Elon Musk, Mark Zuckerberg and Jay-Z are taking out mortgages despite their multi-billion dollar fortunes: here’s why the ultra-rich are taking out loans

By admin On Sep 19, 2024 0

It’s easy to think that once someone reaches billionaire status, they’ll buy whatever they want with cash, especially something as basic as a house. But even the world’s richest people, like Elon Musk, Mark Zuckerberg and Jay-Z have taken out mortgages on their homes. They are not doing this because they have to, but because it is a good financial decision.

Tendencies:

According to data from the Federal Reserve, the typical price of a home in the United States has skyrocketed over the years: from about $288,000 in 2014 to more than $412,000 in 2024. With the median annual salary sitting at just under $60,000 this year, it’s no wonder people are struggling to come up with enough for a down payment, let alone the full cost of a home.

But here’s where things get interesting. When you have billions, like Musk or Zuckerberg, you can buy a house without batting an eyelid. Yet these tycoons prefer to take out loans rather than leave money on the table. Why? It’s all about smart money management.

Warren Buffett once said, “If you don’t figure out a way to make money while you sleep, you’ll work until you die.” These high-yield real estate notes paying between 7.5% and 9% make earning passive income easier than ever.

First, taking out a mortgage helps keep cash on hand. Cash flow isn’t an issue for people like Musk, but it’s still a useful tool. Think about it: Houses are what’s called “illiquid.” Unlike stocks, which can be sold in seconds, houses take a while to sell.

Rather than stashing millions in a home, the ultra-rich prefer to keep their cash accessible, ready for new investments or business opportunities. They can make easy mortgage payments while their liquid assets are freed up for more profitable uses.

As financial planner Matt Wilson said: “Mortgages allow wealthy people to be more flexible with their money. They can take advantage of better investment opportunities by not having a large portion of it tied up in one place.”

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According to financial experts, there is another interesting advantage: tax deductionsIn the United States, mortgage interest is tax-deductible on loans up to $750,000. This means that billionaires can still claim a deduction on their tax returns. Although it may seem like a negligible amount to them, it is still money saved.

Another reason is the profitability of investments. Currently, the average mortgage interest rate is around 6.2%. However, historically rates were even lower. In contrast, the stock market has an average annual return of 10%. Even if the actual return is closer to 7%, it is still better than what a mortgage costs.

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Think of it this way: why spend $500,000 straight up on a house when you could get a mortgage, invest that same $500,000 in stocks, and potentially make an 8% return? You’d end up having more money in the long run. It’s like killing two birds with one stone.

As financial expert Sarah Newman explains: “Why pay off a mortgage when you can invest that money and get a bigger return? It’s all about making your money go further.”

Jay-Z, for example, released a mortgage on his $88 million estate in Bel-Air. He could have written a check, but he took out a loan instead. Why? Probably because that freed-up cash could be used to invest in more ventures like art, technology or startups, all of which can generate much higher returns over time.

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This article Elon Musk, Mark Zuckerberg and Jay-Z are taking out mortgages despite their multi-billion dollar fortunes: here’s why the ultra-rich are taking out loans Originally appeared in Benzinga.com