The chart below has the rental rate per square foot by city, the absorption rate, the current supply and the Gross Rent Multiplier all for single family homes.

It is intended to give you a rough idea of which cities in the Phoenix metropolitan area are the fastest to recover their capital cost in rent, based on current single family rental rates and current purchase prices.

Each city has price variation even down to neighborhood and price ranges so this analysis can be even more detailed and should be as you move in closer to your target purchase.

The supply of rental homes is quite low overall.  The number is Scottsdale may be skewed higher due to some properties being continually listed on the market.  Scottsdale is a big short term rental market. Though this is a small part of the market it none the less makes an impact.  It's not surprising as well that Paradise Valley has a large supply of homes.  Gilbert and Tempe have a very low supply while having a reasonable GRM. 

Still the GRM in Phoenix is very high.  This means that the rent you can expect is quite low compared to the price you will pay for the property.  While this is a good deal for tenants it makes it more difficult to make a property cash flow.

The high GRM for single family homes makes income multifamily properties more attractive.  A typical B fourplex will have a GRM of 7.5 to 9.5.

(Absorption is per month | Supply is in months of supply)

What is the GRM (Gross Rent Multiplier)

The monthly Gross Rent Multiplier is equal to the Sales Price \ Purchase Price of a property divided by the potential monthly rental income.  You can do it on a yearly basis as well.

Example:  Paradise Valley:  If rent is $3,000 then the value of the property is $1,278,000. or $3,000 rent x 12 months = $36,000 x 35.5 GRM = $1,278,000.

Generally you want the lowest possible GRM.  If the GRM is 35.5 like in PV then its really not a good rental investment.  Your payment will far outweigh the rental income.

In Phoenix, the GRM is 13.5 so a home with $1,200 monthly rent will usually be priced around $194,400.

You can look at it this way.  If you see a home for sale for about $230,000 in Phoenix and the GRM is 15 then you can expect to get $1,250 in rent. 

This is pretty accurate to a point.   You will not get proportionally more rent as the price goes up.   So a $1,000,000 home will not rent for $5,500 in Phoenix.  It may rent for $3,500 or $4,000.

If you would like the similar data as above for other cities in the Greater Phoenix please call us or contact us.

Got some question?  Contact Us.