Q:

investing in mutual fund vs. rental property over 10 - 15 years

I have about $75K currently in a mutual fund. I've been considering adding an extension on to my house as a rental apartment, for which I think I could get $1200 - $1500/month currently. After 10 or 15 years I could then stop renting it out and use it as part of my house. Which is a better investment -- leave the money where it is, or invest in the home extension?
Some issues I'm wondering about:
Tax -- Would the apartment be considered part of my house and my property tax would increase? Would it be considered an additional property and taxed separately? How is the rental income taxed? Is it considered a business, and are there expenses that can be written off?
I'm in the third year of a 30 year mortgage. My salary covers expenses for now. United States.

A:

Given the numbers you have provided, this looks like something you would want to explore more in depth if you are looking just for profit and unconcerned about providing additional labor.  
In my own research, I found that one should count on about 50% of expected revenue as income.  Repairs, vacancies, additional insurance, and other items pare down receipts quite a bit.  It is not exact, but close enough for estimates.
This would provide you with somewhere between  $7,200 and $9,000 per year in profit.  If you invest the full 75k, this provides returns of 9.6% and 12%.  The low end being only slightly worse then the historic return of the market of about 10%.
Now make no mistake you will have to work for this money.  With your tenants being on your property they may call you to do very routine maintenance including changing a light bulb.  Finding, qualifying, and collecting rents is work.  Dealing with the organization and record keeping is also work. Owning rental properties is not "passive" income.
You may also run afoul of an HOA or local laws by renting.  Your property tax may increase.     

