6 ms·

Why does someone like Zuck need a mortgage? Is it economically advantageous to him in a significant way?

ceejayoz 10y ago
Same reason Apple finances stuff despite their giant cash hoard. With interest rates as low as they are, it's smarter to take the financing and have the money available for stuff with returns higher than the mortgage interest.
whack 10y ago
Check out my earlier comment. Any time you get to borrow money at 1%, you should take that loan and reinvest it in something (anything) that yields a higher return. It's almost like getting free money.
- artursapek 10y ago
  But is the cost of a house significant to someone worth billions? I'm asking why he wouldn't just pay cash for it.
  - ceejayoz 10y ago
    There's a saying along the lines of "You don't get rich by spending money" that applies here. A mortgage at 1.05% interest as mentioned in the article is basically throwing money at the person taking the mortgage.
    - artursapek 10y ago
      Makes sense, thanks.
    - deleted 10y ago
      [deleted]
  - raincom 10y ago
    Billionaires' finances are managed by accountants, money managers, and lawyers. So, the accountant in this case suggests what's best: tax write off (interest expense), and interest rate differential (higher returns elsewhere - mortgage rate).
  - edoceo 10y ago
    Time-value of money. Keep cash in YOUR pocket.
  - twblalock 10y ago
    How would he get that cash? If he has to sell stocks, his capital gains taxes would probably cost him a lot more money than the interest on a mortgage, or on a pledge asset line of credit with his investments as collateral. If you have to sell stocks to pay cash for a home, a mortgage could cost you less money overall.
matt_wulfeck 10y ago
Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden. The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.
- jpmattia 10y ago
  There's also a deduction phase-out at high incomes. (450K iirc)
  - JumpCrisscross 10y ago
    $1MM if single, $500k if married and filing separately. EDIT: see comment below. One can deduct the interest on mortgages up to $1MM and $500k, but there is a cap on itemised deductions (mortgage interest deductions are this kind of deduction) around $450k. http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx http://www.bankrate.com/calculators/mortgages/loan-tax-deduc...
    - jpmattia 10y ago
      There are two different things: From your link: Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately). So mortgage interest for loans beyond $1M are not deductible at all. Then there is the deduction phase-out > You are subject to the limit on certain itemized deductions if your adjusted gross income (AGI) is more than $309,900 if married filing jointly or qualifying widow(er), $284,050 if head of household, $258,250 if single, or $154,950 if married filing separately. Your AGI is the amount on Form 1040, line 38. https://www.irs.gov/publications/p17/ch29.html https://www.irs.gov/publications/p17/ch29.html
  - jonknee 10y ago
    Though somewhat ironically, Zuck probably isn't high income because his Facebook salary is $1 and the vast majority of his wealth is in FB shares that pay no dividend.
mywittyname 10y ago
He doesn't need a mortgage, it's just financially savvy to have one. He avoids paying taxes on the sale of stocks to finance the home. Mortgage interest is tax deductible. His stocks will almost certainly yield more than the interest rate on the mortgage. He's getting a sweetheart deal from the bank. For him, selling stock is a PITA because he has special class of stock that grant him voting rights far beyond what a normal share is worth. These special shares are granted to him by the board of directors. So selling 1 share means losing like 1000 votes (they convert back to 1:1 upon sale), meaning he needs to be careful when liquidating assets. By waiting five years, he can use vested options to pay the mortgage, rather than selling his special class stock.
- jazzyk 10y ago
  With the net worth equal to the GDP of a sizable country, does he need to worry about saving a few thousand here or there? Also, free country and all, taking advantage of that special rate is still rather unsettling.
  - MrMullen 10y ago
    It's all about the special stock since he does not want to part with it. That is how he maintains control of Facebook.
- sybhn 10y ago
  >He avoids paying taxes on the sale of stocks to finance the home. Can you elaborate on that?
  - ihsw 10y ago
    Like-kind exchange? Not exactly sure what the parent was referring to. https://en.wikipedia.org/wiki/Like-kind_exchange https://en.wikipedia.org/wiki/Like-kind_exchange
  - gdubs 10y ago
    If you want to buy a million dollar home using shares, you have to liquidate them and pay capital gains. By getting a mortgage you lower the amount of income you 'realize' on a year-to-year basis, lowering your taxable income. There are details on capital gains vs income taxes, etc, but in general I think the point was that the less income you realize in a given year, the less taxes you'll pay.

Same reason Apple finances stuff despite their giant cash hoard. With interest rates as low as they are, it's smarter to take the financing and have the money available for stuff with returns higher than the mortgage interest.

whack 10y ago

Check out my earlier comment. Any time you get to borrow money at 1%, you should take that loan and reinvest it in something (anything) that yields a higher return. It's almost like getting free money.

artursapek 10y ago
But is the cost of a house significant to someone worth billions? I'm asking why he wouldn't just pay cash for it.
- ceejayoz 10y ago
  There's a saying along the lines of "You don't get rich by spending money" that applies here. A mortgage at 1.05% interest as mentioned in the article is basically throwing money at the person taking the mortgage.
  - artursapek 10y ago
    Makes sense, thanks.
  - deleted 10y ago
    [deleted]
- raincom 10y ago
  Billionaires' finances are managed by accountants, money managers, and lawyers. So, the accountant in this case suggests what's best: tax write off (interest expense), and interest rate differential (higher returns elsewhere - mortgage rate).
- edoceo 10y ago
  Time-value of money. Keep cash in YOUR pocket.
- twblalock 10y ago
  How would he get that cash? If he has to sell stocks, his capital gains taxes would probably cost him a lot more money than the interest on a mortgage, or on a pledge asset line of credit with his investments as collateral. If you have to sell stocks to pay cash for a home, a mortgage could cost you less money overall.

matt_wulfeck 10y ago

Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden. The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.

jpmattia 10y ago
There's also a deduction phase-out at high incomes. (450K iirc)
- JumpCrisscross 10y ago
  $1MM if single, $500k if married and filing separately. EDIT: see comment below. One can deduct the interest on mortgages up to $1MM and $500k, but there is a cap on itemised deductions (mortgage interest deductions are this kind of deduction) around $450k. http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx http://www.bankrate.com/calculators/mortgages/loan-tax-deduc...
  - jpmattia 10y ago
    There are two different things: From your link: Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately). So mortgage interest for loans beyond $1M are not deductible at all. Then there is the deduction phase-out > You are subject to the limit on certain itemized deductions if your adjusted gross income (AGI) is more than $309,900 if married filing jointly or qualifying widow(er), $284,050 if head of household, $258,250 if single, or $154,950 if married filing separately. Your AGI is the amount on Form 1040, line 38. https://www.irs.gov/publications/p17/ch29.html https://www.irs.gov/publications/p17/ch29.html
- jonknee 10y ago
  Though somewhat ironically, Zuck probably isn't high income because his Facebook salary is $1 and the vast majority of his wealth is in FB shares that pay no dividend.

mywittyname 10y ago

He doesn't need a mortgage, it's just financially savvy to have one. He avoids paying taxes on the sale of stocks to finance the home. Mortgage interest is tax deductible. His stocks will almost certainly yield more than the interest rate on the mortgage. He's getting a sweetheart deal from the bank. For him, selling stock is a PITA because he has special class of stock that grant him voting rights far beyond what a normal share is worth. These special shares are granted to him by the board of directors. So selling 1 share means losing like 1000 votes (they convert back to 1:1 upon sale), meaning he needs to be careful when liquidating assets. By waiting five years, he can use vested options to pay the mortgage, rather than selling his special class stock.

jazzyk 10y ago
With the net worth equal to the GDP of a sizable country, does he need to worry about saving a few thousand here or there? Also, free country and all, taking advantage of that special rate is still rather unsettling.
- MrMullen 10y ago
  It's all about the special stock since he does not want to part with it. That is how he maintains control of Facebook.
sybhn 10y ago
>He avoids paying taxes on the sale of stocks to finance the home. Can you elaborate on that?
- ihsw 10y ago
  Like-kind exchange? Not exactly sure what the parent was referring to. https://en.wikipedia.org/wiki/Like-kind_exchange https://en.wikipedia.org/wiki/Like-kind_exchange
- gdubs 10y ago
  If you want to buy a million dollar home using shares, you have to liquidate them and pay capital gains. By getting a mortgage you lower the amount of income you 'realize' on a year-to-year basis, lowering your taxable income. There are details on capital gains vs income taxes, etc, but in general I think the point was that the less income you realize in a given year, the less taxes you'll pay.