Different risk and return of investment for the different investors (Photo credit: Wikipedia)
Negative arbitrage does not mean you will lose on the investment, negative arbitrage is when your investment return decreases with debt financing. This is not to say that you are losing in your investment. It means that you could have had a higher return with cheaper money.
Although the term negative arbitrage conjures images and feelings of loss, but that does not have to be the case. With lending practices being tougher and the cost of money being higher, negative arbitrage will become more and more of a factor with investors.
What this means, the investment needs to have greater cash flow and/or appreciation to make up for the loss in arbitrage.
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