6 Rental Property Mistakes That Will Cost You Money

When done with knowledge and planning, investing in residential rental real estate can be a smart, lucrative source of income. But success is not guaranteed. A 2024 Clever Real Estate survey found that 90% of real estate investors said they lost money, and 87% said they regretted investing in the first place.

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

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Not Screening Tenants Properly

Saving a few dollars by skipping background and credit checks and calling references can come back to cost you significant time, headache and money. In extreme cases, it can cost tens or even hundreds of thousands of dollars, said Scott Friedson, a multi-state licensed insurance adjuster and CEO of ICRS, a large loss public adjusting firm. “I recently settled a claim where the policyholder failed to check references and skipped a background check to save a few dollars. It cost them over $200,000 in fire damage,” he said.

Failing to Budget for Ongoing Maintenance

Rental properties are not “set it and forget it.” Unfortunately, too many novice rental property owners ignore this fact. “Small issues like a leaky faucet or a minor roof leak can escalate into major problems if left unattended,” said Adam Chahl, a longtime real estate agent and the founder of  Vancouver Home Search. “In my experience, proactive maintenance can save you significant 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 recommended budgeting 1%-2% of the property’s value annually for maintenance.

Using Verbal Agreements and Handshake Deals

Wouldn’t the world be great if everyone did exactly what they said they’d do? Well, unfortunately, people are people — some better than others. It’s imperative to have a detailed, written rental contract with your tenants, said Rachel Stringer, a real estate agent with North Carolina’s Raleigh Realty. “Without a formal lease, landlords may face challenges in enforcing rules or evicting tenants. It’s crucial to have a legally binding lease that outlines all terms and conditions to protect against disputes,” she said.

Not Planning for Vacancies

Often, when novices buy a rental property and crunch their numbers, they factor in the weekly or monthly rent for the year but forget to plan for vacancies. That’s a big, potentially costly, mistake. After all, mortgage payments, insurance premiums and utilities don’t take a break just because your tenants do. “People think they will have a 100% turn, and that is not possible,” said Jeff Lichtenstein, owner of Echo Fine Properties, a luxury residential brokerage, based in Palm Beach Gardens, Florida. He said to plan on at least a 10% vacancy rate and budget accordingly.