From the number you provided I think it was a good investment.
A couple of things you will need for your math to be realistic long term is:
1. Estimate for average repair costs going forward- Based upon my first rental unit that was also new, average repair costs were zero, but that has only been for about 2 years of a new home.
2. Vacancy rate- In 2 years I have had 2 renters and zero vacancy.
3. Commissions for realtor- I pay 1/2 month (~$700) rent as a finders fee to my property manager when she locates a new tenant. If you are talking about realtor costs when purchasing this property they would be paid by the seller.
4. Umbrella policy if you are considering to get this in the future. I have heard of but I am not familiar with umbrella policies. What does this do for me? I already feel I am paying too much for my landlord insurance.
As to your question on a next move, I would give serious consideration to the following:
1. Get some debt maybe buying 2 properties with 50% financing on these. I am listening. We paid cash in full such that we would have no worries of risk, but admittedly my experience has shown this to be a very low risk and we have the money to cover even if this did happen.
2. Consider what was the increase in property prices since you bought the first home vs the increases in rent in the same period. My guess would be appreciation was faster than rental increases but it can vary market to market. There have been no rent increases. I do not know if the property value has increased.
3. Prioritize buying discounted properties probably REOs but do a thorough review of property condition and assessment of costs of repairs. If you look at recent comparable sales and are able to see the pictures of the property sold and sq ft you might get an idea of the discount you are getting. Also Freddie and Fannie have very good programs for investors with very high leverage (I bought at 90%LTV with 4.375% rate). I would do this. There are two issues; I am currently 600 miles away and I am not yet knowledgeable of buying, fixing up and renting REOs/ distressed properties.
To expand on point 1 the logic for getting some debt is the following:
1. if your return on a cash purchase is 7% a 50% leverage at 5% APR 30 yrs fixed will increase your return to 9% of the cash invested.
2. The appreciation play is double as you have exposure to twice the assets (but in the same way it plays against in the downside). Your inflation hedge is somehow better also as rentals are somehow correlated to inflation and since your mortgage payment does not change (use only fixed rate non recourse, I personally prefer 30yr fixed loans) this results that the weight of interest payments over time tend to be minimized as rents increase but payment remains constant.
In summary I think you did the right purchase and got the correct returns but you might consider some leverage. you must feel comfortable with having to make monthly payments every month. You have explained well the value of having a little debt. I see it and I believe we (my wife and I) look at yet another rental unit as you have recommended. I will be retiring early. I will retire soon at 55. I see the income from these rental units as a primary source of income until I reach 59 1/2.
