Crunching the numbers

[Mr Good]

Hi,

I want to buy a single family home as a longterm investment. I already own a nice home and I have around $300k in short-term CDs ready to invest. I like the idea of earning rental revenue far more than the stock market or bank rate of interest.

I found what looks to be a nice home that meets my general criteria. It's in good shape (same owner since 1980), initial review looks good. There is an upstairs area with 1.5 ba and 3 bdrm which I can rent for about $1400/mo. There is a separate downstairs, with private entry, with kitchen, 1 br and 1 ba, I can rent this for $800 easily. So total is $2200 rental revenue. It is not a legal duplex but I believe in this area I would not have a problem renting it to two parties.

The owner has it listed at $370k on the MLS but the owner said there is a clause that says they can sell it independently as FSBO. I already purchased one home with FSBO and I have no problem with this. I found the home via For Sale By Owner advertisement.

What do you gurus say about the numbers--assuming $2200 per month and basic cost of maintenance, what kind of price should I pay today if I expect to get 5% on my money per year irrespective of property appreciation? Right now the market is very slow so I will likely at least start with a lowball offer, but I wonder what pricetag gets me 5% return assuming rents of $2200/mo.

Thanks for any responses!