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The richest people borrow against their stock (2021)

forbes.com

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Re: The richest people borrow against their stock (2021)

#271

Post by FireBeyond »

jjav wrote: post #117
doe_eyes wrote: post #2

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…

> your brokerage will lend you money at a very low rate, secured by the equity I have not found one that will offer a very low rate, have you? For example here are Schwab's rates for a loan against equity: https://www.schwab.com/pledged-asset-line/rates For 500K-1M rate is SOFR + 3.4%, so about 8.2% For multimillionaires it gets better at SOFT + 2.4%, or about 7.2% Not bad in this market but not one I'd call " very l…

I think Adam Neumann and a couple of others notably got zero interest loans from banks from the bank wanting to court their business income too.

Re: The richest people borrow against their stock (2021)

#272

Post by creer »

christophilus wrote: post #202
creer wrote: post #87

Earlier quoted context omitted.

Your brokerage will likely lend you money but you will be disappointed by the rate. It is not "very low". Not even "low". At least not where we are now in the interest rates cycle.

Interactive Brokers is 6%. Not low, but not bad.

5.8 - 5.6% above 100k now indeed, and that's for margin (which you can live on OR re-invest)! Not low but improving yes!

Roughly in line with a 15 yr fixed rate mortgage but not tax deductible at least if you live on it. Might be tax deductible if you re-invest.

Re: The richest people borrow against their stock (2021)

#273

Post by mason_mpls »

doe_eyes wrote: post #2

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…

Even if there’s risk, this is still clearly realizing market gains

Re: The richest people borrow against their stock (2021)

#274

Post by red-iron-pine »

dranudin wrote: post #207
SomeHacker44 wrote: post #196

Earlier quoted context omitted.

This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.

You can also lend money from the options market with a box spread for around 4-5%. See e.g. boxtrades.com

options are a whole different box of worms, and playing that game has a lot more risk.

"but uh its a box trade it can't go wrong because bla bla bla bla" -- then things proceed to go wrong

Re: The richest people borrow against their stock (2021)

#275

Post by creer »

chx wrote: post #181
doe_eyes wrote: post #2

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…

It's not at all simple what they do. https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/... Important quote: > this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M.

To be fair, there are very accessible options like margin loan or pledged assets which you can also keep going indefinitely - possibly all the way into estate tax which - as a "little guy" - you wouldn't owe. They are higher interest rates (to the point of not being all that interesting - depending on what you want to do.) And they don't have the same features.

But if you are high assets and low income, they might still allow you to buy a house with a loan - if it's what you want.

Re: The richest people borrow against their stock (2021)

#276

Post by chgs »

yzydserd wrote: post #215
chgs wrote: post #166

Earlier quoted context omitted.

Indeed. Passive income is taxed at a much lower rate than working income in the U.K, and that includes property rents (after paying expenses like a managing agent) and dividends Capital gains is taxed even lower than that.

> Passive income is taxed at a much lower rate than working income in the U.K, and that includes property rents (after paying expenses like a managing agent) Is that right? I thought that income from property rents (after paying expenses like a managing income) had income tax levied like any other income.

But honest day’s work income has an additional payroll tax which totals about 20% marginal for the majority of people (plot about 60/40 between employer and employee).

Far better to be paid in shares.

Re: The richest people borrow against their stock (2021)

#277

Post by Kon-Peki »

ywvcbk wrote: post #160
jjav wrote: post #157

Earlier quoted context omitted.

The linked page is margin, not equity backed loans.

Is there a difference?

Yes. In a margin loan, the "things of value" never leave the institution handing out the loan. The borrower buys stock, for example. And the institution giving out the loan has the right to sell whatever you bought to prevent losses on the loan, without your permission if certain conditions are triggered.

In a loan backed by collateral, all the money can leave into some external account controlled by the borrower. To get some or all of it back requires an expensive and lengthy process that doesn't guarantee success.

Re: The richest people borrow against their stock (2021)

#278

Post by BizarroLand »

UltraSane wrote: post #129

If a houses can have property taxes then why can't shares?

Because that would negatively impact the economy and no political party has the chutzpah to pass a law that would make their benefactors mad at them.

"Of the people (with money), by the people (with money) for the people (with money)"

Re: The richest people borrow against their stock (2021)

#279

Post by creer »

deepsun wrote: post #103
creer wrote: post #91

Earlier quoted context omitted.

> avoid paying taxes altogether At some stage in wealth, perhaps, and not avoid but postpone. More important probably are cases where actually selling the shares means giving up control over a business, or having to settle things with the rest of the family whose "destiny" it is to hold these shares in common.

Not postpone -- avoid. The base price of the asset is adjusted at the time of your death, so if bank sells the asset immediately, they pay no taxes. https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...

There is confusion between capital gains tax and estate tax (and estate planning devices like trust law). And that matters.

Is the problem capital gains tax as some people claim or is it elsewhere?

In the process described, capital gains tax is not even postponed (and that write up does not provide for Peter's major expenses during life). That write up works (when it does) because of bypassing estate tax.

The need for realizing capital gains is eliminated through trust, estate planning and other estate tax law (seems to me). The whole of the procedure is in that side of the equation. Not in capital gains tax law.

So the question: Does this all call for a change in capital gains tax law or changes in estate planning (trusts) and estate tax law?

When you use margin loan or pledged assets lines of credit, you are postponing. Which you can potentially kick all the way into estate tax (which your estate may pay if it's large enough). That write up is different still and describes working around even that estate tax. And then the question does matter of which law you are asking to change. (Besides the traditional method of making a law, any random law, thereby solving all problems for eternity - or at least gaining some voter satisfaction.)

Re: The richest people borrow against their stock (2021)

#280

Post by [deleted] »

cryptonector wrote: post #237
attentive wrote: post #153

Earlier quoted context omitted.

Pay taxes once vs pay interest forever? At what point it'll break even and go negative?

Let's say you're worth $100bn. You don't need to spend $1bn a year, just even a few tens of $ millions will be plenty, so you're borrowing a minute portion of your net worth. And your stocks will be going up in value, typically, so... you'll never run out of money. Plus you'll be a great customer for the banks that lend you money, so you'll get preferential interest rates. You'll never run out of money. You'll die an…

[deleted]
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