Good points Zeek, but I was thinking instead of having $200K sitting in a savings account making 1.90% annualy, invest in buying a rental property. For income generation the return is higher on a rental property but from what everyone seems to be saying is that it is still a dice roll with headaches of bad tenants, etc. Thanks.

It's all about how much you pay for the house and what kind of renters you get. Buy the house cheap and get good renters, and you can do really well.

Personally I wouldn't pay $200k for a rental. The folks I know who have done well paid much less than that. My old boss just retired a few years ago at 52. Has 40+ rental houses and his rule for years was to never pay more than $25k. He spends a bunch fighting renters that don't pay and you can't get anything for that price now, but he's retired at 52, goes on at least one vacation a month, and hasn't touched his 401k or pension.

Now I don't think that's ideal either. My wife and I just got into this. Spent $79k on a house, put $9k into it, and getting $1100/month with really good renters. I'd try to find something in the $100k-$125k range. $2000/month rent may not hold up very well if the economy goes south, but $1000/month will hold up for much longer. At least that's my theory. Lots of folks are doing well in the $2000/month, and the closer you get into the metroplex that might be fine, but we're out the outskirts of the suburbs and I wouldn't take those risks here.

I'm not knocking cheap rentals, I have one and its is the worst performing property I have, I bought for 80k, put 12k in it. Rents for 950. It has been rented all but 3 months for the 4 years i have owned it. First problem is these type houses dont really go up in value like the current, nicer new homes, if I sold it I would get maybe what I have in it back, currently I would make 50k each in appreciation on my nice rentals. Next is you do deal with a different type of tenant, I mentioned earlier I have a lawyer and a retired colonel in mine. I sleep well knowing the properties are in good hands. 3rd and a biggie is that the repairs eat up all the money on a 1000 dollar a month house. A hot water heater is basically the same price no matter the house, one you get 2k plus one you get 1k, one or 2 issues a year really kill your return. One of the more wealthy friend I have bought 3 new properties in a desirable area for 600k each, rents them for 5k a month and they are all ways rented, executive types. Now even at that rate with the property taxes the return isnt good, but after 3 years those houses would all sell close to 900k each putting 900k in his pocket. My point being there are different ways of looking at things.

Are you including HOA dues in the equation. Every house we have in our HOA is a Pain in the rear. None of them water or maintain the yard, they violate every rule we have. All we can do is send notices to the owner who really don't care.

I've thought long and hard about it a bunch of times. I always end up deciding not to do it. Just too many horror stories with renters. When you start to factor in your time managing the people and the maintenance issues that 4.4% you think you are making shrinks very quickly. Easier ways to make similar of better returns with far less work. (Like just about any deep discount index fund from Vanguard).

It's all about how much you pay for the house and what kind of renters you get. Buy the house cheap and get good renters, and you can do really well.

Personally I wouldn't pay $200k for a rental. The folks I know who have done well paid much less than that. My old boss just retired a few years ago at 52. Has 40+ rental houses and his rule for years was to never pay more than $25k. He spends a bunch fighting renters that don't pay and you can't get anything for that price now, but he's retired at 52, goes on at least one vacation a month, and hasn't touched his 401k or pension.

Now I don't think that's ideal either. My wife and I just got into this. Spent $79k on a house, put $9k into it, and getting $1100/month with really good renters. I'd try to find something in the $100k-$125k range. $2000/month rent may not hold up very well if the economy goes south, but $1000/month will hold up for much longer. At least that's my theory. Lots of folks are doing well in the $2000/month, and the closer you get into the metroplex that might be fine, but we're out the outskirts of the suburbs and I wouldn't take those risks here.

I have rented three properties out when I moved to another state due to my job. They all worked out because we got good renters who built up the equity for me and when I sold, I made a good chunk of change from each of them.

Then I bought a house in California on a double short sale who had a renter in it and I quickly learned the other side of the coin when he refused to vacate. He had a child in the house and in Cali., that was as good as gold because he could not be removed from the house. As long as he was paying $20.00/month on the $2,500.00/month rental agreement, nothing could be done on a legal basis. It took one crazy SOB to stop by one night and threaten him with all kinds of bodily damage to get him to leave so I could close on the house. Two days later, he cleared the house but did some damage on his way out that the bank had to eat (they were the 'Owners'). That was the last time I would ever consider a rental property for income purposes.

My business partner and I have quite a few rentals. Buy new! I know it sounds nuts, we have several in a new development that ranged from $189-$249. They rent from $1800-$2700 a month we use a property management company. Also when we have them built we do not go crazy with granite and such. There is not enough nice 4/2/3 houses in the Texas rental market. Our goal is 40 by 2030, he owns a mobile home park which is where the money is. Problem is the county is always on his backside

With rates as low as they are, I don't think paying cash for a house makes much sense. I have a few rentals. I put 20% down on all of them. Let the bank take the risk. Get a good lawyer, insurance agent, and real estate agent, and put the properties in an LLC.
I would buy somewhere with a college and hospitals. This doesn't mean you're renting to college students, but it does help with demand. At the end of the day, the key is good tenants and a good lease.