Why Billionaires Take Out Mortgages Instead of Paying Cash
Ultra-high-net-worth individuals, including Elon Musk and Mark Zuckerberg, frequently use mortgages to maintain liquidity and optimize their tax burdens. By borrowing against assets rather than paying cash, these wealthy buyers keep their capital invested in higher-yielding assets and avoid triggering capital gains taxes, according to financial experts.
Why does Elon Musk take out mortgages?
Elon Musk, the world’s richest man with a net worth of $703 billion, has secured several “mega mortgages.” According to the Los Angeles Times, this includes a $61 million loan from Morgan Stanley for five properties in California.
While Musk could easily pay cash, experts say this is a deliberate wealth strategy. Miltiadis Kastanis, executive director of sales at Compass, told Fortune that ultra-high-net-worth individuals prefer keeping their money working in businesses, investments, or art rather than tying it up in a single property.
How do billionaires use debt to avoid taxes?
Wealthy buyers often use securities-based lending. J.P. Morgan notes that this allows clients to borrow against stocks or other assets without selling them, which prevents the triggering of capital gains taxes.
Analysts refer to this cycle as “buy, borrow, die.” Investors accumulate appreciating assets, borrow against them to fund their lifestyle, and eventually pass those assets to heirs with a stepped-up basis to largely eliminate accumulated capital gains tax.
Tax deductibility also plays a role. Islay Robinson, CEO of Enness Global, told Fortune that interest payments may be deductible in some jurisdictions. In the U.S., mortgage interest can be tax deductible on loans up to $750,000 for those who itemize.
What other celebrities use this strategy?
Mark Zuckerberg, the world’s seventh-richest man, utilized low interest rates to his advantage. According to CNBC, Zuckerberg refinanced his Palo Alto home in 2012 with a 30-year, 1.05% adjustable-rate mortgage.
Because the rate was so low, it made little financial sense for him to tie up nearly $6 million in home equity. Evan Harlow of Maui Elite Property told Fortune that it’s common for the mega-wealthy to finance properties even when they can write a check for the full price.
What may happen next for wealthy borrowers?
Future borrowing decisions may depend heavily on the inflation environment. Islay Robinson noted that in high-inflation periods, the value of money erodes, which could make it more advantageous for the wealthy to borrow now and repay later.
If interest rates remain higher than the 2010s era, wealthy buyers may shift more toward securities-based lending to maintain flexibility. They are likely to continue prioritizing liquidity over full ownership to keep their portfolios agile.
Frequently Asked Questions
Why do billionaires take out mortgages instead of paying cash?
They prefer to keep their wealth liquid and invested in assets—like stocks, businesses, or art—that may offer a higher return than the interest cost of the mortgage.
What is the “buy, borrow, die” strategy?
It is a practice where individuals accumulate appreciating investments, borrow against those assets to fund consumption without triggering income taxes, and pass the assets to heirs to eliminate capital gains tax.
How does securities-based lending work?
According to J.P. Morgan, it allows individuals to borrow against their public market investments to raise money without selling the assets, thereby deferring taxes and staying invested.
Do you think keeping your money flexible is more important than being debt-free?