Sara is single, 32 years old and methodically over the past seven years she has saved $20,000. She wants to invest in something because the cash is doing nothing sitting in a savings account but she’s a bit jittery investing in stocks or mutual funds. Sara has been with the same company for eight years and earns a good income (not to mention an excellent credit history). Her mother recently retired in Florida and bought her last home and suggested Sara move, too. But she declines saying she likes her job and where she lives now. Her mom’s real estate agent suggested buying rental property to have near her mom in Florida.

The prices are still low and condominiums appeal to her because any maintenance and management issues are taken care of by the property management firm. She finds a two bedroom condo for $85,000 and puts down the minimum 20 percent. Her loan amount is $68,000 and because she has excellent credit the lender offers her a slightly better interest rate at 4.25 percent. Her numbers are:

Sara expects to generate $1,836 in cash flow annually. She has a maintenance and repair reserve of $1,500 and feels that she should be able to make around $2,000 annually that would pay for two the trips she plans to make to visit her mother each year. She’s now an investor and feels a 9% return on her money is great and expects to see a good long term appreciation as she plans on holding this property.