3 Income Property Mistakes You Can Avoid (2024)

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Special thanks to my good friend Kalyn Brooke from Creative Savings for being willing to share her financial fail with us!

I blame HGTV. Okay, not really, but it did kind of start this whole thing.

After watching every single episode of Income Property and Flip This House,I decided our first home needed to be an income property…and surprisingly, my husband agreed. Itseemed like the smartest thing to do for a couple who needed help with the mortgage. Besides, it would be the perfect retirement plan.

So I bought multiple books on the subject and talked to some local landlord friends {because one can never be too over-educated}, and immediately started thehouse search.

Based on my extensive research, I knew we should be looking for:

• A diamond in the rough {aka, the worst house in the best neighborhood}

• A duplex {so we could live in one portion and rent out the other. When we decided to upgrade, we would be able to rent out both sides and turn a profit}

• A home that might not necessarily “look good”, but had solid bones {strong foundation and a roof in good shape}

• A location that wasn’t in the worst part of town, but didn’t have to be in thewealthiest district either — we were a newly married couple, you know!

Our first month of house searching was really fun. It was full of dreaming, scheming, and making sure we had found just the right property. Then month two went by….and month three. I’m sure at this point our real estate agent was starting to get restless with us, and to be honest, we were too.

By month six, we were bothabout ready to give up, when on a whim, we drove by an open house one Sunday and found “the one”.

It wasn’t perfect, but it was perfect for us. And because we were so relieved to finally find a house that fit our criteria, we didn’tgive a second thought to some key issues that should have made us stop in our tracks.

Here were ourmistakes:

1. Weinvested too much money in the house.

One of the cardinal rules of income properties is to pay as little as possible so you can make a profit. Because it was our first home, we let our “wants” get in the way of practicality, and jumped on the home before it had a chance to come down in price.

The other aspect of this is we didn’t pay attention to what was happening in the economy. Remember, the big market crash of 2008? We bought our home in 2009. The area we lived in was “behind the times” economy-wise about 2-3 years, so we didn’t see the effects of this until we had invested about $20,000 in renovations to the home.

When the economy finally caught up with this Upstate NY town, the value tanked about $30,000…….yes, even with the new upgrades! New York taxes didn’t help us out either.

2. We didn’t think about thefact that both the hot water heater and furnace {located in the basem*nt} were replaced in 2006.

You know what happened in 2006? A huge flood. And 5 years later, when we owned the house, we had another one. The waterwas ONEinch shy of hitting the first floor.

Our basem*nt was filled for 3 days before the water finally decided to recede, and even then, we spent days after pumping it out and cleaning up. We lost a lot of tools, and spent a ton of money in replacement appliances.

Granted, the previous homeowners should have disclosed that the house flooded in 2006 {and any attempt at legal action didn’t really work}, but now the resale value of the home is even lower than before, and to this day, we are still struggling to sell it.

3. We didn’t fully scout out the neighborhood.

The area we lived in wasn’t ritzy by any means, but it wasn’t awful. However, as the older folks moved into nursing homes and sold their houses, more and more drug dealers, marijuana growers, and loud karaoke fans took up residence.

We had the policehanging out on our street almost every other week it seemed, and one timeI lookedout the window to see guns drawn at a housetwo doors downbecause of a drug raid.A great place to raise kids, yes?

We have since moved to Florida, but we still own that awful duplex.Even with both sides rented out, we are losing money every single month.It’staking a huge toll on our overall budget.

Thanks to our frugal lifestyle, we are still able tomake ends meet, and I have to believe we’ve come out stronger on the other side. We have learned SO much about owning a rental property, working with tenants, and massive renovations, that I know these skills will help us with our plans down the road.

While we are not in a position to do soright now, we’d love to invest in a few properties here in Florida. We know now what not to do, and our decisions will be very calculated from here on out. Plus, Florida taxes make house investments much more worthwhile down here!

But first, we have to sell that duplex. Any takers?

If you likes this post you might also be interested in these other Thrifty Little Mom articles: How to Restyle your Older Home Without Remodeling or Flipping a House that Flops.

Kalyn Brooke is a full-time writer and blogger atCreativeSavingsBlog.com, whereshe gives a fresh perspective on frugal living, and the kick-in-the-pants you need to create a budget from scratch. She lives in beautiful Southwest Florida with her news-photographer husband and one terribly destructive rabbit. She loves making to-do-lists, reading good books, eating chocolate peanut butter ice cream, and pursuing big big dreams… all carefully planned out, of course.