5 Biggest Mistakes New Landlords Make When Buying Rental Properties 

The economics of rental houses can look simple on paper: buy a discounted property, renovate it, find a tenant, sign a lease, and voile–cash flow. 

However, trusting what they see on paper is exactly what gets new investors into trouble time and time again. Eventually all of them learn that potential pitfalls and unforeseen expenses are rarely reflected in the shiny numbers on a spreadsheet, but usually they do so the hard way.

Experience is an expensive teacher and the mistakes investors make when they’re new to the game can cost them dearly. That’s why, in this post, we’re breaking down the top five rookie mistakes that we see investors make when buying rental properties. Read on so you can learn how to avoid them for free instead. ‍

Mistake #1: Chasing “High Yield” Instead of Good Deals

A lot of beginners start with the same idea: get the cheapest house possible so the cash flow is strong from day one. Many buy properties in low-end neighborhoods not realizing that those “cheap houses” usually turn out to be anything but. The listing prices may be astonishingly low, but you know what they say about things that seem too good to be true. 

Here’s what you’ll usually find hidden behind those numbers on the spreadsheet:

• Higher vacancy due to lack of qualified renters
  
• More damage and heavier turns when residents move out
  
• More theft/vandalism risk when the property sits vacant
  
• More management friction (evictions, late pays, constant maintenance)
  

Investors can find success buying in rougher pockets, but only if they go in with clear eyes, a plan, and realistic expectations. Otherwise “high yield” is just high stress instead. 

Better approach: Buy the best house you can afford in the best pocket you can confidently manage. The deal may look less sexy on paper but trust us; the reality of its long-term performance, security, and appreciation prospects will be a lot more attractive. 

Mistake #2: Underestimating Renovation Costs 

Investors who are new to the game and have never undertaken renovations before frequently get seduced by promises of cheap and easy rehabs. A wholesaler might say it needs $20K. The contractor says $35K. And then the real numbers start to come into focus. 

The house that “just needed a fresh coat of paint and new carpets” turns out to have termite damage, an HVAC on its last leg, and a labyrinth of loose wires leading nowhere behind the drywall. Hidden costs kill many deals, and it’s especially easy for them to hide from investors who don’t bother to look for them in the first place. If you’re remote and only relying on someone else’s estimates, you’re at an especially high risk of getting burned. 

And heck, even if it really is a basic job, that doesn’t mean it will be cheap. These days even the cost of a fresh coat of paint can quickly add up to much more than you might expect.

Take a look at these numbers based on the most recent national averages:

• Exterior paint job: $1.50-$4 per sq. ft. ($3,000-$8,000 for 2,000 sq. ft.)
• Interior paint job: $1-$4 per sq. ft. ($2,000-$8,000 for 2,000 sq. ft.)
• New carpet: $3-$11 per sq. ft. ($4,500-$16,500 for 1,500 sq. ft.)
• Bathroom remodel: $6,500-$25,000
  
• Kitchen remodel: $7,000-$17,500 for small kitchens, $25,000-$50,000 for large kitchens
  
• HVAC replacement / installation: $10,000-$15,000 

Better approach: Get (at least) two independent quotes, vet the people giving you numbers, budget conservatively, and always assume it’s going to cost more than you think.

Mistake #3: Expecting Appreciation in Neighborhoods That Don’t Appreciate

A lot of investors like to think that the house they buy today for $100K will be worth twice that in a few years’ time. Some are correct, most are not.

In many working-class or rougher areas, that simply isn’t how it works. You might see modest rent growth over time, but values often don’t climb the way they do in the most sought-after neighborhoods. You can buy property that’s cheap and you can buy property that will appreciate, but you almost always have to choose one at the cost of the other. 

Up-and-coming narratives are easy to sell and tempting to believe, but neighborhoods don’t change overnight. Yes, some areas can transform, but usually because of major catalysts involving whole-community investment in development, jobs, retail, and infrastructure. One investor sprucing up a handful of houses is not going to magically make property values shoot through the roof. Even if there are real reasons to be optimistic, betting your whole strategy on “this neighborhood is about to pop” is a dangerous game, even for experienced investors.

Better approach: Treat appreciation like a bonus, not a guarantee. Be sure the deal stands on its own with realistic rent, vacancy, and repair assumptions. If the area becomes more desirable, great. If it doesn’t, you’ll still make money using a plan that works with the neighborhood where it’s at. 

Mistake #4: Placing the Wrong Tenant 

Before actually buying their first rental, investors tend to think a lot about how much money they’re going to put into a property and a lot less time thinking about who they’re going to put in it. Experienced landlords, however, know that who you place in a rental is every bit as important as how much you spend on it. In fact, tenant quality can make or break the entire investment.

Rookies will often loosen standards when screening because they think a less-than-ideal tenant is better than a vacancy. They accept the first person with money in hand and then spend the next 12 months regretting it.

Landlords who don’t vet tenants properly can face all kinds of costly outcomes including:

• Non-payment
  
• Long eviction timelines
  
• Property damage
  
• Squatters who know how to stall the process
  

Of course, you can’t eliminate risk entirely–even the best tenants can fall on hard times–but screening properly goes a long way towards preventing avoidable risk. 

Better approach: Don’t loosen standards because you’re desperate to fill a vacancy or think you can skimp on rigorous screening procedures. Step back, breathe, consider professional management, and whatever you do, don’t rent to friends or family (trust us).

Mistake #5: Getting Price and Product Wrong

Misunderstanding the market is one of the fastest ways to create self-inflicted vacancy. If your rental is priced too high, it sits. If the rehab is poor, it sits. If you over-renovate for the neighborhood, you often don’t get paid back for the upgrades.

Cash doesn’t flow from a vacant house, it bleeds.

Even if you do manage to fill an overpriced or under-renovated house, you’re much more likely to face frequent turnover. Short stays and frequent turns lead to more wear and tear and constant repair bills. The hard truth is that you don’t make money in rentals if you’re replacing tenants every 12 months.

Better approach: Find alignment between product and price. Renovate to a standard that will entice renters to move in and price it at a rate they’ll actually pay.

Final Takeaway

Investing in rentals can look simple on paper, but real life is always more complicated. 

Don’t buy the deal your spreadsheet wants, buy the deal the market will support. Be conservative, verify everything, and avoid decisions based on hype, shortcuts, or “best case scenario” assumptions. If you do that, you’ll stay in the game long enough to win.

If you’re new to investing in rental properties, having professional management on your side can make a world of difference. For help seeing the real story behind the numbers, connect with an Evernest Investor-Friendly Agent today.