SFD landlord looks like a bad deal: what am I missing?

[Stanley Denman]

I have come into a modest inheritance and I am considering how to invest the money.  These funds came primarily from the sale of my parent's house. Prior to the sale my brother and I considered renting as joint tenants, but we decided we might not be a good fit for owning property together.  As I consider investing the cash proceeds now, I am looking at the purchase of a rent house, but as I look at the numbers it does not seem like a very good deal at all.  Since many here swear by SFD landlording, I invite a critique of my analysis.

My numbers are based upon 2 assumptions I have picked up on here and elsewhere: (i) typical monthly rent should be from 1% to 2% of purchase price, and (ii) assume that repairs and insurance is about 50% of rent receipts.  Also an assumption is that the appreciate of the house value is not going to be real significant, which is I think a reasonable assumption in our post-housing bust world. I am looking at purely cash flow.

Let's say I have $100K to invest. If I do really well with my house buy and get 1.5%of  purchase price in rents, I will get $1500 a month in rent. With the "50% rule" I net $750 a month for an annual return of  9% annual return.  Sounds nice.  Certainly, however, if I compared that return with stock market returns via a dividend oriented ETF or quality mutual fund over the last few years, the house doesn't seem so great.  But OK, the stock market looks like it is going to suck for the foreseeable future.  Yet even in this environment I don't think a 4% return through stock and bond investing is unreasonable.

So in my example, buying and renting a house gives me a 5% better return, or $5K a year. Not bad.

BUT, we have all heard the negatives: tenants trashing the property, and periods where the property is unrented, it just does not seem the extra 5% rent is a good deal.  Please, oh wise ones, tell me what I am missing!