Is it a good idea to buy a new townhouse and rent it?

[Gina Chang]

First of all, Happy New Year to you all! 

I just saw a new townhouse with one car garage. The location is good, the price is $320000, the monthly rent would be between $2000 and $2200. I will pay 20% to 25% down payment. The monthly HOA fee is $60. Most likely I am going to get a 30 year conventional loan with the rate at around 4.125%. It looks like I won't have any cash flow if I invest in this one, but since the house is brand new, I won't have to deal with repair issues which is what I am afraid to deal with.

Is it a good idea to buy a new home as a rental property? Any input would be appreciated! Thanks in advance.

[Cal C.]

No, unless it is purely a speculative appreciation play.  

Here is why-  25% down is $80,000.   Your closing costs will probably be around $6,000.  Total $86,000.  Your mortgage payment would be about $1180.  Using 40% for expenses (its likely going to be  higher over a period of years) means you'd net something like  $140 a month or $1,680 a year.  That is a cash on cash return of less than 2%.  If you are able to take deductions on your taxes and since you are paying down the mortgage each month that would increase your returns to somewhere near 5%.   That still doesn't seem like a very good return and that is best casing it.