Why in the world would a billionaire have a $6M mortgage?

Bloomberg recently published an article entitled “Zuckerberg’s Loan Gives New Meaning to the 1%” which is about Mark Zuckerberg (the founder of Facebook who is a multibillionaire) putting a $5.95 million mortgage on his home.  Many people may ask, “Why in the world would he do that?”.  The article does a great job of giving us “99%” the reasons why.  Here are some tidbits from the article:

  • His loan is a 30-year adjustable-rate loan starting at 1.05%
  • When you can borrow at a rate below inflation, you’re borrowing for free
  • Use other people’s money to preserve financial flexibility
  • He purchased the home using an LLC for asset protection
  • Wells Fargo Private Bank says, “In our experience the majority of high-net-worth individuals do have a mortgage”
  • Zuckerberg refinanced his 1.05% loan from a current 1.75% loan with Morgan Stanley
  • His mortgage was signed by a tax consulting firm for high-net-worth individuals
  • Wealthy individuals use mortgages since they are “low cost” and provide additional access to liquidity
  • Wealthy individuals invest excess cash that would have gone into their home into higher-yielding assets
  • Even if rich people are able to pay off their mortgage, they don’t want to “tie up their holdings” in real estate equity when there are “more attractive investments”

There is an old saying that goes something like this:  If you want to be successful, study the successful and do what they do, while at the same time, study the masses and do the exact opposite.  Since the rich have maximum mortgages and the masses are almost always trying to pay off their mortgage, what should you do?

I would recommend that you consider managing your real estate equity in “more attractive assets” that help optimize the liquidity, safety, and rate of return of your assets.  Let me know if you would like to know some of the “more attractive assets” my clients have successfully used in growing and protecting their wealth.

Michael Morrow, Financial Planner

Here is a link to the original article:  http://www.bloomberg.com/news/2012-07-16/zuckerberg-s-loan-gives-new-meaning-to-the-1-mortgages.html?cmpid=otbrn.tech.story

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