Good evening. Glad to see you are contemplating your future on a late Saturday evening! :-)
If your idea is to cash flow and have a long term investment, I would suggest that rather than looking at single family homes in the $500,000 range, that you look at homes valued much less or for multi-family properties. Here is my reasoning-
(I recently wrote a response here on Trulia to a question similar on investing, it can be found here ( http://www.trulia.com/voices/Home_Buying/I_have_seen_more_th
It basically says the following:
The beauty of real estate is the ability to leverage.
Let's look at an example assuming you have $50,000 cash right now:
Option 1: Buy 1 home for $50,000 cash. No mortgage. Rent is $750/month.
Rental income: $750/mo - $85/mo taxes & insurance. = about $665/month income
Option 2: Buy 2 homes for $50,000 each with $25,000 down payment on each.
(Loans assuming 25k @ 7% interest = $167/mo, 50 tax, 35 insurance = total about $250/mo)
House A: Value $50,000. Owe $25,000. Payments are $250/mo PITI. Rent is $750. Income= $500
House B: Value $50,000. Owe $25,000. Payments are $250/mo PITI. Rent is $750. Income= $500
Rental income: $1000
Ok so in option 2 you make $350 a month more income right? That isn't even the best part. We aren't sure when this market will completely rebound but historically homes do appreciate.
Year 2009: Option 1 - Value $50,000. Owe $0. You add $50,000 to your net worth
Option 2 - Value x 2 = $100,000. Owe $50,000. You still have $50,000 net worth.
But... let's skip ahead and assume that in about 10 years these homes are now worth $75,000 each. AND, for option 2 let's assume instead of you keeping all the rental income you added an extra $125/month to pay down principle for the next 10 years)
Year 2019: Option 1 - Value $75,000. Owe $0. You add $75,000 to your net worth.
Maybe rent has gone up and you are making $1000/month.
Option 2 - Value x 2 $150,000. Owe $0.00 because of the added principle payments!!!
(I actually calculated this by the way. The loan would be paid off in March 2019)
So NOW... your net worth from these homes has DOUBLED to $150,000. Both homes are free and clear AND you have a rental income of $2,000 per month! That's leverage. Nice little bonus to your retirement!
Now as you can see, i am a numbers guy. I know from numbers and experience that homes in the $500,000 price range are more difficult to keep tenants in because the rent would have to be much higher to cash flow and at this rental rate, in this foreclosure market, that renter could just buy a home.
In Summary, follow the two tried and true principles of real estate investing:
1.) Leverage your money.
2.) Cash flow.
The area you buy is important to an extent, but I would choose cash flow because your tenants can pay off your mortgage and as you can see by the numbers, your net worth will increase far greater.
I hope that helped give you some further insight.
I am here to answer more questions as you have them. Feel free to contact me directly if you prefer.
Have a great weekend.