The 8 Biggest Mistakes New Cash Flow Investors Make (And How to Avoid Losses)

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Whether you invest actively or passively, the same broad risks apply to cash flow. Watch out for these mistakes that can leave you with no cash flow at all—or worse, sink your deal entirely. 

1. Failing to Plan Property Management

Outstanding property managers can keep struggling deals afloat. Weak or mediocre property managers can sink perfectly good deals. 

I’ve learned this one the hard way several times over. In my 20s, I bought a bunch of rental properties in low-income neighborhoods in Baltimore. I didn’t realize until years later that good property managers don’t take properties in bad neighborhoods. They earn their money as a percentage of the rent they collect, and bad properties come with higher-maintenance tenants for lower paychecks. 

That left the dregs of property managers who were willing to take me as a client. Every single one did a bad job, and I eventually sold many of those properties at a loss. 

On the passive side, I’ve seen this play out in both directions as well. I once saw a mobile home park deal that looked fantastic on paper, but they could never get a good property manager in place. 

The co-investing club I invest through each month vetted a deal about 18 months ago, with over 400 units spread across a dozen cities in three states. The numbers on paper were also incredible, but by that point I’d learned to scrutinize the property management plan. 

Our club grilled the operator relentlessly about his plan, and we liked his response: “We get that this deal will sink or swim based on the property management. These dispersed units will be a challenge to manage, so we’re pulling out all the stops to stay on the different property managers like glue.” 

And sure enough, that deal has overperformed its initial projections and currently pays over a 9% yield. 

2. Accepting Risky Debt Terms

Real estate investments crash and burn for one of two reasons: The operator runs out of cash or runs out of time. 

Debt affects both risks. 

Plenty of real estate investors ran into trouble with variable-interest loans in 2022 when interest rates shot through the roof. Within a few months, many went from having a healthy cash flow to losing money every month. And from there, it’s a matter of time before you either sell at a loss or default on your loan. 

Likewise, if you take a balloon loan, you’re forced to either sell, refinance, or recapitalize when it comes due in a few short years. Again, many commercial operators ran out of time on their loans over the last few years and were forced to sell or refinance in a bad market. 

Read: losses. 

3. Understating Renovation Risk

Contractors are notoriously difficult to manage. They constantly blow timelines and budgets, demand more money halfway through projects, cut corners, and otherwise don’t perform as promised. 

Before I invest in any real estate deal, I ask, “Who’s going to do the renovations, repairs, and maintenance?” In-house employees? Teams of contractors and subcontractors? 

Just as important: How many projects have you worked on with this team before? 

Inexperienced operators get taken for a ride by contractors. Consider yourself warned. 

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4. Underestimating Ongoing Expenses

Too many investors underestimate future expenses—and end up earning less cash flow than expected because of it. 

Property taxes shot up roughly 25% between 2019 and 2024. Insurance premiums rose 12% in 2025 alone and 46% since 2021. Labor costs have risen for maintenance and repairs. 

And beware of rose-colored lenses as you (or the operator) forecast vacancy rates, property management costs, rent default rates, and evictions. 

When we vet a deal together in my co-investing club, we try to get a handle on just how conservative the operator’s forecasts really are. We want to see them use “unreasonably” high future expense forecasts, knowing that every real estate investment sees curveballs. 

5. Overestimating Rent Growth

On the flip side, we want to see operators project low future rent growth to keep projections conservative. 

For example, one operator we recently invested with projected 0% rent growth for the first two years of the deal. We think they’ll do better than that, of course—but we appreciated the conservative underwriting. 

Zillow’s Rent Manager shows nationwide rents dropping 5% over the last year. So no, rents aren’t an elevator that only goes up. 

6. Underestimating Future Competition

Rents are down in Phoenix by 8% over the last year. Why? Largely because so many new multifamily properties have come online over the last two years. 

And that figure actually masks the true carnage, as apartment operators have had to offer huge concessions to attract new renters. The market got flooded with new supply, and it sent net operating incomes (NOIs) tumbling. Many properties became cash flow negative and are in serious distress. 

That’s great for buyers and investors like me who love to see fire-sale bargains. It’s not so great for the people who invested in those properties. 

Part of your due diligence involves researching new supply construction in the submarket. Skip it at your peril. 

7. Ignoring Legal Risk

Back when I was an active investor, I got sued several times as a landlord. It totally sucked. 

People love to sue landlords. Tenants, contractors, neighbors—they all see a chance for a quick buck. 

Then there’s lender risk. When you borrow money as an investor, you almost always have to sign a personal guarantee. If you default, the lender doesn’t just seize their property—they come after your personal assets. 

Today, I only invest passively. I’m shielded from both of those types of liability risk. 

Don’t get me wrong: Someone could still sue the operator, and that might hurt my returns as an investor. But they can’t sue me personally. I don’t have to worry about paying out of my own pocket for an attorney or showing up in court. 

8. Ignoring Opportunities to Boost Cash Flow

Operators often lift rents with “value-add” strategies like renovating units and improving common areas, amenities, and signage. That’s great; nothing against traditional value-add strategies. 

But some investors go beyond the obvious to boost NOI even more.  

In a recent deal my co-investing club vetted and invested in, the operator converted unused storage space into an extra studio apartment unit. 

Some operators add covered parking spots and charge extra for them. Others start billing tenants for utilities. Still others add an on-site coworking space and charge usage or membership fees. 

One of the cleverest strategies for boosting cash flow I’ve ever seen is called the “Section 8 overhang.” It involves buying a low-income housing tax credit (LIHTC) property, priced cheaply based on its current NOI. Then the operator gradually replaces all the cash renters with Section 8 tenants, collecting full-market rents—all while keeping the LIHTC tax advantages, because the rules for LIHTC restrict what the tenant can pay, not what the landlord can collect. 

See the loophole? 

Income for Life

I love true passive income that just hits my bank account without me having to lift a finger. And every year since I started investing passively through a co-investing club, I’ve collected more and more truly passive income. 

Some deals pay lower yields in the 4%-6% range, with the bulk of the returns projected from profits at sale. Other deals pay high yields in the 8%-16% range. 

This kind of passive cash flow gives me more options in my life and career. I spent many years living overseas, investing and raking in cash flow all the while. But when my family and I moved back to the States, I knew our cost of living would spike—and that was OK, because my earned income gets supplemented by my passive income. 

If I ever want to sell my business and go write novels, guess what? My passive income from cash flow investments will help support me. 

Cash flow investing can give you freedom. Or it can give you headaches, nightmares, and losses if you do it wrong. 

When in doubt, join an investment club to vet deals and cash flow alongside other investors. It’s how I personally invest, with small amounts each month for dollar-cost averaging. 

I’ll never go back to investing any other way.