I’ve seen in a few places that the super-rich can unlock their wealth ‘tax free’ by taking out a loan secured against their shareholdings or other assets, then use the cash from the loan to buy real stuff.
But how do they pay back the loan?
In: 196
I have $100 million of stock and real estate. I want $10 million dollars for the year. If I sell those assets, I pay 20%-30% tax on them. Instead, I take out a loan at 5% interest rate and use the assets as collateral. I make my regular payments.
All this time, my stocks are paying me 3% dividends, and my real estate is earning me rent money. On top of that, those assets gained 7-10% in value. 2-3% of that was because of general currency inflation and the rest from the businesses growing.
By keeping my assets, I avoided taxes, let inflation help pay the cost of the loan, and allowed my assets to grow even more valuable than the interest rate of the loan.
Assuming I have a diversified portfolio with not too much risk, I don’t get too over leveraged, and we don’t suffer a major downturn that forces me to sell my assets, I can do this indefinitely.
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