<prompt> Human: Hi rpersonalfinance, my parents are looking into investing in a two-family house to rent out to tenants. The buy price is going to be around 1 mil 600k after 400k down payment and theyre taking a 30 year mortgage for the rest. Theres currently two tenants already there, and their combined monthly payment is 4kmonth, and theyre under contract to stay for another whole year. The house is in a good neighborhood, and shouldnt be too hard to find a replacement tenant when the time comes. Property tax is 7k.Asking here to see if this is a good idea for them, if theres a better option for investing, and if theres any advice suggestions that you guys have. Theyre in their 50s, and have been planning to invest in a house for some time. Theyve never been landlords, so this is a first for them see edit. The way they see this going down is that they get around 48k a year from tenants and use that money to cover utilities and the mortgage. Can provide more info if requested.Edit: Turns out they do have experience as landlords. It was them subleasing a room in a house to two different tenants for some years each at 2 different times, so they have some experience with screening tenants and dealing with any issues like repairs. At that time they lived with the tenants.Assistant: Everyone thinks they can get rich with real estate, when in reality they dont even know how to use a calculator.48k rent income are only 4.8 per year. Minus taxes, fees, repairs, timeeffort, and of course all risks associated with being a landlord. A lot of appreciation is not to be expected with rent income already being mediocre, and with mortgage rates having no real possibility to go down further.Plus they could buy any other house in America that has a higher rate of return.- theyll probably be fine, but its not a very good investmentHuman: Thanks for the info! Just wondering, what do you think is the return rate that they should be seeking that they can expect?  <response>: To piggyback on what was said above, they clearly either didnt do the math or dont understand the industry. In RE investors use what is called a Capitalization rate, essentially the return Net Operating Income on the full purchase price. You say that the monthly revenue is 4,000, this is less the RE Taxes 600ish and utilities lets say 400month. That leaves 3000Mo in NOI or a 3 cap rate. Using a 3.5 interest rate on the mortgage, the monthly interest along would be around 1,800Mo, so if we assume that the contractual principal payments are forced reinvestment, we are essentially making a return of 1,200Mo or around 15,000yr on a 400,000 investment or around 3.75. And all of this assumes that the place stays fully occupied 100 of the time it wont, even if it is short periods, there are ZERO repairs there will be, and that tenants all pay on time this might or might not happen, and evictions can be expensive. All in all this is a whole bunch of risk to take for effectively the return you get on a decent bond, and that would be somewhat liquid unlike this house. All in all i think this sounds like a horrible plan. 