/yr → ~4.6% cap rate

Both are tenant-occupied with a solid pay history, so no vacancy risk or lease-up costs for a buyer — you're cash-flowing from day one. No showings needed either since it's all numbers/document-driven due diligence up front.

Genuinely curious what this community thinks — good buys at these numbers, or would you want to see rent pushed closer to market first before pulling the trigger?

Michael Eskenasy · Answer

The first thing I’d fix is the cap-rate math.

Right now, both “NOI” figures appear to be gross rent minus HOA only:

Property 1: $15,600 rent − $3,444 HOA = $12,156.Property 2: $12,900 rent − $4,176 HOA = $8,724.

That means the quoted 7.6% and 4.6% are not really cap rates yet. You still need property taxes, landlord insurance, repairs/maintenance, management if applicable, and some normalized allowance for vacancy/turnover. Once those are included, the actual yields will be materially lower.

I’d also push back on “no vacancy risk.” An occupied unit reduces immediate lease-up risk, but the first property is month-to-month and both rents are below market. A buyer still has to underwrite what happens when that tenant leaves—or what it costs to move rent to market.

For condos, I’d want the HOA documents almost as much as the property financials: current budget, reserves, recent/expected special assessments, insurance, rental restrictions/caps, litigation, delinquency rate, and anything affecting lender warrantability.

Of the two, Property 1 is clearly the more interesting starting point because there is enough spread to investigate. Property 2 at a stated 4.6% before the rest of the operating expenses is going to be difficult to make compelling as a cash-flow investment unless there is meaningful and defensible rent upside.

And I would still inspect the units. “Numbers/document-driven” diligence is useful, but a tenant-occupied condo can hide a very expensive physical problem.

If you want, connect with me and send the actual taxes, insurance, HOA docs and market-rent support. I’d be happy to run both through a clean apples-to-apples underwriting and tell you where I think the pricing really lands.

Jules Aton · Answer

I agree with @Josh Young about selling vacant and it would probably be worth paying a skilled, local Realtor. You will have a larger pool of buyers. In my area, most investors righfully so, don't mess with condos and even if they did a month to month tenant with rent below market isn't at all appealing.

Josh Young · Answer

@Tricia Manara

Condos don’t trade on a cap rate, they are based off comps and an investor is going to want to get a discount vs the appraised value unless you are offering a special financing incentive.  Personally I look at price to rent ratios because seller advertised cap rates don’t usually have any expenses accounted for in the NOI. Yes you should increase rent before selling, but you will sell for the most money if you get the tenants out and sell them vacant. Based on your numbers I’d value the first one at $130k and the second one at $95k. I came to those by taking the rent and subtracting out the hoa and then dividing by 9%, this will get you roughly to a 7 cap if you account for taxes, insurance, maintenance, repairs, and property management. A real 7 cap is what makes sense when interest rates are at about 7%. I hope this is helpful.