You do not want to live next door to your rental. Too easy for them to complain and you will go crazy watching them not do what you think they should.

We own several single family residences and they work well for us. My thoughts are that real estate of any type is a good investment but you won't have terrific cash flow on a single home. The upside is you can make sure it is kept in good condition and don't have far to collect rent. The downside is you will know everything your tenant does and you might not like it.

If the price is low enough I would do it. Our homes stay rented at high prices because we keep them nice and they attract good tenants. 

There is no magic formula to calculate all this. Just put it on paper and see what it looks like. We like a 25% or more monthly return but you have to calculate a buffer for repairs and the unexpected. Also you have to factor in the upfront money of getting into the property.

I would discourage you from buying your home next door - you really don't want to have your tenants living next door and I don't think it is a good idea to have two homes on the same street - you want to diversify your investments a little more than that. 

Tim,

I would talk to my accountant and then make a decision.  That is where I would start the journey.  A

Tim,

I own several rental single family homes and have done very well with them.  I know people who have 40-50+ homes and so much income coming in that they had to start buying shopping centers!

What I would like to know is when you say "opportunity to invest" are you one of several investors or are you the sole investor?  If you are a co-investor, how much money will you make each month and how easy are your fellow investors to get along with?  Do they share your same view on preventative maintenance, remodels to get the most "bang for the buck" and who to rent to?  All key things if you are not the only decision maker.

Things I consider when buying a new investment home:

• How much is the mortgage?
• How much can I get for rent in it's current condition?
• Will the rent cover not just the mortgage, but taxes and insurance AND still net me enough $$ to make it worth the risk?
• Age of the house and what repairs might be needed?
• Will I need to update the house to get more rent?  How much will that cost and will it be worth it?
• Can I cover the mortgage if the house goes vacant or tenant refuses to pay and for how long?
• Can I realistically save up the profit for potential problems like a new roof, water leak, etc.

I am a huge fan of SFRs for real estate investments.  My family has been doing these for several decades and have never had a problem, but we are VERY careful about who we rent to.

I am starting to branch out into the multi-family residences now, in the 2-4 family range (in CA once you get into the 5+ unit properties a different set of rules apply that are more restrictive to the owner).  The reason for this is getting "more bang for my buck."  Each property may get less rent than a typical SFR, but as a whole should produce more than a SFR.

I second what Kenneth J. Jones says about risks of SFRs but I do fundamentally disagree with him on his point of SFRs not being considered "investment property" (of course, I am a residential real estate agent, which probably goes to prove his point about residential agents considering SFRs to be investment properties).  Of course, each of my rentals also have betweek $200k and $300k in equity.

In short, if you are "one of several" investors in this home, your risk and profit is spread amongst others, but you could have serious conflicts in philosophy with your co-investors.  If you are the sole investor, you have all the risk and all the profit, just make sure there is enough profit in there!  Also keep in mind that today's rents may not be sustainable in 5, 10 or 20 years, so make sure you aren't going to lose your shirt if the rental market drops $100.

You have an offer of help from someone who knows ... Kenneth J. Jones - 

I would not want the home next to my residence to be an income property. Multi units is the way to go for investment. 

Lot of factors. Number of competing rental units, historic rental rates, then what do you have to put into it, finally cap rate, cash on cash, and internal rate of return analysis.

Great advice from Kenneth J. Jones and others.  I am a big fan of multi-family units for investment purposes.  Much easier to manage one 4--plex than 4 single families spread all over town.  

Tim Montague A lot of good answers and advice here.

Rent is the return on your investment. Expenses are the exposure. Jobs with decent income are important. Supply & demand for that zip code speaks too. Parking money in Real Estate works but only if you know what you are doing. Check with the city to see if any new area development is scheduled. Lastly, speak with property management pros and one more source. The local newspaper rep for placing classified ads. They can tell you how long something stays advertised, what moves and pricing feels

Too close for me & you'd run into a problem with tenants expecting an immediate fix because you are that close. 

There has to be an ROI worksheet out there for you.

I don't do sgl family homes for my investment due to the high risk and low return. My preference is multi units - so here's some things I consider:

ROI, Leverage (loan from bank or cash), long term or short consideration, Cash flow (biggest one for me here), rental market value vs current lease (is it under rented or at rente market value)

That should start you off

Apparently you like the area since you live next door.  Calculate the cap rate and determine is the ROI works for you.  Since you live next door if you do buy the property hire a property manager.

Not many people want to live next door to their landlord. Investors usually only pay 65-70% of fair market value for investment properties. I would assume the current owners want to maximize their net on the sale.

Living next door to yuor rent opens you up to frequent visits from your tenant for any and everything. Buy further away... On any investment it should be under market value and the rent more than cover the expenses by 25%

Too much to review and consider here in Q & A. Ron and Alexandra Seigel gave you excellent advice.

Get advice from an experienced invesor in your community. A good time for a lunch meeting as your treat.

It should rent for at least 120% of what you project will be your expenses. Include taxes, a repair budget, and assume it will not be rented 12 month every year. Count at least one month with zero income yearly just for safety as yu figure your expenses.

Is there a positive cash flow? Is it easy to rent and maintain?

I would think twice about living next door to your rental property. First of all you are right there when the refrigerator stops working at midnight, or the water heater goes out on Christmas morning. I have also heard tenants say they don't want to live next to their landlord. I wouldn't either if I was a tenant. 

There is an old saying that the best investment property is one you can see from looking out the window of your house!

Basically, figurre out your expenses annd then how much profit a  month you want and don't forget about repairs...that would give you some idea if it iw worth your trouble

Look at the bottom line.  What will it cost to maintain as opposed to your estimated returns.

Tim - I think Kenneth J. Jones gave you some good advice. But, if you want to run some numbers, it would be a good exercise. First, you need to be convinced you can rent.  Then, for how much and do the cash flow projection based on expected income and expenses. Also, the numbers have to make sense given what you're paying for it based on the expected rent. It's easy, but you can ask your accountant for help. I used to do this for a developer with whom I worked.  After that - good luck with reliable tenants! 

I might ask do you want to be a landlord of the house next door?   

I hope the numbers work for you....I have a single family investment property  3 homes away from mine....I use it for family ONLY..... have had it for many years.....

Kenneth J. Jones nailed this one!

So many factor to consider. My first question - What do similar properties in the area rent for. Second question Do you have experience in dealing with rentals. This is just a start. 

Talk to your accountan.

There are a lot of things to consider, with the cap rate being one that you should know for sure.

Check out this link for some more tips

http://www.investopedia.com/financial-edge/0511/8-must-have-numbers-for-evaluating-a-real-estate-investment.aspx