What Is Negative Carry?

By Kristi Waterworth – Updated Feb 25, 2025 at 11:35 PM EST

Key Points

Negative carry means spending more on an investment initially than it earns.
Real estate often uses negative carry, expecting future rent and value increases.
Bonds and forex also employ negative carry, betting on future market gains.

On the surface, negative carry, a more uncommon strategy, actually involves more cost than income. When considering an investment, it's important to look at all the associated costs and strategize from there. Let's dive in.

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Even though the bank often relied on the income from the mortgages to pay CD holders, they were required by law in many states to put a ceiling on the interest they could charge. In essence, the money they were lending to homebuyers was coming from savings products held within the bank, such as the CDs, which paid at much higher rates than the return from the mortgage.

That caused distinct periods during which even banks were practicing negative carry, although maybe less purposefully than someone doing it with a bond market or forex transaction. Over time, of course, the CD rates dropped, and the mortgage loans became more profitable, a universal happy ending for the best of all negative carry strategies.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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