Although we’ve proven the success with our 3 current rental properties, purchasing a new one is still a big decision. We’re currently contemplating another rental property and deciding whether it makes financial sense with the current housing prices. We’ll utilize this property as an example of the primary things that we think about.
The most important piece that we focus on is the income and expenses to see if the financials could work out:
Financial Analysis Summary: If we sell the house in 15 years for a price of $139K (no price increase) we would make $120K in profit off an initial investment of $50K or a return of about 240%. Another way to think about it is putting $50K into a house now and will pay out $2K a year for the next 15 years. Also at the end of 15 years we’ll own the house outright with no debt. Then we can choose to either sell the house or continue to rent it out and earn about $8K per year.
Risks: The biggest risk that we worry about is if there is enough in the rental market as the financials of this working all hinge on the property being rented. If something should happen that the property has trouble renting we’d want to at least have enough personal cash flow to be able to cover the $650 mortgage until a new tenant comes in or we choose to sell the property. Outside of that there is some risk that the property value could decline. If we look at the property from a long term view the property could decline but we should still be able to make money from our tenants effectively helping us to pay of our loan.