You are considering an option to purchase or rent a house - single residential property.

You can rent it for $2,000 per month (24,000/year) and the landlord would be responsible for property maintenance, property hazard insurance and property real estate taxes. However, you would spend $15 a month ($180/year) on rental insurance that covers you for liabilities and theft/vandalism.

Alternatively, you can purchase the property for $200,000, and finance it with an 80% mortgage loan at 6% interest (i.e., 0.5% per month) for 30 years. The loan is a fixed rate loan and has no pre-payment penalty that is there no penalty if the loan is closed prior to the original 30-year term.

You have done research on the property and found that:

1) historical property appreciation rate for that area is 1.7% per year

Historical rental growth rate for that area is 2% per year

2) Hazard/liability/theft insurance is expected to be $1,500 per year and escalating at 3% per year

3) Maintenance is expected to be $1,200 per year, and escalating at 3% per year

4) Your marginal tax rate is 22%

5) Capital Gains exclusion will apply when you sell the property (meaning you will incur any capital gain tax when you sell)

6) Selling costs including real estate commission = 6.5 % of the sales price

7) Property tax is 2% of market value.