Why Billionaires Like Elon Musk And Jeff Bezos Prefer Financing Properties Instead Of Paying Cash

It's no secret that billionaires like Jeff Bezos and Elon Musk have impressive real estate portfolios. However, it may surprise you to learn that the super-rich often prefer financing over buying them in cash. You might think they are wasting money when you calculate the interest payments on a 30-year, multi-million-dollar mortgage, but that's not necessarily the case. A recent Moneywise article shed light on the benefits they get from financing.   ..

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First, you must remember that billionaires live in a different world when it comes to finances. Most people work for money, whereas men like Bezos become billionaires by making money work for them. Imagine Bezos mansion shopping in March 2018 and finding a nice property for $20 million. Paying $20 million cash was possible, but Bezos had better ways to make that money work for him.

It makes more financial sense to put 20% down and invest the other $16 million. Shares of Amazon (NASDAQ: AMZN) were trading around $75 in March 2018. Today, they are trading at around $199. By 2025, your investment would be worth several times more than what you paid for the mansion. Your money would only grow via property appreciation if you paid $20 million cash for the mansion. 

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Financing it would allow you to benefit from property appreciation and manage your cash flow more effectively. Although many people prefer being debt-free, there is a difference between managing debt and drowning in it. You could also invest the other $16 million in a diversified portfolio of growth stocks. If your investment grows by 6% annually, it will be worth nearly $92 million in 30 years.

That's not your only investment option. If you put $16 million into dividend stocks that average a 6% annual return, you'll earn $960,000 per year in passive income. That would go a long way toward covering your mortgage. However, you would still be free to divest from your dividend stocks and put your $16 million into another venture. From that perspective, using $20 million in cash to buy a mansion isn't the best move.

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This is one of the most profound differences between how the wealthy and the middle class handle money. Money doesn't buy happiness, but it does buy freedom of choice. Those choices include how to spend money or invest it. For an everyday American, buying a home is one of the most effective and low-risk ways of growing wealth. In most cases, financing is the only way to complete the purchase.

Billionaires, on the other hand, have infinitely more choices. Most Americans who buy property view mortgage rates and finance terms as a necessary evil.  Billionaires look at mortgages as a way to increase their cash flow and financial flexibility through leveraging debt. It's a completely different philosophy, but that doesn't mean you can't learn from their example.

 Wealthy people never stop thinking about how to build more wealth. You may not have as much capital to invest as a billionaire, but developing a growth mindset can still lead to positive changes for your financial future. You can buy REIT shares, growth stocks, dividend stocks, and many other investment offerings for less than $100. You may not become a billionaire, but your future self will thank you anyway.

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