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With the necessary knowledge and planning, investing in rental residential properties can be a smart and lucrative source of income. However, success is not guaranteed. A 2024 survey by Clever Real Estate found that 90% of real estate investors reported losing money and 87% said they regretted the investment.

Here are six mistakes to avoid to ensure you don’t end up losing money.

Tenants not properly screened

Saving a few dollars by foregoing background and credit checks and obtaining references can save you a lot of time, hassle and money. In extreme cases, it can cost tens or even hundreds of thousands of dollars, says Scott Friedson, a multi-state licensed adjuster and CEO of ICRS, a public large loss adjuster. “I recently settled a claim where the policyholder had neglected to obtain references and forego a background check to save a few dollars. That cost them over $200,000 in fire damage,” he says.

No budgeting for ongoing maintenance

With rental properties, it’s not as easy as setting something up and then forgetting it. Unfortunately, too many inexperienced landlords ignore this fact. “Small problems like a dripping faucet or a small leaky roof can turn into big problems if left unattended,” says Adam Chahl, a longtime real estate agent and founder of Vancouver Home Search. “In my experience, proactive maintenance can save you a lot of money in the long run. A small leak that costs $100 to fix today can turn into a $10,000 water damage repair if ignored.” He recommends budgeting 1-2% of the property’s value annually for maintenance.

Verbal agreements and handshake agreements

Wouldn’t the world be great if everyone did exactly what they said they would? Unfortunately, people are people – some better than others. It’s imperative to have a detailed, written lease with your tenants, says Rachel Stringer, a real estate agent with Raleigh Realty in North Carolina. “Without a formal lease, it can be difficult for landlords to enforce rules or evict tenants. To prevent disputes, having a legally binding lease that spells out all the terms is crucial,” she says.

No planning for vacancies

When newbies buy a rental property and crunch their numbers, they often factor in weekly or monthly rent for the year but forget to factor in vacancies. That’s a big, potentially costly mistake. After all, mortgage payments, insurance premiums and utilities don’t pause just because your tenants take a break. “People think they’re going to get a 100 percent return, but that’s not possible,” said Jeff Lichtenstein, owner of Echo Fine Properties, a luxury real estate brokerage based in Palm Beach Gardens, Florida. He said to expect a vacancy rate of at least 10 percent and budget accordingly.

Not recognizing the missed opportunity costs

Managing a rental property takes time. Often more time than you expect, especially if you want to do or oversee a lot of maintenance and repairs, tenant meetings and negotiations yourself. It can quickly become a part-time job that’s easy to underestimate at your own peril, Lichtenstein said. “If you’re putting in 30 hours a week, you’re losing out on other income opportunities. You can make money during those 30 hours,” Lichtenstein said.

Additionally, you may have to sacrifice time for family, friends and fitness, so do your research and make sure you know the time commitment you are making.

Rent too high or too low

When it comes to rents, a Goldilocks approach is key: not too hot, not too cold. But many inexperienced investors do minimal research, rely on outdated data or simply trust their gut, says Mark Wei, co-founder of PropertySensor, a real estate data and insights platform for real estate professionals and investors.

Set the rent too high and you risk costly vacancies. Set it too low and you won’t be able to maximize your profit or, worse, cover your costs. “I always recommend using real-time rental market data to optimize your pricing strategy,” Wei said. “For example, by analyzing data from sources like Zillow, Redfin and local MLS listings, you can identify pricing trends, seasonal fluctuations and even micro-market demand drivers that can help you maximize your rental income.”

According to Wei, this strategy has been able to achieve annual returns of up to 12%.

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