It's impossible to give you a definite answer without seeing the return and discussing your facts and cirucmstances.However --If (1) you are not a real estate professional and (2) your modified AGI is between $100k and $150k, it sounds like the return is calculating correctly.RE losses are passive in nature if you're not an RE pro. 

Arizona is a pretty landlord friendly state, no rent control, evictions are pretty simple and quick, etc.The economy is doing very well in Phoenix, lots of inbound moves, growing diversified job market, reasonable tax structure, great weather, no natural disasters, and at least one great Realtor and Property Manager. 

It's not a natural posture, but I think you should get into this to disprove your initial optimism.

Purchase price: $260,000 Cash invested: $65,000 Beautiful and quiet upstairs unit with open floor plan and vaulted ceiling for RENT.Spacious 1 bed, 1 bath home, lots of storage and full-size laundry in unit.Large kitchen with natural light, Jack and Jill bathroom, private deck off living room.Large bedroom, park-like views.1 car detached garage and 1 dedicated parking space.

That's the natural sweet spot for SFR in our area for the small DIY investor, where the biggest gains can be made for modest investments.

Just trying to point out there is in fact two sides of the story, and that it is usually the lack of money in the deal (nature of the numbers) that truly causes the problems.

Also, I am guessing the home was not connected for natural gas and that is why you decided to go with propane heat.

Everything is going to hinge on the nature of the part being rented and how your accountant has set it up.  

That is just the nature of rental properties.

Higher down payment, naturally.