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Cash vs. Leverage

You found a deal worth doing. Should you write a check, or borrow and keep your cash working elsewhere? Build your scenario, see the break-even hold period, and find the borrowing rate where leverage stops paying.

The Deal

$
yrs mos
%

Provided for context. This calculator ignores investment-level taxes — the leverage decision is taken pre-tax.

Financing & Liquidity

%

What your cash earns if it stays liquid (T-bills, money market, short bonds).

%

Interest-only; principal repaid at exit.

%

Scenario A: Pay Cash

Cash Out of Pocket Today ($1,000,000)
Cash Kept Liquid $0
Loan Balance $0

At End of Hold (7 Years)

Investment Terminal Value $1,828,039
Liquid Alternative Account $0
Cumulative Interest Paid $0
Total Wealth Gained $828,039
IRR on Capital Contributed 9.00%
Net of Tax (23.8%) $802,892

Scenario B: Borrow & Stay Liquid

Cash Out of Pocket Today $0
Cash Kept Liquid $1,000,000
Loan Balance $1,000,000
After-Tax Borrow Cost 7.00%

At End of Hold (7 Years)

Investment Terminal Value $1,828,039
Liquid Alternative Account $1,360,862
Less: Loan Repayment ($1,000,000)
Less: Cumulative Interest ($490,000)
Total Wealth Gained $698,901
IRR on Capital Contributed —
Net of Tax (23.8%) $676,592

Break-Even Analysis

Max Hold Period

9.4 yrs

Longest hold at which leverage IRR still meets or beats the cash (deal) IRR. Past this point the interest drag overtakes the compounding gains.

Max Borrow Rate

5.16%

Highest pre-tax borrow rate at which leverage IRR still matches the cash IRR for the chosen hold period.

Min Liquid Yield

6.07%

Lowest liquid alt yield at which leverage IRR still matches the cash IRR for the chosen hold period.

The Bottom Line

Over 7 years, paying cash leaves you roughly $129,138 ahead of borrowing.

Your liquid alternative compounds to roughly $1,360,862 over the period, but the cumulative interest cost of $490,000 outweighs it. Leverage would need either a longer runway (about 9.4 years), a cheaper borrow rate (under 5.16%), or a higher liquid yield (above 6.07%) to come out ahead.

Let's pressure-test your deal together

How this works

Both scenarios make the same investment, so the deal's return cancels out of the comparison — what really matters is whether your liquid alternative compounds faster than your borrowing costs accumulate. Cash drains your liquidity entirely. Leverage keeps your cash compounding in a liquid alternative (T-bills, money market, short bonds) while you pay interest-only on the loan and repay the principal at exit.

If interest is deductible, the after-tax borrow cost drops to rate × (1 − marginal tax rate). Section 163(d) limits investment-interest deductions to net investment income, and business-interest rules differ — this tool assumes the deduction is fully usable, so confirm with your CPA before relying on it.

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Important Disclosure: This calculator provides rough estimates for educational and illustrative purposes only and does not constitute tax, legal, financial, or investment advice. Rubiq Financial Partners is not a tax advisor, CPA, or attorney, and does not provide tax preparation, legal, or accounting services. The model assumes interest-only financing with principal repayment at exit, ignores all investment-level taxes (capital gains, ordinary income, NIIT, recapture, state and local) except where the optional Net-of-Tax line is applied, and assumes the deductibility checkbox produces a fully usable tax benefit. Actual borrowing costs, deductibility under IRC §163(d) or business-interest rules, margin call risk, lender covenants, prepayment terms, and the real-world performance of both the deal and the liquid alternative may differ materially. Tax rates and interest-deductibility rules are subject to legislative change. Borrowing to invest amplifies losses as well as gains and can result in losses greater than your original capital. Past performance does not guarantee future results. Always consult with a qualified tax advisor, attorney, and financial advisor before financing an investment.

Got a real deal in front of you?
Let's run your numbers together.

Borrow rates, deductibility rules, and the right liquid alternative all turn on your specific situation. Bring us the deal — we'll model it against your balance sheet and your tax picture and tell you whether leverage actually makes you money.

610-215-9499 clientservice@rubiqfinancial.com