We rented our primary residence when we moved into a new home. It worked out okay - decent renters, mostly on time, little damage. We sold and made a modest profit. Now later in life, we own several rental properties and are doing well and are planning on adding about 2 per year. Here are some thoughts some other posters mentioned or alluded to, but boiled down from our experience.
1. Renting out our first house was not a business. It was renting out our first house. There were emotional attachments, we bought it at market price, etc. The numbers on buying a primary house do not meet the numbers (typically) for buying a rental house. My advice, if you want to rent a house, double check the numbers or sell your current home that you are considering renting and buy a rental
property. For us, rental properties are not sexy, they aren't near a beach, they aren't a ski lodge, etc. They are nice, modest houses for blue collar workers in a safe neighborhood to raise their kids in and affordable manner.
2. We use laddered llc's with a holding llc and have umbrella coverage. Not many folks mentioned risk management. Of course it adds cost but also piece of mind.
3. We have one specific area that we know in depth. We know the ups, downs, populace, value, neighborhoods and study them to find value. We have a relationship with a contractor who is on time and on budget. We have a PM that provides a very thorough credit check and recommendation. And we have a realtor who feeds us MLS as soon as are targets are met. We wait for the right tenant if if we have to eat rent.
4. Three types of houses come up in this market. All are in the $120k range, as you move closer to the capital city, the ranges go up to $1M plus. The first house is overpriced, remodeled and a consumer house usually for sale by a flipper. The second is a valued price low reno house with some repairs needed ($2-5k) but adds equity buffer on the upside. The third is a complete reno at auction or foreclosure and usually bought by a flipper.
We focus on the second type of house in neighborhoods in the market on the upswing. We often run into the flippers buying houses in the same neighborhood and selling at market value (first type of house), which is a lot of work and adds value to our house and neighborhood, it is just not something we can do and make money. That is a totally different model.
5. We don't count on appreciation, we only deal with the above mentioned buffer. Because of this we can only find one or two houses like this every so often and usually have to offer hours after they hit the market.
6. Not many people mentioned building equity in the calculations. This is a bonus and not considered in return and may become a liability as it approaches 100%. At full equity you lose money, but can liquidate to purchase more properties, if you are expanding but full equity you have income. Similar to stocks vs. bonds. Depends on your goals.
7. The napkin math behind the complex return is your house rents must be 1% of your purchase price. 120k has to rent for as close to $1200 as possible. There is a pain threshold in this neighborhood and $1200 is top of market. So we look for a 125k house, offer $105 and usually spend 2-5k on updates, and plan to eat 1-2 months of mortgage so approximately all in for $110-112k with $85-90k in loans and list at $1150. We list with our PM for 10% of rents and they provide marketing and a detailed report on applicants. Of course that is all in the sweet spot and we have managed 4 of these this year.
After all of this we usually gross 21% and net 12-14% and do not count appreciation or equity which grows as the amortization changes over time. Our goal is income currently, but as equity grows we may try to grow quicker. On our first house we turned away 10 applicants or so before we found a good one - who takes great care of the house, but the others have filled quicker and had good applicants early on and are families that are A or B credit who just want a nice house and yard for the kids. Two houses have depreciated about 1.5% which is still well within our negotiation margin of 15% 20% on the upside. One has appreciated considerably and is about 40% on the upside of purchase price.
If you want more free details on real estate https://www.coachcarson.com
is a valuable resource on the math and neighborhood selection. Like some other posters said it does take some work, but I probably spend more time looking at my portfolio than I do worrying about my properties, I enjoy the bargain hunt, and I haven't had a meth lab yet, so there is that.