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- Wealthy people can use their stock portfolios to tap cheap loans and avoid capital-gains tax.
- A stock market rally and low interest rates turbocharged borrowing among America's wealthy.
- Cash offers on real estate is a popular use of this strategy right now.
Wealthy people can use their stock portfolios or other assets to tap cheap loans and avoid a capital-gains tax hit.
Portfolio-based lending is not new, but the pandemic's market rally and low interest rates turbocharged borrowing among America's wealthy. A big use of these kinds of loans right now is all-cash offers on real estate. Executives are also borrowing against their portfolios to pay taxes rather than selling assets.
Securities-based lines of credit can be taken out only against nonretirement assets and typically have a higher minimum than margin loans, which, unlike SBLOCs, can be used to buy stock. Larger lines of credit also typically incur lower interest rates.
Private bank clients are also taking loans out against their fine art, yachts, jets, and even stakes in sports team. Whether they use the proceeds to expand their collections or invest in private equity is up to them. A big plus is that the borrowers get to keep enjoying their art, jets, and yachts while pumping money into other investments. It's also cheaper than selling stock and incurring capital gains taxes, which can total nearly 40% for top earners in high-tax states like California.
Here's a look at the strategies rich people are using:
Wealthy parents are taking out cheap loans to buy their adult children homes and save on taxes
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Securities-based lending has been turbocharged by low interest rates and a scorching housing market. For wealthy parents, these loans are a way to pass on their wealth to their children at a low cost.
Banks are targeting baby boomers looking to help their millennial children buy their first homes.
Here's how it works and why it's feeding the all-cash bidding frenzy.
The uber-rich are using their fine art and luxury yachts as collateral to make more investments
Courtesy of Fraser Yachts
Private bank clients can borrow against art, yachts, and jets, to buy more luxuries or invest. Banks keep a watchful eye on their collateral with yearly inspections and maintenance schedules.
Here's how it works and what they're plowing money into next.
How banks are benefitting:
- Goldman Sachs expects its lending business to mass affluent and RIA clients to hit $10 billion this year as the wealthy take out loans to cover taxes and all-cash offers
- Wealthy execs are taking out loans to pay taxes on stock market windfalls — and it's been a boost to Morgan Stanley's lending business
- The truth about all-cash buyers: Goldman Sachs is lending out billions so its rich clients can swoop in on real estate
source https://www.businessinsider.com/securities-asset-backed-loans-no-taxes-real-estate-investing-sbloc-2021-11