Some rich people use a mortgage to buy homes and some pay all cash, the same as everyone else. The choice just depends on the situation. Sometimes, there's more advantage to take on a mortgage to avoid tying up too much cash on a property and sometimes, it's a better deal with all cash.
In fact, the average millionaire pays off their house in just 10.2 years. But even though you're dead set on ditching your mortgage ahead of schedule, you probably have one major question on your mind: How do I pay off my mortgage faster?
Those with billions of dollars to their name can buy a home outright rather than take out a loan. Yet celebrities like Mark Zuckerberg, Elon Musk and Jay-Z have all made headlines for taking out multimillion-dollar mortgages — not out of necessity but to reap a couple of key benefits.
It has become especially popular because it can potentially be a gateway to millionaire status. The famed wealthy entrepreneur Andrew Carnegie famously said more than a century ago, “Ninety percent of all millionaires become so through owning real estate.
Only one-third of American millionaires — or those with at least $1 million in investible assets — consider themselves "wealthy," according to a new study from Northwestern Mutual, a financial services firm.
However, a new trend is emerging among millionaires: instead of buying, many are choosing to rent their primary residences. While they certainly have the financial ability to own luxury properties, the calculus around homeownership has shifted.
But even the world's wealthiest, like Elon Musk, Mark Zuckerberg and Jay-Z, have taken out mortgages for their homes. It's not because they must, but because it makes good financial sense.
A homeowner is considered house-rich, cash-poor when they have wealth tied to their home but lack readily available cash to meet their everyday living expenses. Being cash-poor can result from a myriad of factors, such as unexpected expenses, debt, budgeting issues, medical concerns, or reduced income.
One common question is whether or not millionaires keep money in checking accounts. Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC's Millionaire Survey , that portion was about 24% in 2023.
Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.
According to the Visual Capitalist, the ultra wealthy invest 32% of their average proportion of total wealth in primary and secondary homes which is the largest share among other assets, followed by equities (18%) and commercial property (14%). That's 3.7 homes per UHNWI, on average.
A groundbreaking 20-year study conducted by wealth consultancy, The Williams Group, involved over 3,200 families and found that seven in 10 families tend to lose their fortune by the second generation, while nine in 10 lose it by the third generation. However, there are ways to be at the odds.
X.com developed and operated a financial services website with banking services provided by First Western National Bank, an FDIC-insured bank in La Jara, Colorado. The company was initially funded by Elon Musk and Greg Kouri, who went on to fund Musk's later ventures: Tesla and SpaceX.
Mark Zuckerberg just refinanced his Palo Alto home with a 30-year, 1.05 percent adjustable mortgage rate.
Mortgages Are Relatively Affordable
Even when interest rates are higher, a mortgage is a very affordable expense for wealthy homeowners, who can often deduct the interest paid on up to $750,000 of mortgage debt. Likewise, when their riches aren't mostly tied up in homes, they can use those funds for other endeavors.
Because of rising housing costs, these young millionaires opted to rent instead since it is more affordable. Moneywise, citing a RentCafe report, said that the number of millionaires who are opting to rent a flat or an apartment instead of owning their dream home has tripled in the last five years.
Renting relieves you of paying for the maintenance, insurance, property taxes, and other costs of owning a home. If you're a high-net-worth individual who splits their time across different properties, you probably don't want to spend time dealing with the headaches that come with ownership.
One of the common financial reasons for purchasing a second home among high-net-worth individuals is that they plan to eventually move into the home full-time during retirement — the survey found that 33% of wealthy clients who owned second homes planned to make them their primary residences in the future.
Probably 1 in every 20 families have a net worth exceeding $3 Million, but most people's net worth is their homes, cars, boats, and only 10% is in savings, so you would typically have to have a net worth of $30 million, which is 1 in every 1000 families.
Rich (or wealthy) people tend to have lots of free cash—and/or borrowing power—which they can spend on more goods and services. They can pay their bills easily, afford health care without worry, and often depend on a financially secure future. Their affluence can have different origins, of course.