This topic is right down my alley. I'm in the last stage of doing the same thing, except with $300K.
Most important decision is location, location, location.
I picked my market, I picked my archetype of the house I thought would rent well, and it turned out the average price was $225K. I put 25% down on each at an average APR of 4.75% and it cost maybe $63K to close, fix and rent each. I was left with just what I wanted, about $50K operating capital for my business.
I expect to recover my closing costs, repair costs and rental commissions between year 1 and year 2, and thereafter should get maybe $250-$300 each positive cash flow after income taxes, and not including mortgage pay down (a much larger profit than the cash flow). I won't know what my ROI is until perhaps 2-3 years but it's looking like I'll hit somewhere just below 10% per year (including positive cash flow and mortgage pay down).
Compare that with the 0.35% interest I'm getting in my money market account. Even better, my MM account is sure to be eroded by inflation. My houses on the other hand I see as inflation hedges. My lender owns 75% of each house and I have conventional 30 year fixed APR mortgages. Even considering the concept of inflation as applied to housing values* it's the bank that is taking the inflation hit. I take only 25% of the inflationary hit on my $225K house.
* Does inflation really affect housing values? Barring major market fluctuation and bubbles, housing values have tracked the valuation of the dollar fairly closely. Expressed in terms of the time value of money housing prices have hardly changed at all in decades, excepting what I stated above. That is why I call houses inflation hedges.
The cash flow and mortgage pay down are just two of the benefits of being a landlord. In terms of my needs I see the inflationary hedge as being a much larger benefit. The cash flow is just the gravy.
By the way, about location and being hooked up with the right people. I'll confess. I'm not smart at all. I'm a dummy!
When you are a dummy there are two things you can do. (1) Be content to be a dummy. (2) Find a smart person and whatever they're doing, do the same thing.
My best buddy did the same 4 houses in the same zip code last year. I have his ROI figures: 10%. Like I said, he's much smarter than me when it comes to money. He calculated his ROI in advance. I won't know my ROI for sure until I measure it. He handed me his Realtor (I just love her!!!), his lender came hooked up with the Realtor, and he handed me his handy man and pool guy. It just happens that my cousin lives in that zip code and he handed me my final but important member of my team: my housekeeper who spit polishes the houses before they are shown to prospective renters. Me??? I have the check book and I change the locks!
So what was said earlier in the topic I agree, you need a good team to be a successful landlord. You need to either be a smart guy or know a smart guy who is willing to hold your hand (my BFF), and of course you need the seed money, the income (debt to income ratio) and a good FICO. 800 is a good number to start with although I've been assured that 740 is entirely sufficient to get the best investor rates.
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