<prompt> Human: Ive seen a lot of people talk about renting out houses as a form of passive income. I was giving it some thought though, and I dont see how it makes sense to do this. Wouldnt it be better just to throw that money into some index funds?A basic scenario I dont know realistic numbers, so someone please step in and put in better numbers better formulas: Buy a house worth 200k. Put down 20, 40k, to start. Rent it out for 1500 a month. Assuming a 30 year mortgage, 4.3 interest rate, 3000 yearly property taxes All based on 481 yearly HOI 792 a month for mortgage 250 a month for property taxes 40 a month for HOISince I have NO idea how much annual repairs are, Ill leave that out. After 50 years, this is what the big picture is: Down payment: -40k Mortgage payments 792 12 30 -285,120 HOI 481 12 50 -288,600 Property Taxes 250 12 50 -150,000 House : 200k Rent: 1500 50 900000 Total: 336,280If someone were to instead just throw money in index funds: 40k initial 792 extra per month for 30 years 4 growth Total : 1,452,204I know I ignored a lot of things inflation, house repairs, home appreciationdepreciation, months without rent, lessmore then 4 etc etc. It still seems like it would be hard for the house to win though. Can anyone with more knowledge shed some insight? Does owning a house to rent only work in very specific situations, or did all the things I ignore make that big a difference?  <response>: Ignoring home appreciation and rent increases is a pretty big factor, I think. Even if you only assume 2 appreciation, in 50 years your 200k home will be worth over 500k. Similarly, youre not going to rent this house for 1500 a month in 50 years, itll be much more than that.Also, youre forgetting that you can invest the positive cash flow you generate every month. Thats about 400 a month at the start, and will probably increase as your rent goes up assuming you have a fixed-rate mortgage.Obviously it does make sense in some circumstances, otherwise landlords wouldnt exist.EDIT: Also, youre assuming that if you didnt buy the house, you would instead put the cost of the mortgage into an index fund. That 792 a month has to come from somewhere. If you dont buy the house it comes from your personal income, whereas if you do buy it, it just comes out of the rental income. So its not really a fair comparison - youd have 792 a month less to spend in the index fund scenario. 