3. After purchasing, properties’ ROI comes from strong management.

You can score a great deal on a property and then still lose a boatload of money on it. How? Bad property management.

When you buy a property, you’ve forecasted its cash flow, but those forecasts are purely theoretical. They exist only on paper.

In the real world, you’ll earn either higher or lower returns than these forecasts, based on how well the properties are managed.

How well do you retain good tenants? Does your preventative maintenance extend the lifespans of your mechanical systems? How well do you add value to remain competitive with other nearby properties?

Your returns on rental properties will be based on two things: whether you bought a good deal initially and whether you manage the property effectively. Success depends on doing both right.

The best acquisition in the world will lose money if you lease to a deadbeat who doesn’t pay the rent and then fights you in rent court. Invest time and effort in tenant screening and tenant retention when you’re first starting out—these are the backbone of good property management.

4. Focus on the fundamentals (and forget the rest!).

When you’re a multimillionaire, you can worry about protecting your assets with legal entities or trusts. When you’re starting out, focus on accruing assets that are actually worth protecting.

And don’t get me started on all the armchair economists who go on about trying to time the market. If housing experts and real economists with actual PhDs behind their names can’t accurately predict market timing, you can’t.

Forget all that nonsense.

In the beginning, there are only two things new investors should focus on: finding good deals and managing them effectively. If that sounds oversimplified, it’s because both of those tasks involve plenty of sub-skills to master.

Learn how to accurately forecast cash flow. Identify good target neighborhoods for rental investments. Find a good real estate agent who specializes in working with investors in those neighborhoods or even a team of agents. Pursue off-market deals. Network with banker.

Screen the living heck out of your rental applicants. Manage your properties proactively. Develop trust and respect with your renters.

In other words, focus on the fundamentals: finding good deals and managing them well.

5. Leave the slums to the slumlords.

I’ve known people to make money in super low-end real estate. But it’s a complex and challenging niche, and it’s not for new investors—or most experienced investors, for that matter.

The numbers are tempting. They look great on paper: a RM90,000 house that rents for $1,200; what could go wrong!?

A lot.

Many of them are in bad neighborhoods. I’ve regretted those investments for over a decade. I could tell you horror stories about “professional tenants,” recurring break-ins, junkies using my vacant properties as crack houses, and local lowlifes breaking apart my air conditioning condensers to steal the copper—yes, even after I installed giant steel cages over them.

Or I could try to demonstrate how landlords in these neighborhoods are always in the wrong, in the eyes of the ever-indignant public. Out of one corner of activists’ mouths, they decry that there’s not enough affordable housing, then out of the other they yell “slumlord!” and scream for ever-stricter regulations against the landlords who actually provide that affordable housing.

Very low-end housing is a losing proposition economically and politically. Here’s a simple rule for new investors: Don’t invest in neighborhoods where you wouldn’t want to live.

6. You do need a cash reserve, but it doesn’t need to be a fortune.

Landlords need to keep a cash reserve. For that matter, all responsible adults need a cash reserve.

What happens when that RM3,000 furnace bill comes along? What happens when your tenant loses their job and stops paying rent? Or for that matter, when you lose your job?

Many personal finance experts recommend keeping an emergency fund of six months’ worth of expenses in cash. But for the average Malaysian, that’s somewhere around RM15,000.

That amount is ridiculous to keep in cash. It’s wasteful; cash loses 1-4%/year to inflation.

You should strive for a few thousand dollars in a cash reserve for emergencies. And landlords should keep an account where all those repairs, vacancy rate, and other expenses we talked about earlier can pile up for when they’re needed.

But keeping more than a few thousand dollars in cash is poor financial management. Instead, keep a few credit cards with no balance, and keep a few conservative, stable investments that you can liquidate quickly if needed. Money market accounts are a boring and low-yield example, but there are also mutual funds that are conservative enough to fit the bill.

In other words, don’t feel like you can’t invest in rental properties just because you don’t have a huge emergency fund.

What lessons have you learned the hard way?

Don’t be shy; we’ve all made mistakes!