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wow this worked for I bought $100 of tesla stock. Then I took out a $100 loan and kept taking out loans forever to pay my loans and now I’m rich! Good plan!
Holy cow. i knew of this strategy for almost 15 years and still couldn't wrap my head around how it works. I finally understood this a few years ago. And here I am back here refreshing on this concept.
I couldn't either. Still can't wrap my head around how you sell 4 houses for $250k each and now you have $2mm. Spent a chunk of my career doing CDOs and even we couldn't make money that easily. Alchemy!!
The way they pay the interest payments is the assets they loan against still produce re-occuring revenue from Tenants, Stock Dividends, business profits, etc. that they can use for the month to month expenses. Taking loans out on assets are risky depending how much is taken out, if a stock, real estate, crypto, business scandal happens that crashes the asset value, the loan payments still remain the same which can cause financial stress depending on the size of the loan. The reason the depression happened was because people took loans against their stocks to buy more stocks.
FYI - If one owns their vehicle outright, he or she can borrow against the title. For example, I’ve got a 2019 Tacoma that I could have borrowed almost $31,000 against at about 6.5% prior to my recent purchase of an investment property with a repayment term of 5 years. My wife and I decided against this but that could have been another 31 k I put down and didn’t have to pay mortgage interest on, long term.
A friend of mine unknowingly(?) used the method a few years ago when he was laid off during COVID. I think the one thing that is important but not mentioned is rapid movement. He borrowed against an old muscle car he owns as well as his personal home. Bought a very small home out of the city that was run down, remodeled it, got a renter, and borrowed against that home to buy another home... Skip to today, he has 7 rental homes, a good cash flow, a company car, company phone and laptop, and he's planning to add two more homes next year.
I did this for my parents homes. It started out great! As long as your lending source is on board and THEY’RE not violating FDIC lending laws, and financial crimes behind the scenes - this works. Make sure you have a living trust and you’re property(s) are in the trust. Look into government backed reverse mortgages. And yes have a life insurance policy in place as an arbitrage against debt to asset value. Gap insurance if you will.
Hello, Please explain how the interest is being paid here? Should it be monthly payment mandate and how long we need to pay that interest amount - monthly or yearly, should it be until my loan getting paid off. Also, will that get paid from the portfolio itself?
what you forget is that generally a line of credit in a house is separate payment for the mortgage itself. unless you have paid off the mortgage. Even then, you better have less monthly expenses than the payment on the line to really benefits. I tried all of it but still don’t get it. only life insurance makes sense because your family can pay off the loan and line and keep the difference.
If the interest rate is higher than the appreciation, it will eat away at your money. But if you can get someone else to pay for the loan (i.e. renters) then you could come out ahead. This falls apart if the economy tanks, nobody rents, and you still have to make the payment.
Okay, so what if there's no one to pay the interest. Then you would have effectively lowered the value of the appreciating asset by the amount of the loan. And if you die then the lien holder would be entitled to that portion of the asset. I do agree with a portion of the strategy but the idea of doing this without paying taxes is a stretch.
This method is fairly easy to grasp, but the real buy borrow die methods are far more complex and might involve something like a zeroed-out grantor retained annuity trust, preferred freeze partnerships, and bespoke loan products from financial institutions. What's presented in the video is really just a form of borrowing against a leveraged asset and deferring capital gains.
Thanks Toby. To buy you have to have income or rapidly appreciating asset to borrrow against it. In my practice working with wealthy people they all have successful businesses, or they are highly paid professionals.
It's assumed that the assets you buy will pay for itself. For example, a house or apartment will have tenants, good stocks could potentially pay dividends and appreciate etc. The idea is to keep doing this with good assets, and use the profits to buy more assets. At the end he explains that the rich and wealthy use this method to compound wealth.
I wish I knew this 30 years ago but I'll make sure my son knows. I'm setup now to execute this strategy but I'm pretty late to the game. He'll take full advantage. Thanks for the video
With Art, valuables, or even cars, if you keep them in Freeports, warehouse in specific areas around the world that are designed to avoid taxes, then borrow against it, you really save. Some rich use the warehouses, but actually keep thier items in their homes to enjoy. Not excatly legal but when your rich the law isnt that big if an issue.
Okay I hear ya. Correct me if I’m wrong please. You buy a house in your 30s and live there your entire life. It’s paid off by retirement. It was 500k when you bought it and 30 years later it’s worth 1.5m. You saved for retirement but as your time is coming you realize you’re short. So you take out a loan for half the value of the house @ 15 years and get life insurance. Make your payments live out your life and have insurance pay off the loan balance so you can give the house to your heir?.
the insurance is kind of unnecessary for the scenario. To simplify, just leave that out for now. You die in 9 years, with $375k remaining on your $750k mortgage. Your heir inherits a $1.5 million house - $375 payoff. The tax base is now reset at $1.5M (ignoring any appreciation over the next 9 years) and if they sell, they get 1.125M tax free. If you had sold the house 9 years earlier, you would have paid capital gains tax on the $1M appreciation of the house--let's say 30%. Essentially a wash for them, *but* you received $750k cash 9 years ago and paid off an estimated $450k toward the mortgage. All in all, your heir get the same amount, but you pocketed $300k of your initial 750k. And again, that is not counting anything for the 9 years of continued appreciation of the home. Keep in mind, you also borrowed quite a large portion of your assets. In other scenarios you might pocket less but the difference for your heir would be far greater (nobody pay the capital gains).
Why do you keep stating that after you die, you pay off the loan and are net ahead without paying taxes. Your DEAD! Your not doing anything!!! Its your estate thats left, not you. Again your dead!!!!
@@plus790the insurance is probably a good thing-if one purchases a participating whole life insurance policy. They can essentially do a SPPUA(Single premium paid up addition) (7702 IRS tax code)
The part about borrowing against stocks is something I hadn’t thought about. Also the margin interest you pay offsets dividends. It’s like rent paying off the loan.
If you have an asset that you borrow against versus selling you have to pay interest on the loan. That may have an interest rate lower than the taxes, but those interest payments go forever. Taxes on the sale of an appreciated asset is only once at sale time. What kind of rates are people borrowing at?
Point is if you need cash and have assets instead whether you sell those assets to raise the cash and pay Capital Gains tax or borrow against the asset to raise the cash and save on taxes.
Interest on the loan is usually tax deductible when you file your annual taxes. It’s treated the way your mortgage loan interest is treated for tax purposes.
@@YouAREyoubeYoubut wouldn’t make it harder to borrow if it’s never paid back? Say I borrow 1M and never paid. That hurts my credit and makes it more difficult for me to borrow more if my assets go up in the future.
I do generally agree with doing this, especially if you are borrowing on low interest or "Art" if you are an "Artist". (You'd need an "appraiser", but that's a different story). As always, unless you can get some universal life insurance that invests the premiums directly into the stock market with uncapped gains, to never get it (and just pay term life), and just invest in the stock market and borrow against your portfolio.
The strategy is not expained properly because if I borrow $1M and keep it over 40 years and the interreset rate is 4% per year, I will have to pay over these years $1.6M in intereset and still owe $1M.
You missed the literal very start of the video where he laid out the premise of assets appreciating and not paying taxes on that appreciation. You use that $1M to buy assets that appreciate far beyond the interest rate and you don't pay taxes on that appreciation.
However...you have to pay the money back with money that comes from somewhere, like a job. You have to pay taxes on that money, plus interest on the loan. So unless you're borrowing to invest in income-producing property, how do you pay it back? And income-producing property generates income, which produces taxes. What am I missing here?
You're not missing anything you're listening to an Estate Planner who thinks a Trust is only a title holding entity instead of a service tool to transfer wealth without inheritance hijackers so take it with a grain of salt.
@@lauriekline8655 if, and only if, you borrow to invest in income-producing property -- as I said. Not if you're going on vacation, paying medical bills, or putting someone through school.
He's not saying you don't have other *income* or that you wouldn't pay taxes on that. So you would use that real income (or borrow more) to make the payments. The point is that by keeping investments (appreciating assets) that are returning close to the interest rate you are borrowing at, it's pretty close to a wash year-to-year. The benefit comes mostly to the beneficiaries. Because the base resets upon death, essentially no one ever pays the big capital gains taxes. Let's say that your initial $5M portfolio appreciates at 5% and is currently worth $10M, but you are paying 6% on a $1M loan. You are paying approximately $60k in interest each year. If you had sold $1M ($500k of "gain") instead of borrowing, you pay an immediate (estimated) 25% capital gains, which is $125k. You also lose out on the 5% return on that $1M for that first year, so you miss out on earning $50k. So the year one net is +125K +50k -60k, or a net positive of $115,000. In year two, there is no longer the capital gains savings, so the +50k and -$60k results in -$10k (those numbers are actually a little bigger on the investment side due to compounding, and a little smaller on the loan side due to payments reducing the principal, but close enough for us). Each additional year, that $10k cost to you will be diminished, plus you already started out $115k ahead. And this is all under the pessimistic assumption that your returns are at a lower rate than the interest you pay.
Ok I get the concept but the part I'm missing is making the payments on the loan with real east you can use the cash flow from rent but how do you pay the loan from borrowing against a stock portfolio
That frustrated me too. The part these youtube personalities leave out is that the loans are different from the type we get. Near zero interest with no payments needed for a long while. These are not the types of loans we non-millionaire/billionaires have access to. The strategy only works for the 0.01 percent. It's a complete waste of time for the rest of us to learn about.
You can pay the minimum loan payments, out of the money you borrowed. So if you a $1million asset or home, you take a $500k loan at 5% which is about $2500/mo in payments. This may help the confusion... doing this means you don't have to sell the asset and pay 40% in taxes, or $400k. In addition, you can also bet that in the next 5 years, the house appreciates MORE than the 5% loan you are paying... So at that time, you can do a New Loan and pay off the old loan and rinse and repeat without ever selling the asset. If the asset doesn't appreciate faster than the loan interest amount, then make sure you find better assets... AND you'll also have life insurance to payoff the loan upon your death if this happens too. Another component you may not consider... imagine when you took that $500k loan, you used $200k of that to buy another rental property worth $400k. With a 50% downpayment you could have some really nice positive cash flow to pay this new mortgage and help offset the payments for the original $500k. On and on you go, as long as the good assets you buy appreciate more than the loan interest you'll be fine and this whole time since you didn't sell the assets you also didn't pay massive taxes. I hope that helps clarify. These are arbitrary numbers I'm using, and can be done similarly on smaller scales... so you can essentially still do this without initially being a millionaire or billionaire
@@mikelim108great info, thanks! Only the SBLOC is unavailable unless you're a high net worth individual...all the rest as you mentioned are good to go.
I love it when regular people get do what the billionaires do. Could you please do a video on the simplest way to set this up on a investment portfolio please. For example, how to set up a profile of ETF index funds (or something else long term) that never has to be sold (including what to do if one of the index funds ceases to operate) and how to set up a load account against the investments in a standard brokerage (e.g. Schwab, etc). The goal is to hold on to investments forever without selling them, but I can't imagine some investments lasting a lifetime so I want to understand how this is structured to prevent the force sale and taxation of investable assets.
The loan is not taxable, but the monthly repayments you have to make on, say, a HELOC are all made with post tax money , and you have to pay it back with interest. Doesn't that negate the benefits?
@@ZE3kr Thank you. I'm aware of how math works. Heloc rates are relatively high, and they may or may not out perform the stock market. The repayments you have to make on the loan are all post tax, they're not tax deductible, so you are saving on taxes by taking the loan, but you are taxed on your income, which is then used to pay for the loan. My point is the benefits of this may be overstated, unless you are a billionaire, in which case the 2% difference between your loan interest rate and your returns will make a difference. What am I missing here?
@@MA-wy7cr A 2% difference will compound and will have a bigger difference. Right now, the interest rate is high, so loans might not be appealing, but during the time the rate is low, that growth difference is higher. But taking a loan on stocks is like leverage and will make the risk higher
The short version is no. Even if you're borrowing at a higher rate than the investments are returning, you are avoiding a 25% (est) immediate haircut on the capital gains you've realized. Depending on the difference in those rates, it would take a long time to wash out the immediate benefit, if at all. *note--when i say "immediate benefit", I'm referring to the preserving and growing the portfolio (which you can't touch). Even though the paper benefit is large and immediate, it is ultimately your heirs who actually get the money, when they inherit $1.3M instead of $1M.
@@plus790 let's compare a million dollar investment. Salary vs HELOC. So if you want to net 1 Mil income, and are self employed , you'll need to make maybe 1.5M. You make a 1M investment that grows @ let's say 8 percent on average for 21 years. It'll be worth approx 8 million. So 1.5 mil gross to make 8 mil. You'd be responsible for a 2 Mil tax bill if you sell and cap gains is @ 25 percent. So 1.5M gross gets you to 6 mil after taxes. Alternatively, you take out a 1 Mil HELOC @ 8 %. You saved an immediate 500k in taxes vs if you did it with income. But you have to make 8k monthly payments on the HELOC for 21 years. With post tax money. At the highest tax bracket/self employed , that means you'd need to make approx 14k gross to net 8k. Which is 1.26M in taxes over 21 years. And that doesn't take into account the 1.2M in interest you would have paid over the life of the HELOC. And you'll still be responsible for the 2 Mil capital gains bill at the end of the day. So that 1 Mil HELOC will net you 8 mil, minus 2.5M in taxes and interest, minus 2 Mil in capital gains tax. =3.5M. So I don't see how the initial 500k tax savings can justify the interest + taxable income it takes to pay down the loan.
New subscriber here. Awesome video! So the monthly payment of the loan (mortgage or securities) would you choose to pay the interest only, not paying down the principal until the day you pass away? What if 2008 mortgage crisis happens again ? The bank or the brokerage is going to force you to pay off the loan right?
Only works if interest rates are low and the asset appreciates. If your asset goes down you’re leaving someone with a huge tax bill and if rates are high your interest rates may be the same cost as taxes. One more thing is your not gonna get a step up in basis if your over the maximum estate value. You’ll have to pay estate taxes.
In the example where you're borrowing against your stocks, are you acquiring this line of credit through your brokerage or is your investment company going to a bank and leveraging?
I am planning on doing this soon. I am going to Airbnb my house which is valued at about $2 mil. and paid off. Borrow against it and have the Airbnb proceeds pay the loan payment and hope to get as close to showing zero income as possible. I am going to build a second smaller house on my property to live in. Will sell my last rental to pay for new house. 🤷♂️
Bought my first house for 13,900 on an article of agreement or "land contract". I lived in it essentially for free while I fixed it up. 20 years later (lived there for 10, rented it out for 10) I sold it for 53,000 and bought a semi tractor in 2017. Made 700k in 3 yrs with it. That house today is over 100k. Crazy?
You can start investing in stocks with as little as $100. A lot of brokers these days will let you buy fractional shares of companies. And reinvest your dividends so you get more stock for free.
We had 15 years of artificially low interest rates. I want to borrow against my asset to buy more assets and pay back that loan in dollars that are depreciating due to inflation at a faster rate than my interests rate. I can also use the loan as a deduction. Doesn't that make the loan or debt the asset? In other words I'm now being paid to take a loan. These low interest rates given by the govt have not created wealth, but instead have created a wealth transfer from the govt to the asset holders. Is that correct?
As per my understanding - When we sell we have income and when we have income we have to pay taxes. So, let's not sell. We can satisfy our cash requirements by borrowing. Depending on our tax bracket Income tax could be as high as 30% and as low as 10% - if it is nil most probably we are not in the position to buy anything or we are already following this strategy. If we are going to spend the borrowed money then we need to calculate. If we are going to invest it somewhere then the interest on the borrowed capital is at least partly paid off. You would be wasting time calculating pennies and cents. Time is the most important ingredient in compounding. The only problem in this scheme is that if the asset we have purchased and borrowed against depreciates in value - like a stock market crash or a real estate crash like 2008. If the bank comes to us for loan repayment because our asset no more covers the amount we borrowed then we can be in trouble. Sometimes the banks ask for payments or loan closure even before the asset depreciates as a matter of precaution / prudence / panic. Happened with overdraft / HELOC accounts in 2008 crash. Banks go after the small folks like us and not Elon Musks of the World. So, we need to borrow carefully and not aggressively based on our perception of the size of the crash - if any. Banks will apply a "hair cut" of about 15-20% depending on the asset already. We need to diversify assets so that not all go down at the same time (which mostly they will do as people sell whatever they can to fill the hole of the asset that has crashed first) and stay down for a long period of time. If real estate collapses then may be Gold and Silver is up, etc.
Just use a participating whole life policy, which is different from an IUL. Don’t let anyone tell you different. IUL are subject to the market( not a problem if in the SP500 as it typically goes up). You want a dividend paying policy. Foresters is a good example. I sell insurance for almost 8 years. I have this policy myself.
Hello Toby- Fantastic content here! Relative to the loans taken against the assets. Would you just pay interest only on the loans taken out and let any principal balances accumulate?
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Thanks Toby. So the secret is getting a low interest rate on borrowed money to prevent a huge interest payment on initial loan. Would the interest be deductible with IRS?
I believe you still need to pay property taxes on real estate. You’re not getting out of that. Along with the loan interest, not sure this works for everyone. I suspect there is a formula or tipping point for the assets being considered to use this concept on. A loan against a 401k makes sense, but not sure about real estate.
What about inheritance tax? How do you depreciate an asset while it only appreciates? Sorry if I'm missing something but so much of this strategy doesn't pass the smell test.
Every time I look to get a loan on my assets, I'm told it's only for renovations, credit card debt, and NOT allowed to be used for investments (i.e. stocks).
Let's say a person passes away and leaves a property to their heirs. The heirs decide to keep the property for 5 more years before choosing to sell. What's their step-up basis? Is it the fair-market price at the time of death? If so, do heirs need to rush and get an appraisal at the time of death to document value at that time? - Thanks!
Loans are definitely possible against physical Gold anytime and anywhere in the World. Here in India Gold is mainly used for that purpose and there are listed companies that deal only in Gold loans (such as Muthoot Finanance or Mannappuram Finance) For reasons not known to me loans are not given against Silver. I am not sure what the other assets you have mentioned. There is one argument made against the borrowing against Gold idea. => Say we have 100 gm (or Oz) of Gold and current value is $2785 * 100 = $278,500 The banks are going to give us a max loan of 80% of that value - called "hair cut" to reduce their risk in case the Gold prices fall. So we can raise roughly $220,000 Now we need to pay EMI payments for the loan taken till we pay off the entire amount. The opponents of the Gold loan idea argue that we should not part with 100% of our Gold only to get 80% amount and pay interest on our own money. Their suggestion is instead of paying EMI to the bank and losing that money forever we can sell 80% of our Gold to raise the same $220,000 and keep the 20% remaining Gold with ourselves and not deposit with the bank / lender. We may or may not need to use it but it is always better to have our Gold with ourselves. Now, in the next step, the EMI - monthly payments - we saved must be invested in Gold and we will end up buying all the Gold we sold in due course of time without paying any interest to the lender. My thoughts => The idea makes plenty of sense except in the situation that Gold flies off the handle and the price increases very fast. In that case it is better to take a loan against Gold and enjoy the benefit of the price appreciation on the entire 100gm (Oz) we have. I am not talking about interest rates because in India we generally have higher interest rates on both sides - borrowing and deposits - when compared to the States or Western World. I think Gold is in a momentum so at this point of time Oct 30, 2024 I would go for a loan. Or just do a 50-50 of my requirement. If I want to raise $100,000 I will sell Gold worth $50,000 out right and deposit Gold worth $62,500 with lender to raise the rest $50,000 (after hair cut). That way I am not punting on the price action of Gold. Remember I still need to buy Gold of the same amount that I am paying the EMI to the lender every month. Of course, when the money is in my hand I have better control of how I invest etc but discipline on our part is important. When the control is with the bank we are f* for sure. Hope this helps. Regards from India.
Does step up basis apply to a spouse whose name is NOT on the property to avoid capital gains taxes upon the owner spouse passing or, does a spouse not qualify as an heir for step up basis purposes? Thank you.
The part I don't get is how this works out for a typical tech billionaire. Let's say you need money to buy a house and have a portfolio of 1B in stocks. Ok, you borrow against it and now you have a house you paid for in cash. However, you now have a loan, effectively a mortgage. So what, do you borrow more to pay it and end up with even more loans? This is not sustainable. At some point you have to settle by selling the stocks and paying cap gains so it all catches up plus you're worse off for the interest on the loans. Even death doesn't help here because the debt is attached to the estate.
Death is the key to this strategy! Your heirs receive their inheritance (Your Portfolio) at a "Step-up in basis" This means that, for the purposes of taxation, the value of the stock is now set on the day you die. Therefore, when you sell it, there is no Capital Gains. No Capital Gains, NO TAXES! Your heirs pay off the loan with your enormous Portfolio and inherit the rest
I am from India so take this with a pinch of salt. What I understand by the phrase "increased basis" is that for the heirs the "purchase" cost will be the current market price 2Mn $ - since they got it now - and so when they sell it they made zero profits and hence zero tax. I guess that is what he meant by increase in (cost) basis. Hope others will comment here. Regards,
How do they cover the increased monthly principal and interest payments when they borrow a large sum to buy a Lambo and travel the World on fixed income?
This is great information and I now see how I could live off the borrowed money from my equity in my traditional investment property. However, I live in California and receive a pension from the City & County of San Francisco. Together with my SS my income is about $120,000 and I’m single. How can I reduce my present taxes? I attended a scheduled meeting with your staff but never received the information they promised about charitable non profit organizations and how this might be helpful to my present situation. Any suggestions on how I can research or connect with someone in your organization to reduce my tax liability this year?
Great question, to assist you further, I highly recommend you request a free 45-minute consultation to discuss this with my team so we can provide you with an answer that is unique to your situation. Visit: aba.link/aq5
Reclaim your principal from the Roth and put it into M1 in high dividend paying funds like MSTY, NVDY, and GOF and reinvest the dividends and use the margin option with M1 to accelerate your earnings and pay low margin rates that your dividends cover. Never sell and never pay taxes on capital gains. Rinse and repeat.Thus, buy, borrow, die.
Great concept but reckless making it seem like you can keep borrowing forever and spend the money in frivilous stuff. Ideally your asset that your borrowed against is producing enough cash flow to pay off your interest, live off and buy more assets. Incredible if used correctly but the avg american is going to abuse this and get in huge debt trouble.
Margin loans do not require interest or principal payments - you can cap and roll and interest will compound. Caution here as need to stay well below maintenance margin in case market crash
@@TobyMathis I sold my husband on the idea and we are happy with our investments. It’s the paying on the loan that stretches a person. Doesn’t out weigh the appreciation on our investment s. Just saying when you borrow you add a payment. Unless you use it revolving.
Nice. But things I don’t like: 1. Everything has to go up in value. That’s likely but not guaranteed. 2. You need an heir. Can be accomplished but sometimes it is not that easy. The heir could be not worthy, you divorce, etc. 3. You need to die. Ok. But what if you die too soon? I.e. worth hasn’t yet grown or even fallen due to a recession? But apart from that: seems like a great plan. If you stay healthy, economy stays healthy, family/heir stays healthy.
I own some rental properties and wish to leave them to my heirs to keep in the family. I love Buy Borrow Die Strategy. My only concern is if I borrow and die, will my heirs be forced to sell those properties because mortgage on the properties? Is there any strategy to Buy Borrow Die (for me) and still keep the properties (for heirs)?
Maybe have the Rental Property Buy a Life Insurance Policy on you, with a Payout at 1x to 2x of the Initial Mortgage Value, that pays the Mortgage as a first, and your estate as a Second consideration?
I'm still lost. You gotta make payments on the loan. Unless you're crazy wealthy and have appreciating assets far in excess of the loan payments that I can just keep borrowing, you'll need to make your loan payments with $ that was taxed, eg salary. So you wind up paying taxes plus interest. I can't imagine anyone's gonna give you $1M and say "No worries, bro--Just pay me back when you die." For this to work you need a repeatable way of paying the loan payments w/o paying tax. Otherwise non-wealthy people might do this one or twice, but you'll quickly borrow money faster than you can add assets.
When you bought the asset you alone put all the money and when you are selling it, this new partner comes out of nowhere and takes almost 30% of the value! Are you going to pay 30% of the value in interest payments on the loan? That would take quite a while and the property - which you still own - may appreciate further. When you sell you lost the property at 30% less value. Hope this helps regards,
You're NOT paying down the Principal, just the interest. The day you die, your Heirs inherit your Portfolio at a Step-up in basis. They sell what they need, to finally pay the Principal and since there is No profit to the heir.....NO TAX!
Well you don't pay any tax, but you are paying interest. Sell assets - lose 30% in tax. Borrow money at 5% interest - lose 5%the first year, 5% second year, and so on. If plan to live more than 6 years you may be better off paying the tax. May be a little longer if your interest payments offset other incomes and/or if your stock appreciates faster than the interest you are paying, but it's not something for nothing.
I've heard this strategy doesn't work unless you have many millions. The compounding interest becomes a problem after years. Like it won't work with a million in stocks.
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To keep our wealth, we need more than a Trust, compared to a car a Trust is just the steering wheel needing the NICER Prebate Nickel Crime Interdiction Administration. To prevent the Estate Plan mistakes costing my family a million dollars in Billable Litigation Hours.
Our free consultation cost a million dollars when we bought the easy to forge estate plan instead of an inheritance administration.
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1:43 Um, you sure about that man? I know MANY people that pay thousands more in property taxes each year the house appreciates!
wow this worked for I bought $100 of tesla stock. Then I took out a $100 loan and kept taking out loans forever to pay my loans and now I’m rich! Good plan!
😂
Holy cow. i knew of this strategy for almost 15 years and still couldn't wrap my head around how it works. I finally understood this a few years ago. And here I am back here refreshing on this concept.
I couldn't either. Still can't wrap my head around how you sell 4 houses for $250k each and now you have $2mm. Spent a chunk of my career doing CDOs and even we couldn't make money that easily. Alchemy!!
@@TheAkiniti Lol, that was a mistake on his part. Should be $1mil. But the concept still made sense afterwards.
The way they pay the interest payments is the assets they loan against still produce re-occuring revenue from Tenants, Stock Dividends, business profits, etc. that they can use for the month to month expenses. Taking loans out on assets are risky depending how much is taken out, if a stock, real estate, crypto, business scandal happens that crashes the asset value, the loan payments still remain the same which can cause financial stress depending on the size of the loan. The reason the depression happened was because people took loans against their stocks to buy more stocks.
What about the interest your paying? How does that make sense?
That's exactly what I want to know. What if the interest is very high?
12:14
The amount you gain in interest every year is less than the amount of taxes that you would have to pay out if you didn't get the loan
Plus in "investment" cases the cost of that loan (the interest + fees) are tax deductible
You're the kind of uncle we all need, Toby
The kind of uncle who is really bad at math but still lectures you on math?
FYI - If one owns their vehicle outright, he or she can borrow against the title. For example, I’ve got a 2019 Tacoma that I could have borrowed almost $31,000 against at about 6.5% prior to my recent purchase of an investment property with a repayment term of 5 years. My wife and I decided against this but that could have been another 31 k I put down and didn’t have to pay mortgage interest on, long term.
Great comment. Thank you:-)
A friend of mine unknowingly(?) used the method a few years ago when he was laid off during COVID. I think the one thing that is important but not mentioned is rapid movement. He borrowed against an old muscle car he owns as well as his personal home. Bought a very small home out of the city that was run down, remodeled it, got a renter, and borrowed against that home to buy another home... Skip to today, he has 7 rental homes, a good cash flow, a company car, company phone and laptop, and he's planning to add two more homes next year.
I did this for my parents homes. It started out great! As long as your lending source is on board and THEY’RE not violating FDIC lending laws, and financial crimes behind the scenes - this works. Make sure you have a living trust and you’re property(s) are in the trust. Look into government backed reverse mortgages. And yes have a life insurance policy in place as an arbitrage against debt to asset value. Gap insurance if you will.
Hello, Please explain how the interest is being paid here? Should it be monthly payment mandate and how long we need to pay that interest amount - monthly or yearly, should it be until my loan getting paid off. Also, will that get paid from the portfolio itself?
You don't pay tax but you pay interest on the loan and it has negative impact on your cash flow just like tax does.
what you forget is that generally a line of credit in a house is separate payment for the mortgage itself. unless you have paid off the mortgage. Even then, you better have less monthly expenses than the payment on the line to really benefits.
I tried all of it but still don’t get it. only life insurance makes sense because your family can pay off the loan and line and keep the difference.
What about the interest you have to pay on the borrowed money? Wouldn't that be more than the tax?
If the interest rate is higher than the appreciation, it will eat away at your money. But if you can get someone else to pay for the loan (i.e. renters) then you could come out ahead. This falls apart if the economy tanks, nobody rents, and you still have to make the payment.
Okay, so what if there's no one to pay the interest. Then you would have effectively lowered the value of the appreciating asset by the amount of the loan. And if you die then the lien holder would be entitled to that portion of the asset.
I do agree with a portion of the strategy but the idea of doing this without paying taxes is a stretch.
Interest is tax deductible.
Doesn't answer the question @@davidcoggin8861
This method is fairly easy to grasp, but the real buy borrow die methods are far more complex and might involve something like a zeroed-out grantor retained annuity trust, preferred freeze partnerships, and bespoke loan products from financial institutions. What's presented in the video is really just a form of borrowing against a leveraged asset and deferring capital gains.
Finally, a voice of reason the Living Trust is 100 times more complex too so maybe Anderson Advisors are Kindergarten teachers.
Thanks Toby. To buy you have to have income or rapidly appreciating asset to borrrow against it. In my practice working with wealthy people they all have successful businesses, or they are highly paid professionals.
How do you pay the monthly payments???
Never spoke about it.
It's assumed that the assets you buy will pay for itself. For example, a house or apartment will have tenants, good stocks could potentially pay dividends and appreciate etc. The idea is to keep doing this with good assets, and use the profits to buy more assets. At the end he explains that the rich and wealthy use this method to compound wealth.
I wish I knew this 30 years ago but I'll make sure my son knows. I'm setup now to execute this strategy but I'm pretty late to the game. He'll take full advantage. Thanks for the video
With Art, valuables, or even cars, if you keep them in Freeports, warehouse in specific areas around the world that are designed to avoid taxes, then borrow against it, you really save. Some rich use the warehouses, but actually keep thier items in their homes to enjoy. Not excatly legal but when your rich the law isnt that big if an issue.
Okay I hear ya. Correct me if I’m wrong please. You buy a house in your 30s and live there your entire life. It’s paid off by retirement. It was 500k when you bought it and 30 years later it’s worth 1.5m. You saved for retirement but as your time is coming you realize you’re short. So you take out a loan for half the value of the house @ 15 years and get life insurance. Make your payments live out your life and have insurance pay off the loan balance so you can give the house to your heir?.
Wow never heard a Strategyqthat way
Your sins are forgiven
the insurance is kind of unnecessary for the scenario. To simplify, just leave that out for now. You die in 9 years, with $375k remaining on your $750k mortgage. Your heir inherits a $1.5 million house - $375 payoff. The tax base is now reset at $1.5M (ignoring any appreciation over the next 9 years) and if they sell, they get 1.125M tax free. If you had sold the house 9 years earlier, you would have paid capital gains tax on the $1M appreciation of the house--let's say 30%. Essentially a wash for them, *but* you received $750k cash 9 years ago and paid off an estimated $450k toward the mortgage. All in all, your heir get the same amount, but you pocketed $300k of your initial 750k. And again, that is not counting anything for the 9 years of continued appreciation of the home.
Keep in mind, you also borrowed quite a large portion of your assets. In other scenarios you might pocket less but the difference for your heir would be far greater (nobody pay the capital gains).
Why do you keep stating that after you die, you pay off the loan and are net ahead without paying taxes. Your DEAD! Your not doing anything!!! Its your estate thats left, not you. Again your dead!!!!
@@plus790the insurance is probably a good thing-if one purchases a participating whole life insurance policy. They can essentially do a SPPUA(Single premium paid up addition) (7702 IRS tax code)
The part about borrowing against stocks is something I hadn’t thought about. Also the margin interest you pay offsets dividends. It’s like rent paying off the loan.
Can you borrow from stock in retirement accounts ?
@@nomadiclifekorea No
@@nomadiclifekoreafrom what I have heard no. The investments need to be in a brokerage account.
If you have an asset that you borrow against versus selling you have to pay interest on the loan. That may have an interest rate lower than the taxes, but those interest payments go forever. Taxes on the sale of an appreciated asset is only once at sale time. What kind of rates are people borrowing at?
You might not pat tax on appreciation, buy you sure pay property tax on appraised value updated every year.
True, on real estate. No property tax on stocks though.
Point is if you need cash and have assets instead whether you sell those assets to raise the cash and pay Capital Gains tax or borrow against the asset to raise the cash and save on taxes.
@@mplate1792your renters are the ones that pay the property tax
Property taxes on stocks? Lmfaoooo It’s called capital gain dum dum not property taxes
@@priyamd4759but when you buy asset from borrowed money, then dti limits your buying power ?
What about payments on the money you borrow and the additional interest on the loan?
Interest on the loan is typically a wash. It’s a loan against the death benefit you don’t have to pay the loan back. It’s settled at death.
Interest on the loan is usually tax deductible when you file your annual taxes. It’s treated the way your mortgage loan interest is treated for tax purposes.
@@YouAREyoubeYoubut wouldn’t make it harder to borrow if it’s never paid back? Say I borrow 1M and never paid. That hurts my credit and makes it more difficult for me to borrow more if my assets go up in the future.
I do generally agree with doing this, especially if you are borrowing on low interest or "Art" if you are an "Artist". (You'd need an "appraiser", but that's a different story). As always, unless you can get some universal life insurance that invests the premiums directly into the stock market with uncapped gains, to never get it (and just pay term life), and just invest in the stock market and borrow against your portfolio.
Artists who are doing this are figuratively printing money
The strategy is not expained properly because if I borrow $1M and keep it over 40 years and the interreset rate is 4% per year, I will have to pay over these years $1.6M in intereset and still owe $1M.
You missed the literal very start of the video where he laid out the premise of assets appreciating and not paying taxes on that appreciation. You use that $1M to buy assets that appreciate far beyond the interest rate and you don't pay taxes on that appreciation.
I think your calculation is wrong at 9:23 - those 4 houses would be worth 1 not 2 million ...
saw that also!
yeah doesn't really affect the message tho
However...you have to pay the money back with money that comes from somewhere, like a job. You have to pay taxes on that money, plus interest on the loan. So unless you're borrowing to invest in income-producing property, how do you pay it back? And income-producing property generates income, which produces taxes. What am I missing here?
You're not missing anything you're listening to an Estate Planner who thinks a Trust is only a title holding entity instead of a service tool to transfer wealth without inheritance hijackers so take it with a grain of salt.
Your tenants are paying it back
@@lauriekline8655 if, and only if, you borrow to invest in income-producing property -- as I said. Not if you're going on vacation, paying medical bills, or putting someone through school.
He's not saying you don't have other *income* or that you wouldn't pay taxes on that. So you would use that real income (or borrow more) to make the payments. The point is that by keeping investments (appreciating assets) that are returning close to the interest rate you are borrowing at, it's pretty close to a wash year-to-year. The benefit comes mostly to the beneficiaries. Because the base resets upon death, essentially no one ever pays the big capital gains taxes.
Let's say that your initial $5M portfolio appreciates at 5% and is currently worth $10M, but you are paying 6% on a $1M loan. You are paying approximately $60k in interest each year. If you had sold $1M ($500k of "gain") instead of borrowing, you pay an immediate (estimated) 25% capital gains, which is $125k. You also lose out on the 5% return on that $1M for that first year, so you miss out on earning $50k. So the year one net is +125K +50k -60k, or a net positive of $115,000. In year two, there is no longer the capital gains savings, so the +50k and -$60k results in -$10k (those numbers are actually a little bigger on the investment side due to compounding, and a little smaller on the loan side due to payments reducing the principal, but close enough for us). Each additional year, that $10k cost to you will be diminished, plus you already started out $115k ahead. And this is all under the pessimistic assumption that your returns are at a lower rate than the interest you pay.
Ok I get the concept but the part I'm missing is making the payments on the loan with real east you can use the cash flow from rent but how do you pay the loan from borrowing against a stock portfolio
That frustrated me too.
The part these youtube personalities leave out is that the loans are different from the type we get. Near zero interest with no payments needed for a long while.
These are not the types of loans we non-millionaire/billionaires have access to.
The strategy only works for the 0.01 percent.
It's a complete waste of time for the rest of us to learn about.
You can pay the minimum loan payments, out of the money you borrowed. So if you a $1million asset or home, you take a $500k loan at 5% which is about $2500/mo in payments.
This may help the confusion... doing this means you don't have to sell the asset and pay 40% in taxes, or $400k.
In addition, you can also bet that in the next 5 years, the house appreciates MORE than the 5% loan you are paying...
So at that time, you can do a New Loan and pay off the old loan and rinse and repeat without ever selling the asset.
If the asset doesn't appreciate faster than the loan interest amount, then make sure you find better assets... AND you'll also have life insurance to payoff the loan upon your death if this happens too.
Another component you may not consider... imagine when you took that $500k loan, you used $200k of that to buy another rental property worth $400k. With a 50% downpayment you could have some really nice positive cash flow to pay this new mortgage and help offset the payments for the original $500k.
On and on you go, as long as the good assets you buy appreciate more than the loan interest you'll be fine and this whole time since you didn't sell the assets you also didn't pay massive taxes.
I hope that helps clarify.
These are arbitrary numbers I'm using, and can be done similarly on smaller scales... so you can essentially still do this without initially being a millionaire or billionaire
@@mikelim108great info, thanks! Only the SBLOC is unavailable unless you're a high net worth individual...all the rest as you mentioned are good to go.
Or a piece of art???
How do you get a loan that doesnt have any payments until after you die ?
I love it when regular people get do what the billionaires do. Could you please do a video on the simplest way to set this up on a investment portfolio please. For example, how to set up a profile of ETF index funds (or something else long term) that never has to be sold (including what to do if one of the index funds ceases to operate) and how to set up a load account against the investments in a standard brokerage (e.g. Schwab, etc). The goal is to hold on to investments forever without selling them, but I can't imagine some investments lasting a lifetime so I want to understand how this is structured to prevent the force sale and taxation of investable assets.
Awesome . Extremely helpful. Thx 🙏
Definitely going to do this. I have a stock portfolio and I'm going for it. Thank you, Toby!
great vid
The loan is not taxable, but the monthly repayments you have to make on, say, a HELOC are all made with post tax money , and you have to pay it back with interest. Doesn't that negate the benefits?
If the assets grow faster than the interest rate, then it is still a win.
@@ZE3kr Thank you. I'm aware of how math works. Heloc rates are relatively high, and they may or may not out perform the stock market. The repayments you have to make on the loan are all post tax, they're not tax deductible, so you are saving on taxes by taking the loan, but you are taxed on your income, which is then used to pay for the loan. My point is the benefits of this may be overstated, unless you are a billionaire, in which case the 2% difference between your loan interest rate and your returns will make a difference. What am I missing here?
@@MA-wy7cr A 2% difference will compound and will have a bigger difference. Right now, the interest rate is high, so loans might not be appealing, but during the time the rate is low, that growth difference is higher.
But taking a loan on stocks is like leverage and will make the risk higher
The short version is no. Even if you're borrowing at a higher rate than the investments are returning, you are avoiding a 25% (est) immediate haircut on the capital gains you've realized. Depending on the difference in those rates, it would take a long time to wash out the immediate benefit, if at all.
*note--when i say "immediate benefit", I'm referring to the preserving and growing the portfolio (which you can't touch). Even though the paper benefit is large and immediate, it is ultimately your heirs who actually get the money, when they inherit $1.3M instead of $1M.
@@plus790 let's compare a million dollar investment. Salary vs HELOC. So if you want to net 1 Mil income, and are self employed , you'll need to make maybe 1.5M. You make a 1M investment that grows @ let's say 8 percent on average for 21 years. It'll be worth approx 8 million. So 1.5 mil gross to make 8 mil. You'd be responsible for a 2 Mil tax bill if you sell and cap gains is @ 25 percent. So 1.5M gross gets you to 6 mil after taxes.
Alternatively, you take out a 1 Mil HELOC @ 8 %. You saved an immediate 500k in taxes vs if you did it with income. But you have to make 8k monthly payments on the HELOC for 21 years. With post tax money. At the highest tax bracket/self employed , that means you'd need to make approx 14k gross to net 8k. Which is 1.26M in taxes over 21 years. And that doesn't take into account the 1.2M in interest you would have paid over the life of the HELOC. And you'll still be responsible for the 2 Mil capital gains bill at the end of the day. So that 1 Mil HELOC will net you 8 mil, minus 2.5M in taxes and interest, minus 2 Mil in capital gains tax. =3.5M. So I don't see how the initial 500k tax savings can justify the interest + taxable income it takes to pay down the loan.
New subscriber here. Awesome video! So the monthly payment of the loan (mortgage or securities) would you choose to pay the interest only, not paying down the principal until the day you pass away? What if 2008 mortgage crisis happens again ? The bank or the brokerage is going to force you to pay off the loan right?
Simply establish an LLC; it functions well, haha, and it provides security when you don't fully trust your partners.😏lovely business choices
Thank you so much for simplifying this for me.....
Buying in cash? How about when you buy the house in mortgage? How does it affect the strategy?
Only works if interest rates are low and the asset appreciates. If your asset goes down you’re leaving someone with a huge tax bill and if rates are high your interest rates may be the same cost as taxes. One more thing is your not gonna get a step up in basis if your over the maximum estate value. You’ll have to pay estate taxes.
Very informative video thank you
In the example where you're borrowing against your stocks, are you acquiring this line of credit through your brokerage or is your investment company going to a bank and leveraging?
First, I’m ready to see this video!
this is amazing, thank you!!!
Could I use this system in UK??
Excellent easy to understand video....... Thank You Toby !
I am planning on doing this soon. I am going to Airbnb my house which is valued at about $2 mil. and paid off. Borrow against it and have the Airbnb proceeds pay the loan payment and hope to get as close to showing zero income as possible. I am going to build a second smaller house on my property to live in. Will sell my last rental to pay for new house. 🤷♂️
I LOVE IT!!!!
Great video
Hey, I'm thinking on setting a corp and pay taxes as Corp (Im not from the US). Do you have any video about reduce corp tax with real estate ? thanks
The old adage holds true, you need money to make money.
Bought my first house for 13,900 on an article of agreement or "land contract". I lived in it essentially for free while I fixed it up. 20 years later (lived there for 10, rented it out for 10) I sold it for 53,000 and bought a semi tractor in 2017. Made 700k in 3 yrs with it. That house today is over 100k. Crazy?
You can start investing in stocks with as little as $100. A lot of brokers these days will let you buy fractional shares of companies. And reinvest your dividends so you get more stock for free.
Toby...we need those interest rates to come down!
hey if market returns stay at 20%, you're still golden :)
Why don’t you just buy something for less instead of worrying about interest rates?
We had 15 years of artificially low interest rates. I want to borrow against my asset to buy more assets and pay back that loan in dollars that are depreciating due to inflation at a faster rate than my interests rate. I can also use the loan as a deduction. Doesn't that make the loan or debt the asset? In other words I'm now being paid to take a loan. These low interest rates given by the govt have not created wealth, but instead have created a wealth transfer from the govt to the asset holders. Is that correct?
I wish I saw this when I was in my 20s
Thank you. I'm still trying to get my head around this strategy. I see potential. I'll spend months running the numbers 1st.
As per my understanding - When we sell we have income and when we have income we have to pay taxes. So, let's not sell. We can satisfy our cash requirements by borrowing. Depending on our tax bracket Income tax could be as high as 30% and as low as 10% - if it is nil most probably we are not in the position to buy anything or we are already following this strategy. If we are going to spend the borrowed money then we need to calculate. If we are going to invest it somewhere then the interest on the borrowed capital is at least partly paid off. You would be wasting time calculating pennies and cents. Time is the most important ingredient in compounding.
The only problem in this scheme is that if the asset we have purchased and borrowed against depreciates in value - like a stock market crash or a real estate crash like 2008. If the bank comes to us for loan repayment because our asset no more covers the amount we borrowed then we can be in trouble. Sometimes the banks ask for payments or loan closure even before the asset depreciates as a matter of precaution / prudence / panic. Happened with overdraft / HELOC accounts in 2008 crash. Banks go after the small folks like us and not Elon Musks of the World. So, we need to borrow carefully and not aggressively based on our perception of the size of the crash - if any. Banks will apply a "hair cut" of about 15-20% depending on the asset already.
We need to diversify assets so that not all go down at the same time (which mostly they will do as people sell whatever they can to fill the hole of the asset that has crashed first) and stay down for a long period of time. If real estate collapses then may be Gold and Silver is up, etc.
Just use a participating whole life policy, which is different from an IUL. Don’t let anyone tell you different. IUL are subject to the market( not a problem if in the SP500 as it typically goes up). You want a dividend paying policy. Foresters is a good example. I sell insurance for almost 8 years. I have this policy myself.
This was the original Infinite banking model.
Hello Toby- Fantastic content here! Relative to the loans taken against the assets. Would you just pay interest only on the loans taken out and let any principal balances accumulate?
Great question, to assist you further, I highly recommend you request a free 45-minute consultation to discuss this with my team so we can provide you with an answer that is unique to your situation. Visit: aba.link/aq5
Thanks Toby. So the secret is getting a low interest rate on borrowed money to prevent a huge interest payment on initial loan. Would the interest be deductible with IRS?
IHT should be mentioned as a consideration as that is a big tax factor before the rebasement of Asset Value for future generation
In Europe these kind on loans are not available. For example security backed credit
I believe you still need to pay property taxes on real estate. You’re not getting out of that. Along with the loan interest, not sure this works for everyone. I suspect there is a formula or tipping point for the assets being considered to use this concept on. A loan against a 401k makes sense, but not sure about real estate.
But if you borrow against a whole life policy, won’t there be a term on the loan that matures a short time after the loan is taken out?
No.. i borrow against my whole life all the time..
Great Toby, will this be the same in Australia?
Yes but unless ultra wealthy be cognizant of loan payments and interest on borrowing.
If you sold stock outright it would be taxed at LTCG rates which would be at a max of 20% if held long term.
What about inheritance tax? How do you depreciate an asset while it only appreciates? Sorry if I'm missing something but so much of this strategy doesn't pass the smell test.
Little problem with step 1 (buy assets that go up in value): You need to know the future.
whats the best way to pay off the debt?
Stepped up basis doesn’t work with assets in a LLC unless it is a flow theu. If this right?
Awesome information. I need to get in touch with you to discuss further. Incredible.
I'm glad you found the information helpful! Feel free to reach out or schedule a consultation with my team. aba.link/aq5
Every time I look to get a loan on my assets, I'm told it's only for renovations, credit card debt, and NOT allowed to be used for investments (i.e. stocks).
That's correct, so what's your point?
@@METVWETV That the money can't be used for income generating assets, as was mentioned in the video.
I took out a 1st mortgage on my paid off house. No restrictions on what its used for
So if i Die, how do I sell the house?
Or do you mean my heirs can choose how to divest the assets?
Let's say a person passes away and leaves a property to their heirs. The heirs decide to keep the property for 5 more years before choosing to sell. What's their step-up basis? Is it the fair-market price at the time of death? If so, do heirs need to rush and get an appraisal at the time of death to document value at that time? - Thanks!
Can you borrow against physical silver and gold and numismatics as an graded coins
Loans are definitely possible against physical Gold anytime and anywhere in the World. Here in India Gold is mainly used for that purpose and there are listed companies that deal only in Gold loans (such as Muthoot Finanance or Mannappuram Finance) For reasons not known to me loans are not given against Silver. I am not sure what the other assets you have mentioned.
There is one argument made against the borrowing against Gold idea. =>
Say we have 100 gm (or Oz) of Gold and current value is $2785 * 100 = $278,500 The banks are going to give us a max loan of 80% of that value - called "hair cut" to reduce their risk in case the Gold prices fall. So we can raise roughly $220,000 Now we need to pay EMI payments for the loan taken till we pay off the entire amount. The opponents of the Gold loan idea argue that we should not part with 100% of our Gold only to get 80% amount and pay interest on our own money. Their suggestion is instead of paying EMI to the bank and losing that money forever we can sell 80% of our Gold to raise the same $220,000 and keep the 20% remaining Gold with ourselves and not deposit with the bank / lender. We may or may not need to use it but it is always better to have our Gold with ourselves. Now, in the next step, the EMI - monthly payments - we saved must be invested in Gold and we will end up buying all the Gold we sold in due course of time without paying any interest to the lender.
My thoughts => The idea makes plenty of sense except in the situation that Gold flies off the handle and the price increases very fast. In that case it is better to take a loan against Gold and enjoy the benefit of the price appreciation on the entire 100gm (Oz) we have. I am not talking about interest rates because in India we generally have higher interest rates on both sides - borrowing and deposits - when compared to the States or Western World. I think Gold is in a momentum so at this point of time Oct 30, 2024 I would go for a loan. Or just do a 50-50 of my requirement. If I want to raise $100,000 I will sell Gold worth $50,000 out right and deposit Gold worth $62,500 with lender to raise the rest $50,000 (after hair cut). That way I am not punting on the price action of Gold. Remember I still need to buy Gold of the same amount that I am paying the EMI to the lender every month. Of course, when the money is in my hand I have better control of how I invest etc but discipline on our part is important. When the control is with the bank we are f* for sure. Hope this helps. Regards from India.
also a key thing is that capital gains tax are based on your AGI, so if you can get your AGI way down one year, you can sell stuff for free.
Hi, but the assets are collateral, and what about the monthly payment to the loan?
The idea is that your Investments.. returns more then the loan.
Does step up basis apply to a spouse whose name is NOT on the property to avoid capital gains taxes upon the owner spouse passing or, does a spouse not qualify as an heir for step up basis purposes? Thank you.
What if morgaged 100k stocks value go down ? If bank sells them then will it be taxable to us?
I would love to learn this on a deeper level. Any book recommendations?
@@markos9751 The Value of Debt & The Value of Debt in Retirement by Thomas J Anderson.
Just keep watching his channel and have a free consultation with his team, them sign them up as your financial advisors.
I think k it's called the Smith maneuver
How about gold or silver? Could you borrow against those so you would'nt have to sell?
Yes, if you're dumb. Gold and silver can be safe in downturns, but long term they get crushed by the returns on stocks and other good investments.
Is a margin loan the same thing?
The part I don't get is how this works out for a typical tech billionaire. Let's say you need money to buy a house and have a portfolio of 1B in stocks. Ok, you borrow against it and now you have a house you paid for in cash. However, you now have a loan, effectively a mortgage. So what, do you borrow more to pay it and end up with even more loans? This is not sustainable. At some point you have to settle by selling the stocks and paying cap gains so it all catches up plus you're worse off for the interest on the loans. Even death doesn't help here because the debt is attached to the estate.
Death is the key to this strategy!
Your heirs receive their inheritance (Your Portfolio) at a "Step-up in basis"
This means that, for the purposes of taxation, the value of the stock is now set on the day you die.
Therefore, when you sell it, there is no Capital Gains.
No Capital Gains, NO TAXES!
Your heirs pay off the loan with your enormous Portfolio and inherit the rest
Toby you are great and hilarious leave tip to the IRS
If I die how do I pay the loan? Didn’t understand shiiittt
Toby, will taxes be owed on that 1M leftover after the house sells for 2M?
I am from India so take this with a pinch of salt. What I understand by the phrase "increased basis" is that for the heirs the "purchase" cost will be the current market price 2Mn $ - since they got it now - and so when they sell it they made zero profits and hence zero tax. I guess that is what he meant by increase in (cost) basis. Hope others will comment here. Regards,
How do they cover the increased monthly principal and interest payments when they borrow a large sum to buy a Lambo and travel the World on fixed income?
This is great information and I now see how I could live off the borrowed money from my equity in my traditional investment property. However, I live in California and receive a pension from the City & County of San Francisco. Together with my SS my income is about $120,000 and I’m single. How can I reduce my present taxes? I attended a scheduled meeting with your staff but never received the information they promised about charitable non profit organizations and how this might be helpful to my present situation. Any suggestions on how I can research or connect with someone in your organization to reduce my tax liability this year?
Great question, to assist you further, I highly recommend you request a free 45-minute consultation to discuss this with my team so we can provide you with an answer that is unique to your situation. Visit: aba.link/aq5
Can you take the loan against Roth IRA assets?
Reclaim your principal from the Roth and put it into M1 in high dividend paying funds like MSTY, NVDY, and GOF and reinvest the dividends and use the margin option with M1 to accelerate your earnings and pay low margin rates that your dividends cover. Never sell and never pay taxes on capital gains. Rinse and repeat.Thus, buy, borrow, die.
Great concept but reckless making it seem like you can keep borrowing forever and spend the money in frivilous stuff. Ideally your asset that your borrowed against is producing enough cash flow to pay off your interest, live off and buy more assets. Incredible if used correctly but the avg american is going to abuse this and get in huge debt trouble.
But then you have to make the payment.. on the borrowed . Which is a lot!
The income being generated on the assets more than pays it. My point is that the appreciation - which you are doing nothing for - is tax-free.
@@TobyMathissome won't see
@@pooroldgreyhaireddaddy poor old grey haired daddy,.... driving my limousine. Any connection to Dr hook and the medicine show? Just had to ask.
Margin loans do not require interest or principal payments - you can cap and roll and interest will compound. Caution here as need to stay well below maintenance margin in case market crash
@@TobyMathis I sold my husband on the idea and we are happy with our investments. It’s the paying on the loan that stretches a person. Doesn’t out weigh the appreciation on our investment s. Just saying when you borrow you add a payment. Unless you use it revolving.
Nice. But things I don’t like: 1. Everything has to go up in value. That’s likely but not guaranteed. 2. You need an heir. Can be accomplished but sometimes it is not that easy. The heir could be not worthy, you divorce, etc. 3. You need to die. Ok. But what if you die too soon? I.e. worth hasn’t yet grown or even fallen due to a recession? But apart from that: seems like a great plan. If you stay healthy, economy stays healthy, family/heir stays healthy.
I own some rental properties and wish to leave them to my heirs to keep in the family. I love Buy Borrow Die Strategy. My only concern is if I borrow and die, will my heirs be forced to sell those properties because mortgage on the properties? Is there any strategy to Buy Borrow Die (for me) and still keep the properties (for heirs)?
Maybe have the Rental Property buy a Life Insurance Policy on you, of a Value at or above the Mortgage You took on it!
Maybe have the Rental Property Buy a Life Insurance Policy on you, with a Payout at 1x to 2x of the Initial Mortgage Value, that pays the Mortgage as a first, and your estate as a Second consideration?
Your heirs would need to employ the same strategy.
But you will need to pay interests right?
They can go up in "value" OR go up in" price". EITHER works. Inflation is what I'm referring to.
I'm still lost. You gotta make payments on the loan. Unless you're crazy wealthy and have appreciating assets far in excess of the loan payments that I can just keep borrowing, you'll need to make your loan payments with $ that was taxed, eg salary. So you wind up paying taxes plus interest. I can't imagine anyone's gonna give you $1M and say "No worries, bro--Just pay me back when you die." For this to work you need a repeatable way of paying the loan payments w/o paying tax. Otherwise non-wealthy people might do this one or twice, but you'll quickly borrow money faster than you can add assets.
When you bought the asset you alone put all the money and when you are selling it, this new partner comes out of nowhere and takes almost 30% of the value! Are you going to pay 30% of the value in interest payments on the loan? That would take quite a while and the property - which you still own - may appreciate further. When you sell you lost the property at 30% less value. Hope this helps regards,
You're NOT paying down the Principal, just the interest.
The day you die, your Heirs inherit your Portfolio at a Step-up in basis.
They sell what they need, to finally pay the Principal and since there is No profit to the heir.....NO TAX!
Well you don't pay any tax, but you are paying interest. Sell assets - lose 30% in tax. Borrow money at 5% interest - lose 5%the first year, 5% second year, and so on. If plan to live more than 6 years you may be better off paying the tax. May be a little longer if your interest payments offset other incomes and/or if your stock appreciates faster than the interest you are paying, but it's not something for nothing.
FYI, at the 9:15 mark, you write $2 million when you meant $1 million.
Pardon me sir. Doesn't borrow money come with a debt service?
So you have to have to have $500,000 to buy that house that you are borrowing against?
It kinda blows my mind that you’re not mentioning the interest paid on the loan
Do you need to have a brokerage account with Morgan Stanley to qualify for a securities backed line of credit?
It worked better when you can borrow at 0% interest. Now it’s 5%-8%.
I laughed so loud while watching this that's the best strategy ever.. I will take that path
I've heard this strategy doesn't work unless you have many millions. The compounding interest becomes a problem after years. Like it won't work with a million in stocks.