Financing
Negative Leverage
When your borrowing rate exceeds the property's cap rate, so every borrowed dollar costs more than the property earns.
Why Negative Leverage matters
This is 2026's dominant trap: a 6% cap rate financed at 7% loses 1% on every borrowed dollar, which is why adding leverage can push cash-on-cash BELOW cap rate. Deals can still pencil on appreciation, tax savings, and principal paydown — but you should know that's what you're signing up for.
How to check Negative Leverage before you rely on it
Compare the property's cap rate to the interest rate on the loan quote in front of you. When the rate is higher, every borrowed dollar reduces the return, so check the cash-on-cash return with and without the loan. If the deal still makes sense, write down what you are relying on instead: loan paydown, appreciation, or a later refinance, and test the case where those do not arrive on schedule.
Related terms
Cap Rate
Net Operating Income ÷ property value. The unleveraged return a property generates, independent of f…
Interest Rate
Annual mortgage rate. Pricing varies by occupancy, program, borrower, property, leverage, points, le…
Cash-on-Cash Return
Annual cash flow ÷ total cash invested (down payment + closing + rehab). Tells you how hard your mon…
LTV (Loan-to-Value)
Loan amount divided by the lender's eligible value basis. Investment-property cash-out limits vary b…
Ready to run the Negative Leverage math on a real deal?
Free 60-second analysis with labeled starting assumptions and no signup. Pro calculates your Offer Ceiling: the highest price that still meets your targets under the assumptions shown.
Where Negative Leverage shows up in TrueCap
Financing inputs sit in the analyzer's financing section: the rate can start from FRED's national 30-year benchmark and every term is editable. They drive the monthly payment, DSCR, and cash flow after reserves, so a change here moves the verdict and the Offer Ceiling; the results view names the financing assumptions most likely to change the decision.