Everyone wants to make great cash flow on rental properties, but far too many of us lose money. The following are suggestions to avoid if you want to avoid this pitfall as a property owner or property manager.

1. Wrong Price-To-Rent Ratio

This means how much it costs to purchase the property compared to the rent it attracts every month. If you buy the property at a high price and don’t collect enough rent, you’ll likely lose money.

For instance, consider an Indianapolis property that costs $95,000 and rents for $1,200 per month vs. a Los Angeles property that costs $425,000 and rents for $2,300 per month.

When you run the numbers, the Indianapolis property will cover your mortgage and expenses. But in LA, you probably won’t make money, and you could lose a lot.

This mistake is the biggest one that new investors make; if you overpay for the property, you are setting yourself up for failure from the closing table.

2. Troublesome Tenants

If you have a solid price-to-rent ratio, another great way to lose money is with troublesome renters. Ok, so you get a terrible tenant once; it happens. But if you get bad tenants regularly, they will eat through your profits.

Many investors think they have this issue down pat. But did you know that the repairs that bad tenants make you do when they leave are only part of the problem? The other part is the vacancy while you’re making the repairs.

You probably know how it happens: The pain in the rear tenant stops paying rent after making an excuse. So, you have zero income coming in, but it may take three months to get the person evicted.

Then, it may take three months to find a new tenant. You could go five or six months without income from one unit! That’s thousands of dollars lost.

It’s vital to spend a lot of time and energy on vetting potential renters. That’s one of the advantages of hiring an experienced property management team.

3. No Cash Reserves

Owning investment properties is often a fantastic idea, but if you lack cash reserves, you are taking a considerable risk.

There are too many unknowns with rental properties to know when – for example – the roof will need replacing, or the AC unit conks out. If you get one or two of those significant capital expenses at once without cash on hand – ouch!

Lesson: Be sure you have enough cash on hand to cover high unexpected costs. Those will happen; it’s just a matter of when.

4. Not Using A CPA

One of the magical financial advantages of owning investment properties is the many tax benefits. If you handle your taxes correctly, you can set it up, so your property cash flow is almost tax-free. And you could score more tax benefits on top of it.

If you only have one property, perhaps you can do your taxes on your own. But if you own 10, you’re going to cost yourself a mint if you don’t hire a CPA. But be sure you look for a great CPA who works in real estate investment properties extensively.

Real estate laws change so often, and a skilled CPA will be up to date on all of the newest rules and regulations to save you money.

Avoid the above and you’re more likely to enjoy regular cash flow from your properties.