If you are not putting "location" on line #1, you shouldn't be investing in RE.

The best question to ask yourself is, "Who do I want to rent to?" and then the second question you want to ask yourself is, "Where do they want to live?" That will determine your budget, your location, and your entire strategy.

So, for example, if you want to rent to college students-- you'll be looking at buying in a college town. And you'll want something within walking distance of the campus, but you won't want them to have to cross, say, an Interstate in order to get from Point A to Point B. So you've limited yourself to a very narrow set of parameters, but your business model won't work otherwise.

Some of us end up answering those questions based on a default set of facts. For example, I live in a poor, rural area with a stagnant population. So my investment dollars stretch much further than they do in Houston or in DFW--- but at the same time, real estate prices reflect the stability of the economy. DFW's prices are insane right now, but forty years from now, DFW will still be there, and have a good chance of being even more insanely-priced. My local real estate prices are very reasonable-- but my little town has changed so much in the 12 years we've been here; who knows how it will look 40 years later. So you pay more in stable, urban markets in exchange for a more solid tenant pool and higher rents, and trust that your city won't turn into Detroit. You pay much less for equivalent real estate in unstable, rural markets. In exchange for an unstable tenant pool and lower rents, you get an immediate return on your money because you have less invested.

That's just it--- it varies depending on market.

So for me, I'm unlikely to spend more than $10k on a house. Then I'll spend about $10-$30k on the renovation. So total, all-in, I'd have about $20-$40k invested into one sfh.

That won't get you a vacant lot in many markets.

So it's all about you, and what you're wanting to do.

Who do you want to rent to?

Where do they want to live?

What's the market value of a house in the area you want to invest in?

What's the going rent for such a place?

Are you intimidated at the thought of a renovation?

One reason why I'm able to get houses so cheaply is because I'm not afraid of houses that need work. One of our earliest lessons was learning the difference between cosmetic and structural damage. If you go for a place that is pretty much solid-- electric, plumbing, gas, roof all in good shape-- but just needs paint/flooring/light fixtures/a little attention, that's sort of the sweet spot. A lot of people have trouble seeing past the ugly, and they perceive it as permanent--- "Ewwwww" and they keep on looking. So the pool of potential buyers is limited to people who can see beyond the dirt and the ick and the datedness.

But if you're looking at something that's shiny and turnkey, you're competing not just with other investors, but owner-occupants who are also looking for something shiny and turnkey and effortless. That drives the price up.

Interesting. You seem to have had two false starts in the first year, but the current tenants have been there for seven of the last eight years and are still in place today.

And you were all-in $40k in 2010 when you first began, but you also spent another $45k total between 2010 and 2018?

How much of that was taxes and insurance? How much of that was ordinary maintenance-- major systems failing and needing a replacement? (ie, new roof, new cha, etc)

The monthly cash flow (rate of return) you want today will be different in 5 years than it is on your first property.

Your needs and understanding will change.

When I started, I was so afraid of messing up that I bought places so cheap in order to sell them for next to nothing so someone would scarf them up quickly. I did this if I had to dump them incase I messed up.

Learn as you go. There's no 1 right way. You'll learn something new on each deal. Analyze TONS before you buy any.

I would start by reading some good books, Jeffrey offers several good ones on this site, he also does extensive training from boot-camps to conferences. If you are considering getting into this business it would be well worth a small investment to avoid making some expensive mistakes.

Your first question was how to figure your rate of return. Here's the basics:

Estimate your expenses. This includes property taxes, insurance, loan, hold for small and major repairs, hold for vacancies, and other expenses that may be necessary for the property such as yard maintenance.

Then you estimate your rental income for the property.

The difference in these two is the cash-flow. My rule is that I require a positive cash flow of at least $300 per month on a single family home to make it worth while. You need to consider what your motives are (IE: cash to live on or long-term growth) to establish this for yourself.

Cash flow divided by your cash investment will give you the rate of return. As others have said this is highly local. I've seen as low as 3% and and high as 40%. Lots of factors here including local market, how you finance it, and how good of deal you can find on a property. Obviously, the higher the better but usually (but not always) what you will find is that the highest returns also come from the slummiest properties which presents another challenge in managing them.

While I respect the views of many of those who have responded so far, I believe they hgave left out the most critical question that ANY investor in ANY type of investment should ask:

"As opposed to what else?"

Opportunity cost. If you invest in Real Estate, what other opportunities are you giving up? What are other investments making, and what is the degress of involvement or hassle factor?

Example: the Vanguard S&P 500 (VFINX) has averaged 10.96% annualized return since inception in 1976. 42 years and you make almost 11% average for parking your money somewhere and forgetting about it. The sum total of your commitment and involvement is waking up and going to the mail box to collect your check.

Compare that to real estate with tenants, toilets, hassles, and the need for continual involvement in developing systems, managing contractors, scouting for deals, etc.

So....what ROI do you think would temp you to forgo owning shares of VFIDX? Or 8% tax free muni-bonds? Or ???

"I own VFIDX" isn't suave chit-chat for cocktail parties...but it's a proven, very well devised wealth building strategy.