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0 pointsno_wizard1y ago0 comments

If you want to know what they’re paying interest rate wise you aren’t going online to find it. We are talking about private bankers and exclusive preferred lender terms. These do go below (sometimes far below) market rates.

We are talking about folks who typically have 50 million USD+ in assets. They may even do all this via their own private corporation investment vehicles which further skews things.

This is why I was talking about wealth qualifications. all these loan types can be used in other scenarios, but the scenario I reference has a certain pattern to it that is unique to tax avoidance schemes. It’s a combination of factors not only one thing.

Let’s take it at face value though. How fast do you think Mark Zuckerbergs wealth grows in a year? Or how about the CEO of any major corporation for that matter? Or even someone who heads a private company with say $150 Million ARR?

Do you think it’s less than 8%? Heck do you think it’s less than 15%?

And this is before we start accounting for things like tax deductions for the interest paid on the loans

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Aloisius1y ago

I gave example for a $10 million line of credit. The assets required for that it is $50 million.

For goodness sake, the interbank rate right now is 4.8%. No one is getting close to that no matter how much they are worth.

Someone like Mark Zuckerberg does not need this for anything but short-term cash - where you don't want to, or can't do to trading rules, liquidate assets immediately or all at once. Instead you get a loan, sell assets slowly to cover it and repay it as quickly as you can.

The idea that someone in their 40s is living off debt as a capital gains tax avoidance strategy frankly sounds like someone has mistaken a financial services advertisement for a sound strategy.

no_wizardOP1y ago

What you describe in your last paragraph and what I’m describing are actually very very different things.

These types of loans are absolutely used as part of tax avoidance strategies employed by net worth individuals of a certain asset class. It is unlikely anyone on HN is doing this successfully if at all. As I repeatedly indicated it’s used successfully by people in a certain asset class, and it’s part of a broader strategy regarding how wealth is managed for the individuals that are able to take advantage of this.

I also linked several articles on how these things work, here’s another that talks about the tax loophole specifically: https://equitablegrowth.org/closing-the-billionaire-borrowin...

I did not say it’s the only way people live off their wealth though. That is something I never stated or indicated

Now as far as the rates go I wish I could find the article that that talks about it from earlier this year, but yeah if you really are super high net worth you aren’t paying 7%, but even if we take that off the table for the sake of argument, if you expect to net more than interest paid by a significant enough margin the loans still make sense, and for the class of folks I’m talking about they will almost always be able to outpace the rate by a significant margin

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