Mortgages don’t just make sense for people who can’t afford to buy a home with cash.
- Elon Musk earned billions of dollars and could afford to pay home cash.
- He still has a $ 61 million mortgage loan in 2018, which could keep him liquid and use that money for other investments.
Elon Musk has founded Tesla, SpaceX, and many other companies. Not surprisingly, his entrepreneurial spirit made him quite wealthy. Musk is actually the wealthiest person in the world, with a total net worth of over $ 200 billion.
Obviously, if you want to buy a home, Musk has enough money to buy a full home, but he’s opting out of this approach.
In fact, the mask is reported to have withdrawn a total of $ 61 million. Housing loan In 2018, at some properties in Bel Air and the Bay Area. This includes a new $ 50 million mortgage and a refinancing loan used to repay the mortgage used to buy real estate in 2017. The total monthly payments for these mortgages were approximately $ 180,000.
Given the amount of money Musk has, it makes sense to wonder why millionaires bother to borrow to buy real estate. But there is one simple reason why he was wise in his decision to take out a loan.
The reason Musk rents to buy real estate is simple but important
Mask borrowed to buy his property, probably for the same reason as other wealthy people- Including Warren Buffett -Choose to take out a mortgage. By doing so, you can avoid binding assets and maintain liquidity, so you can do other things with money that can generate better returns.
You see, mortgages tend to have very low interest rates. Therefore, Musk borrowed a lot of money, but the funding he pays is very affordable compared to the amount the bank lent to him. Mortgage rates In general, even if you owe a lot of money, it’s well below 5%. The only return on investment (ROI) you can get by avoiding this type of loan is interest savings.
This means that if you suspect that musk can make more money than you can save by avoiding interest, it’s better to rent a house and put the dollars elsewhere.
In his particular case, Musk repeatedly purchased Tesla’s stock in the open market to show confidence in his company.And because the Tesla stock has Value increased significantly Since 2017, Musk has made wise decisions by betting on the company rather than tying money at home.
What can the average homebuyer learn from the mask example?
The fact that Musk chose to take out a mortgage at his home shows why the most typical Americans should do the same.
Financial experts such as Dave Ramsey Propose to pay cash to the house If you can, or if you want to get the smallest mortgage possible in the shortest amount of time, doing so can be very costly. You give up the opportunity to do other things with your money that can generate a better ROI.
I would like to have about 20% at home if possible, but to avoid both Private mortgage insurance And to reduce the chances of your home paying more than it’s worth-putting more down or paying off your loan early may not pay off for you after all.
A historic opportunity to save thousands of dollars on mortgages
Perhaps interest rates will not stay at lows for decades much longer. So whether you want to refinance and reduce your mortgage payments, or are ready to trigger a new home purchase, it’s important to take action today.
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