Here is the scientific answer!

The question you asked was not good. There was not enough information to calculate. On the other hand, you gave some information which is not directed related.

The answers from those master level landlords were based on their experiences, but I have to say they were not satisfactory to me. Unlike religion and culture which can accept multiple answers, there is always just one scientific answer. Here is my answer:

First, you got to understand which relative parameters which affect the calculation directly. All those parameters must be quantitative. Then you have to provide all those or as many as possible. You should have provided property tax amount, school tax amount, insurance…

Some other parameters are not directly relevant, but you provided. I saw a lot of others did the same, always providing the square footage of the property, number of bedroom, bathroom, the quality of the school district, location,… all those are not needed for calculation, first they cannot be quantified. Second, they are not direct related, for example, the square footage or number of bedroom, bathroom, the quality of the school district, location,…, they are reflected through the monthly rent! Or more other parameters, such as the location could affect your mortgage rate, alternative investment rate or cost of maintenance.

Misusing cash flow is one of the big pitfalls in those experienced landlords thinking. Any problem of cash flow is not a problem of profitability; instead, it is a problem of operation. A lot of real experienced landlords have suffered a lot from bad cash flow which could suffocate or had suffocated their rental business, but that’s the problem of their management and operation. They always confuse the profitability of the business with the survival of the business. That’s the reason Miat42 concluded that it’s a bad investment if you down paid 20%, but a good one if you down paid 30%. He never calculate the money has been paid which means according to his dictionary, good investment = survival; while bad = bankruptcy. That's fine, but you should be aware according to this, you will lose $7,591 after your 1 year positive cash flow rental operation. This $7,591 is well calculated.

You have to define “good investment” first maybe, but I were you, I would define it as generating better returns than other alternative investment. Of course it has to be profitable, (which is different from positive cash flow) simply because if we put $1,000 cash under our bed, it is still $1,000.

Since you did not provide enough information, I have to assume all of the other parameters, such as property tax, and many others listed in my previous email. And also assume that the home price appreciation rate is 1%, the rent increase 1%, inflation rate 2%, other alternative investments 5%.... I got the following conclusion:

If you buy the house and rent it for more than 5 years, then it's a good investment because it generates better returns than 5%.

If you buy the house, turn it into a rental business, then sold out in 5 years, it’s a bad investment because the appreciation and rental income cannot cover the costs of buying and selling.

My conclusions are calculated thoroughly, not just uttered out through my mouth with some kind of believing. Of course, everybody knows cash flow could kill you, but it will not guarantee good investment.

Whether you earn money or lose money, it has nothing to do with location, unless the location could affect the home appreciation rate and alternative investment return rate, but all of those have been taken into account already. $1 earned in California is the same $1 earned in New York. Seperating all those mentioned above: cash flow, percentage of payment, location ... from profitability are the key difference from my calculation with others in this thread.