Why Real Estate Leverage Can Become a Trap
Leverage is one of the most common strategies in real estate investing.
Borrow money. Buy more properties. Let rents and appreciation build your wealth.
It can work incredibly well in the right market.
But what happens when rents stop rising?
What happens when expenses continue climbing while your property's value doesn't?
And what happens when the equity you thought you had exists only on paper?
Johnoson Crutchfield says these are questions investors need to ask before the market forces them to.
After buying hundreds of rental properties using borrowed money, Johnoson experienced firsthand what happens when the assumptions behind a highly leveraged portfolio stop working.
Quick Takeaways
Leverage Works—Until the Market Changes
Leverage can be a powerful growth tool in an appreciating market.
When you're borrowing at relatively low rates and rents are increasing, debt can help you acquire properties faster than you could with cash alone.
The problem comes when the market stops cooperating.
According to Johnoson, between 2022 and 2026, rent growth flattened after rising quickly, with some markets even experiencing declines.
At the same time, expenses continued moving higher.
Property taxes, insurance, maintenance, repairs, and vacancies can all put pressure on a rental property's cash flow.
When those factors move in the wrong direction at the same time, a heavily leveraged portfolio can become difficult to manage.
The Equity You See on Paper May Not Be Real
One of the biggest lessons from Johnoson's experience is the difference between paper equity and usable equity.
A property may appear to have equity based on its estimated market value.
But if you owe more on the property than you can realistically sell it for, that equity isn't available when you need it.
That's especially important when an investor needs to sell properties or access capital during a difficult market.
A portfolio can look strong on paper while still leaving its owner short on cash.
Stress Test Your Real Estate Deals
Banks stress test loans before they lend money.
Investors should consider doing the same.
Instead of only asking:
"What happens if everything goes right?"
Ask:
- What happens if rents stop increasing?
- What if rents actually decline?
- What if property taxes rise?
- What if insurance becomes more expensive?
- What if repairs cost more than expected?
- What if vacancies increase?
- What happens if financing becomes more expensive?
The goal isn't to predict exactly what will happen.
It's to understand whether your investment can survive when the assumptions behind your original deal change.
A Smaller Portfolio May Be More Resilient
Bigger isn't automatically better.
Johnoson argues that a smaller portfolio built more slowly with cash invested into each property can be more resilient than a massive portfolio that is heavily financed.
That's because leverage creates obligations.
The more debt an investor carries, the more dependent the portfolio becomes on consistent income and favorable market conditions.
Cash reserves and financial flexibility can matter just as much as the number of properties an investor owns.
Real Estate Can Still Build Wealth
The message isn't that investors should avoid real estate.
Quite the opposite.
Johnoson still describes real estate as a powerful wealth-building tool.
The lesson is to understand the risks that come with the strategy you're using.
A rental portfolio shouldn't simply work when rents are rising and everything goes according to plan.
It should be structured with enough resilience to handle periods when the market doesn't cooperate.
The goal isn't to own the most properties. It's to build a portfolio you can actually sustain.
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About Johnoson Crutchfield
Johnoson Crutchfield is a real estate investor, coach, and host of the Grab the Map podcast. He helps aspiring and active investors move beyond analysis paralysis and take the consistent actions required to close real estate deals.
Drawing from years of hands-on experience, Johnoson teaches practical, real-world strategies focused on finding opportunities, building relationships, securing funding, and making offers. His approach emphasizes weekly execution over endless education, helping investors create momentum through simple, repeatable actions.
As the leader of the Wealth and Real Estate community, Johnoson shares lessons from real transactions and real conversations with lenders, sellers, and investors. He is a strong advocate for local banking relationships, seller financing, and private lending as powerful tools for growing a real estate business.
Through coaching, content, and community, Johnoson has helped investors gain clarity, build confidence, and take meaningful steps toward closing their first—or next—deal.
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