It’s easy to think that once someone hits billionaire status, they'd just buy whatever they want with cash – especially something as basic as a home. But even the world's wealthiest, like Elon Musk, Mark Zuckerberg and Jay-Z, have taken out mortgages for their homes. It's not because they must, but because it makes good financial sense.
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According to Federal Reserve data, the typical U.S. home price has shot up over the years – from around $288,000 in 2014 to over $412,000 in 2024. With median annual wages just below $60,000 this year, it's no wonder people struggle to scrape together enough for a down payment, let alone the full cost of a house.
But here's where things get interesting. When you’re sitting on billions, like Musk or Zuckerberg, you could buy a house outright without blinking. However, these moguls choose to take out loans instead of dropping cash on the table. Why? It's all about smart money management.
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First, taking out a mortgage helps keep cash on hand. Cash flow isn’t an issue for people like Musk, but it's still a handy tool. Think about it – homes are what's called "illiquid." Unlike stocks, which can be sold in seconds, homes take time to sell.
Instead of locking away millions in a house, the ultrawealthy prefer to keep their cash accessible, ready for new investments or business opportunities. They can make easy mortgage payments while their liquid assets stay free for more profitable uses.
As financial planner Matt Wilson said, “Mortgages allow wealthy individuals to be more flexible with their money. They can take advantage of better investment opportunities by not tying up a large chunk of it in one place.”
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According to financial experts, there's another sweet perk – tax deductions. In the U.S., mortgage interest is tax-deductible on loans up to $750,000. This means billionaires can still claim a deduction on their tax returns. While it may seem like small change to them, it's still cash saved.
Another reason is investment returns. Currently, the average mortgage rate hovers around 6.2%. Historically, though, rates were even lower. Conversely, the stock market has an average return of 10% annually. Even if the actual return is closer to 7%, that's still better than what a mortgage costs.
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Think about it this way: why spend $500,000 outright on a house when you could take out a mortgage, invest that same $500,000 in stocks and potentially make an 8% return? You'd end up with more money in the long run. It's like killing two birds with one stone.
As financial expert Sarah Newman explains, "Why pay off a mortgage when you can invest that money and earn a higher return? It's about making your money work harder."
Jay-Z, for instance, took out a mortgage on his $88 million Bel-Air estate. He could have written a check, but took out a loan. Why? Likely because that freed-up cash could be used to invest in more ventures like art, tech or startups, all of which can yield much higher returns over time.
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This article Elon Musk, Mark Zuckerberg And Jay-Z Take Out Mortgages Despite Their Billion-Dollar Fortunes – Here's Why The Ultra-Wealthy Borrow originally appeared on Benzinga.com
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