Welcome to the Monthly White Coat Investor Real Estate Newsletter!
Thank you for being a member of the WCI Real Estate Opportunities Group! We hope you find the enclosed information and introductions helpful. Remember that we have a financial relationship with each company listed in this email, you generally need to be an accredited investor to invest, and you are still responsible for any necessary due diligence. Consider these to be introductions, not recommendations. This newsletter should be the first step in your due diligence process, not the last one.
Announcements:
You don't want to miss this year's WCICON conference in Las Vegas on March 25 - 28. Come in person and save $200 on your in-person registration with code VEGAS200 until Feb 20th. We would love to meet you in person and most of the real estate opportunities that we have introduced you to will have sponsor booths at the conference.
The JW Marriott Las Vegas hotel is already sold out, but our overflow hotel, Suncoast Hotel & Casino, just a 10-minute walk from the venue, still has space at really great rates. Book your hotel now before it sells out, too.
You can also join our sponsor DLP Capital for their exclusive pre-conference workshop: Beyond the White Coat: Legacy by Design with Don Wenner & Lloyd Reeb.
We can't wait to see you in Las Vegas!
Today's Topic: What Is Negative Leverage in Real Estate?
If you're looking to invest in real estate, you might not have the cash on hand to buy an investment property in full upfront, and you'll need to take on debt to make the acquisition. And if the debt isn't managed properly, you could wind up in a negative leverage situation, costing you and any fellow investors their money if or when you decide to sell the property. While negative leverage does not mean the investment is a failure—there actually are times it can be beneficial—it's crucial to be in that situation temporarily.
Today, let's talk about negative leverage in real estate, how it works, and in what scenarios it can be good for your investment.
Negative leverage in real estate happens when the debt assumed to acquire a property is more than the returns the property's cash flow generates. Different scenarios can lead to negative leverage. The loan's interest rate might have exceeded the property's returns. Maybe not enough cash was required upfront. Perhaps appreciation did not meet expectations, the operational cash flow increased, or the cash didn't flow as expected.
For example, if you purchased a commercial real estate property with a projected 6% capitalization rate but your mortgage rate is 6.5%, you're facing negative leverage. On the other hand, a property with a cap rate of 6% and a 5.5% mortgage rate would put you in a positive leverage deal scenario.
(To calculate the cap rate, you can divide the property's net operating income (NOI) by the acquisition price. Revenue-generating factors—such as parking, amenity fees, and rent—make up a real estate property's NOI.)
When interest rates are more than operating cap rates, assuming debt is considered a negative because it decreases investors' annualized cash flow. Instead, that money must be put toward paying for higher debt costs. This puts investors in a situation where they have to hope for a big profit when the property is sold so they can get the returns they were expecting when they first invested in the property. Unfortunately for investors, the lender typically benefits more in negative leverage situations. Additionally, investors face the challenge of meeting their debt obligations, which could lead to financial stress or even losing the property.
If the property sells at a profit, the negative leverage won't hurt. However, the longer that negative leverage remains with a property, the longer the opportunity to gain positive returns remains at risk because generated cash flow is being put toward debt instead of back to investors. One way to potentially avoid negative leverage is for investors to compare the debt cost to the property's cap rate. When the cap rate shows a return that exceeds debt costs, the property has positive leverage.
Since negative leverage exists in real estate, it only makes sense that leverage can be positive in real estate, too. Positive leverage occurs when a property's current yield or cap rate exceeds the mortgage's interest rate.
When structured correctly, positive leverage can be a key real estate investing tool—it can boost your equity yields, given that your borrowed funds are less than the income the property generates. Positive leverage can lead to consistent cash flow and a higher return on investment when it is maintained over a long period of time.
There are also other types of negative leverage in real estate to consider. For example, equity investment allows an investor to act as a shareholder in the property in which they have invested. Their piece of the property is tied to how much they have invested and accounts for factors like preferred equity, partnerships, and leverage.
Borrowing costs is another form of negative leverage in real estate. The loan amount, interest rate, and impact on equity returns are just some of the borrowing costs that are tied to negative leverage. These costs can have a significant impact on the risks and benefits that come with using negative leverage as a real estate investor. If interest rates continue to go up, for example, the increases will likely impact how much your loan costs. Again, a loan that costs you more than the amount of money the property is bringing in is exactly how you end up with negative leverage.
But negative leverage can also sometimes work in a real estate investor's favor. One example is when rent prices are lower than the typical market price or the market is uncertain, meaning the property purchase price could be discounted significantly, which could help offset decreased cash flow or cap rates. Additionally, during those times when rents fall below market, it's possible that a property could go from negative leverage to positive during the holding period (the time from when an investment is made to when the property is sold).
While there are openings for negative leverage to work to your benefit, you will need a plan to get back to positive leverage during the holding period—one way to do that is by improving the property and then raising the NOI and/or rents. If you believe the negative leverage is temporary, you could try to remain patient as you move back toward positive leverage. The ride might be bumpy, but there's potential for a bigger return once the property is sold, thanks to the discounted price you initially paid.
Here's the bottom line: when a term contains the word "negative," it's easy to assume it's a bad thing. That's not necessarily true when it comes to negative leverage in real estate. Negative leverage can work in a real estate investor's favor—as long as it's used properly. Understanding market conditions and ensuring that the negative leverage will be temporary is key to making a term that sounds bad lead you to a positive real estate investing experience.
Recently Published Articles That Relate to Real Estate
Check out these recent articles and podcasts that relate to real estate from across the WCI Network:
- 5 Bad Arguments Against Private Real Estate Syndications
- I Want to Invest in Real Estate, But I Also Want to Be Totally Lazy About It: What Are My Options?
- We've Never Felt So Rich, But Am I Losing Track of Our Money? A Wrap on 2025 and Our Goals for 2026
Current Real Estate Opportunities
DLP Capital (Multiple Funds)
DLP Capital is an impact investment company that is focused on doing well while doing good–meaning working diligently to provide great returns to investors while simultaneously tackling four crises in our country. Their investments are straightforward, easy to understand, and historically profitable. They relaunched their fund portfolio to ensure their offering aligns with their primary mission. DLP Capital offers five funds giving more options to a wider range of investors. All funds have the following criteria: 1) all DLP funds are evergreen, 2) they invest in critical workforce housing, 3) they are targeted to provide above-market returns, and 4) they pay preferred returns before DLP takes a management fee.
To learn more, watch the DLP Capital Webinar.
Check Out DLP Today!
MLG Capital (Multiple Funds)
MLG Capital is a real estate investment firm, founded in 1987. Focused on serving accredited investors, investment advisors, family offices, and more. Each of the MLG Private Funds target to acquire a geographically diverse portfolio of 25-30+ commercial real estate assets across several key U.S. markets.
Since its inception, MLG Capital and its associated entities have had active, exited or pending investments of nearly 50.9 million square feet of total space across the United States, inclusive of more than 44,200 apartment units, with exited and estimated current value exceeding $±.7.9 billion.
MLG Private Fund VII is open for investment.
To learn more, watch the MLG Capital Webinar.
Check Out MLG Capital Today!
Southern Impression Homes (Turnkey Homes)
Southern Impression Homes is the parent company of one the most successful turnkey new construction Build To Rent Ventures in the United States. They specialize in helping individual investors build successful rental portfolios in high growth, landlord friendly markets in Florida. Focused on new construction homes in desirable neighborhoods designed to maximize landlord profit with better inventory, less tenant turnover, lower maintenance and repairs and a better overall growth strategy for both rents and values. Their system provides full-service in acquisition, building, construction, property management and ongoing client support and education. Most clients come to SI Homes looking for an alternative to the stock market because SI's strategy creates ongoing cash flow, real estate appreciation and an excellent hedge against inflation. For the right investor, their system delivers amazing results to help overcome those issues quickly and completely.
To learn more, watch the Southern Impression Homes Webinar.
Check Out Southern Impression Homes Today!
Mortar Group (Syndications)
Mortar's approach to investments is simple. We are a vertically integrated firm with an experienced team that delivers consistent returns. Specializing in multi-family real estate, Mortar has been the driving force behind over 30 distinctive and successful developments in prime and niche New York neighborhoods since 2001. We leverage over two decades of experience in architecture, development, and asset management to build value and minimize risk for both investors and the residents who live in them. Our winning combination of high-returns and risk-adjusted strategies has led to an excellent track record of investment success.
To learn more, watch the Mortar Group Webinar.
Check Out Mortar Group Today!
Black Swan Real Estate (Fund)
Black Swan Real Estate helps physicians and other accredited investors build financial freedom through the Secure Freedom Fund, our private multifamily investment fund designed for simplicity, stability, and alignment. With more than 14 years of experience and a $450M portfolio, we combine hands-on operations with an investor-first philosophy that prioritizes transparency, stewardship, and long-term partnership.
Secure Freedom Fund is built to meet investors where they are. You can customize your investment to your specific goals - choosing your investment amount, vehicle, electing for steady monthly distributions or allow returns to compound for accelerated long-term growth, and choosing when you exit the investment — customizing your strategy to your goals and season of life.
Led by Nick and Dr. Elaine Stageberg, our team deeply understands busy professionals who want reliable, ethical investments without adding complexity to their lives. With a strong history of achieving targets and protecting downside, Black Swan offers a calm, confident path to grow wealth alongside a team you can trust.
Check Out Black Swan Today!
Goodman Capital (Fund)
Goodman Capital is an alternative real estate investment firm specializing in real estate-backed private lending, built on a foundation of family experience dating back to 1987 when we originated our first senior-secured bridge loan on two multifamily walk-up properties in Harlem, New York. Since then, our platform has grown to over $850 million in closed mortgage transactions and more than 1,000 investor partners, including high-net-worth individuals, family offices, and institutional allocators. Our integrated team of 10 investment and legal professionals operates within a robust institutional framework supported by third-party administrators, auditors, and SEC counsel. Our mission is twofold: to educate and financially empower our investor community with unique access to senior-secured real estate lending opportunities that prioritize capital safety while generating tax-efficient passive monthly income.
Check Out Goodman Capital Today!
Fundrise (Private REIT Provider)
Fundrise offers REITs and funds to non-accredited investors. It now has 7 REITs/Funds with various focuses, including income, growth, and various geographic areas. Minimums are the lowest we've seen, just $500.
Check Out Fundrise Today!
We hope you find these monthly newsletters helpful. We appreciate your feedback, both positive and negative, about the real estate opportunities you learn about here and elsewhere.
Jim and Brett
Jim Dahle, MD, FACEP
Founder, The White Coat Investor
Brett Stevens, MBA
COO, The White Coat Investor
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