There’s a default assumption in real estate investing that goes something like this: borrow as much as the lender will give you, pull out as much equity as possible, and use that cash to buy the next property. Leverage is the engine. More leverage, more properties, more wealth.
And honestly, for a certain phase of portfolio building, that logic makes sense. I’ve written about BRRRR on this blog — the whole point of that strategy is to recycle capital by pulling equity out and redeploying it into the next deal.
But I came across a conversation recently between a father and son investor that made me think harder about the other side of that equation. The son owns six properties. On his most recent acquisition, he deliberately borrowed significantly less than he could have — and the reasoning behind that decision is worth unpacking.
The Deal
Here’s the setup. The son bought his sixth property for a total all-in cost of around $204,000 to $205,000. When the appraisal came back, the property was valued at $360,000 — higher than the $325,000 he’d originally projected.
At 80% LTV — the typical maximum for a conventional investment property loan — he could have pulled out $288,000. That would have given him back his entire purchase price plus a significant chunk of additional cash.
He didn’t do that. Instead, he borrowed at 60% LTV — $216,000 against the $360,000 appraised value. He left 40% equity sitting in the property.
His tenant pays $2,300 a month. With the lower loan amount, his monthly payment dropped enough that he’s saving $400 to $500 per month compared to what an 80% LTV payment would have been. The cash flow is healthier, the debt load is lighter, and he’s sleeping better at night.
Why Borrow Less When You Could Borrow More?
The obvious question is: why leave that equity on the table?
The answer, in his case, came down to two things. First, he already had $250,000 in cash reserves. He didn’t need more capital to deploy — he had enough to move on another deal if one came up. Pulling out an extra $72,000 at higher monthly payments would have generated cash he didn’t need while creating carrying costs he didn’t want.
Second — and this is the part I think gets underappreciated — he was optimizing for cash flow stability rather than portfolio growth speed.
Those are two different goals. And depending on where you are in your investing journey, one matters a lot more than the other.
The Math on Monthly Cash Flow
Let’s look at what the difference actually means month to month.
At 80% LTV on a $360,000 appraised value, you’re borrowing $288,000. At a 7.5% interest rate on a 30-year loan, that’s roughly $2,015 per month in principal and interest — before taxes, insurance, and property management.
At 60% LTV, you’re borrowing $216,000. Same rate, same term — that payment drops to approximately $1,511 per month.
That’s roughly $500 per month in difference. Which is exactly what he mentioned.
Against $2,300 in monthly rent, the 80% LTV scenario leaves you with maybe $285 in cash flow before expenses. The 60% LTV scenario leaves you with closer to $789 before expenses. That’s not a small difference — that’s the difference between a property that feels like a burden and one that genuinely contributes to your financial picture every month.
When Maximum Leverage Makes Sense
I want to be clear that I’m not saying 80% LTV is wrong. There are situations where pulling maximum equity is absolutely the right move.
If you’re in active portfolio-building mode and every dollar of capital you redeploy can generate another cash-flowing property, leverage is your friend. The BRRRR strategy exists precisely because recycling capital efficiently accelerates growth faster than any other method.
If you’re in a rising market where appreciation is working in your favor and you want to capture as much of that as possible across multiple properties, more leverage means more exposure to upside.
If you’re early in your investing career and capital is the constraint — meaning the only thing stopping you from buying the next deal is cash — then pulling equity makes sense because the alternative is sitting on idle capital inside a property.
When Conservative LTV Makes Sense
But there’s a different phase of investing where the calculus shifts. And the son in this conversation was clearly in that phase.
When you already have enough capital reserves that additional cash doesn’t meaningfully change your options, the higher monthly payment just becomes friction. You’re paying more every month to hold money you don’t need.
When your portfolio has grown to the point where stability matters as much as growth — six properties, multiple tenants, multiple moving parts — predictable cash flow becomes more valuable than maximum leverage.
When interest rates are high enough that the spread between your borrowing cost and your return on that borrowed capital is thin, the risk-reward on maximum leverage gets less attractive.
He had all three of those conditions working at once. So he borrowed less, kept his payments manageable, maintained strong cash flow, and preserved a significant equity cushion in the property.
The Equity Cushion Argument
There’s one more thing worth mentioning. Leaving 40% equity in a property isn’t just about monthly cash flow — it’s also a risk management decision.
If the market softens and property values drop 15-20%, an investor at 80% LTV is suddenly uncomfortably close to being underwater. An investor at 60% LTV has a lot more room before that becomes a real problem.
If a major repair comes up — roof, HVAC, foundation — an investor with tight cash flow and maximum leverage is in a difficult position. An investor with strong monthly cash flow and equity reserves has options.
The equity cushion is boring. It doesn’t make for exciting content. But it’s the thing that keeps portfolios intact when things don’t go according to plan.
What This Means for My Own Roadmap
I’m still in earlier stages — getting back into flipping, building toward multifamily and eventually development. Right now, capital efficiency is the priority. Every dollar I can redeploy into the next deal matters.
But I’m filing this conversation away, because there’s going to come a point where the goal shifts from building the portfolio to stabilizing it. And when that point comes, the instinct to borrow maximum leverage needs to be questioned rather than assumed.
The son in this story isn’t leaving money on the table. He’s choosing which kind of money matters more to him right now — a lump sum he doesn’t need, or $500 a month he’ll actually feel every single month for the life of the loan.
That’s not a bad trade.
Not financial advice — just someone doing a lot of research and asking a lot of questions.