A twist on Leverage v Cash. I know, I know, but... hear me out

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An age old debate, but… with a twist

Hello BP, I am new here so 1st off, hello! I’m hoping to get a little advice. Well, in a round about way.

This is a hypothetical (and over simplified) question with relative numbers. It is being used as a metaphor with the hopes of gaining a little more insight on a real life scenario…

Assumptions:

1. You have a successful non-real estate business and your life is in order. You have traditional investments, stocks, etc., but have decided you want to start investing more in real estate as well
2. You own a primary residence free and clear
3. You have 100k of free capital that you can use to buy your 1st investment property. This money is not needed anywhere else and is just sitting in a bank collecting bank interest
4. Considering your main focus is your primary business, you feel like you will have time for at most 2 - 4 smaller properties in the 1st couple years while you gain experience
5. For the sake of this argument, any extra income won’t effect your tax bracket
6. We are also disregarding the added liability of having 100% equity in a property, although as you will see, it really shouldn’t matter much in this scenario
7. You have found and are ready to buy your 1st property

Oh, and here’s the twist…

1. Four unit properties in your area have a purchase price of $1000.00 - $3000.00. The property you are buying is $2000.00. The question is, would you use leverage or pay cash and why. If you found yourself immediately “knowing” the answer, take a minute to think about the details of this particular scenario. Rehashing age old arguments without actually thinking about the reasoning behind those arguments will lead to a less beneficial conversation.

My position is, while I understand the benefits of leverage, cash is a much better choice in this scenario. I’m interested in any good arguments for using leverage in this scenario and in seeing a perspective that I might be missing. Here are my reasons for a cash argument:

• The only reason to “partner” with a bank is because you don’t have enough free capital to do the deal on your own
• In exchange for your partnership, while you do retain 100% of the appreciation, you are still giving up a share of your profit/return
• If for example you net 10k/month in rent on a property, and pay 9k/month in interest, you are paying a 90% “tax” on this income to the bank
• If the argument is “you’re not paying the interest, the tenants are” and “why would you want to be taxed at up to 50% on that income when you can write off most of it”, then you have to compare apples to apples and say “well I’m not paying the taxes on that income, my tenants are”
• wouldn’t you rather pay taxes on extra income/return you wouldn’t normally be making, than pay 90% in interest + up to 50% taxes on the remaining 10% you net?
• Bank interest is not a phantom write off like depreciation, or an expense that you are going to have anyways, like maintenance. You are choosing to add an additional expense in order to free up capital
• If the concern is not wanting to tie up capital, then please see my 1st point… “The only reason to partner with a bank is…”

Again I realize I am over simplifying here. The point is to gain a new perspective on a stale topic and to bring to light any flaws in my thinking or things I might otherwise be missing.

Thanks in advance for any thoughts!