Intentionally leaving some money in a deal

[Zac Allen]

I was wondering if leaving some money in a deal to ensure your rental property is cash flowing is a bad idea or what the drawbacks were. Here's an example thats similar to a situation I'm looking into. I found a house that I want to use the BRRRR strategy on and after refinancing it, the monthly expenses would be about $1800. The rent for a house like this can range from $1800 to $2100. I was thinking if I left some money in the deal that still yielded a healthy ROI and helped to keep the monthly expenses closer to $1500 to help ensure it was cash flowing, the only drawback would be that I don't have as much in the bank to BRRRR my next house. Are there other drawbacks to this adjustment to the strategy?

[Russell Brazil]

Originally posted by @Ned Carey:

@Zac Allen in principal there is no reason not to leave money in a deal. It is simply a choice between having a higher ROI and reducing your risk.

Everyone needs to read this quote by Ned 1000 times and burn it into your brain til you understand the concept. Leverage increases your ROI, but it also increases your risk. High risk and low risk are not consummate with good or bad, but they are consummate with higher and lower probabilities of your proforma returns deviating from actual returns. By definition, leverage increases risk, and all the people getting really attracted to BRRRR and cash out refinances are underestimating the risk in pulling every last drop of equity from their properties.