9-10% Return & Peace of Mind

[Andre O.]

Hello everybody. I understand the concept of controlling properties to build wealth and the benefits that come from finding a deal and using the banks money. Given you had 250,000 liquid why wouldn’t one:

1) Purchase a 3 Bedroom 2 Bath Condo

2) Rent out two rooms for 900 monthly each 

3) Take the third room “effectively removing your rent payment you will need anywhere”

Result - 2700 x 12 = 32,400 minus 10,000 for HOA and Yearly Property taxes. This leaves you with approximately and essentially 22,400 liquid profits per year. Plus peace of mind you own the place free and clear. That's effectively a 9% return on your money, and now you can aggressively invest your income from your business and this extra money with really no risk at all. You have the freedom in life to start another new business and can take your time to build one.

What am I missing here? This plan seems like a no brainer. In the future with a wife and family the finances change a bit, but the peace of mind of even renting the whole thing out which finances a house with the future family seems like a better decision than to bank on extra returns. Thoughts please?

[Nick C.]

It's not a bad strategy, you had me until the "no risk at all" part of the post. Just off the top of my head - tenant(s) stop paying, tenant(s) injure themselves and sue you, major repair in your unit, major repair in another unit damages your unit, HOA decides to not allow rentals anymore, market could tank and you may need that $250k for something else at the same time, etc.

I'm not trying to dissuade you, but an investor needs to think of the risks of any investment, and figure out if the return justifies those risks.