4 ms·
Your cost of borrowing can be much lower than the cost of taxes you incur when you sell your assets to finance your needs. As an example, Zuckerberg secured a 1
by RestlessMind 6y ago
Your cost of borrowing can be much lower than the cost of taxes you incur when you sell your assets to finance your needs. As an example, Zuckerberg secured a 1% mortgage for his house[0]. Assuming his house was worth 15M, to procure that much cash by selling his FB stocks, he'd have to pay 20% capital gains tax (and state taxes on top). A nice explanation here[1].
[0] https://www.cnbc.com/id/48220824 https://www.cnbc.com/id/48220824
[1] https://themortgagereports.com/21788/why-mark-zuckerberg-has-a-mortgage https://themortgagereports.com/21788/why-mark-zuckerberg-has...
- naveen99 6y agoTaxes are 1 time, mortgage interest is annual. You still have to pay off the principal + interest... at some point you will have to sell shares and pay capital gains anyway... leverage comes with its own risk. That’s why you don’t gamble with borrowed money.
- RestlessMind 6y agoBut you can invest those one-time taxes and generate far more returns than the interest costs. Historical S&P500 returns are 6% per year, where as we are looking at only 1% mortgage rates for a billionaire.
- naveen99 6y agoSuppose there were no taxes. When would you stop taking on additional leverage with a 1% loan given historical returns of 6% ? I guess kelly criteria puts it around 2.5x. Now suppose you are already there, but now you add back taxes. Do you pay taxes or lever up ?