为什么富有的人选择抵押他们的房地产：13个理由揭示财富管理的秘密

• Many wealthy individuals keep their real estate mortgaged for liquidity.
• Mortgaging allows them to earn a higher rate of return elsewhere.
• They maintain control over their finances by not tying up equity in real estate.
• Wealthy individuals are more favorably treated by financial institutions.
• Understanding opportunity versus employment cost is key for financial success.

Why many, if not most wealthy people with money keep their homes and other real estate mortgaged, usually to the hilt, and the real estate equity separated in a position of liquidity, safety and earning a predictable rate of return greater than the net cost of those mortgages.

Get ready. In this episode, I'm going to give you 13 reasons why wealthy people do this. And I've interviewed many multimillionaires and billionaires; most of them have their real estate mortgage to the hilt, even though they have the money to have it totally free and clear of mortgages. So why do they do that?

Get ready. So I'm Doug Andrew. I've been a financial strategist and a retirement planning specialist now for five decades, helping thousands of Americans optimize their assets, minimize taxes, and empower their authentic wealth.

In the course of five decades of meeting with thousands of successful people, many of whom are multimillionaires and billionaires, I learned very early that most of these people keep all of their real estate mortgaged even though they have the money to pay it off. I would ask them questions because I figured this out.

I'm not a major real estate investor, but I probably own more real estate or have owned, bought, and sold more real estate than most Americans. I know all these reasons; that’s why I do it myself. Okay, I've always kept my real estate mortgaged and the equity separated.

So let me give you the 13 reasons in order of why these wealthy people do that.

Let me frame it with a story. Several years ago, a young lady came into the workforce. She had just come fresh from being a manager at a bank, overseeing all the high net worth customers. When she first started, she was perplexed because all of these multimillionaires and billionaires came to the bank to borrow money. She wondered, “Why are you borrowing money when you have the money?”

It's almost like you have to prove you don’t need the money before they’ll loan it to you. Not only that, she said they had their personal residences mortgaged to the hilt and all their real estate, yet they had the money.

Let me give you the 13 reasons here in this episode. And if you want to learn more, I’ll give you some resources about where these wealthy people put their money that’s better, safer, and more liquid than in their real estate properties.

Reason number one: To maintain liquidity. The ability to access your money when you need it with an electronic funds transfer phone call. You can’t do that when your equity is trapped in a property; the only way you can really get it is to sell it or borrow your money back out.

And when you need it the most, it’s the hardest to get. If you need to borrow money out of a piece of real estate, you have to qualify. Usually, you need it because of a setback, a disability, a sickness, loss of a job, whatever. They said, “Doug, money tied up in real estate is not liquid. It's very illiquid.”

Number two reason: For peace of mind. They go, “Doug, you know this for peace of mind.” In the event of any financial situation that’s out of our control, certain external forces out there, pandemics, mortgage meltdowns like 2008, the 911 terrorist attacks—these situations can cause the real estate market to dip as much as 30% in a single month.

They keep their equity separated, so they're immune from that. They’re in control. When their money is liquid and safe, it’s not tied up in the property.

Number three reason: Because they simply say houses were made to house families, not to store cash. What was designed to store cash? Well, my favorite vehicle is a property-structured, max-funded indexed universal life, which was designed originally by E.F. Hutton to store cash and have it compound tax-free at a rate of return typically triple the net cost of a mortgage.

But I’m getting ahead of myself. Real estate was not designed to store cash. It will appreciate or depreciate regardless of whether it's mortgaged to the hilt or free and clear.

Number four reason: To protect that equity from liability lawsuits. We’ve become a sue-happy society. If you have all your equity tied up in paid-off properties, and someone slips and falls or sues you for various reasons, they could sue you beyond your insurance limits.

The first thing they’ll go after is the equity in the property. If you own several real estate properties in the same LLC, they’ll go after all the equity in all of them. But some attorneys say, “Mr. Andrew, you’re the one who brought this to light: who is going to sue you for your real estate equity if there’s none? If it’s not there, if it’s separated.”

I advise my high net worth clients to separate their real estate equity, like I do, and put it over into an Alaska Trust inside of a max-funded index universal life because it’s nearly impossible to penetrate in a court of law for many, many reasons.

But I’ve seen many people who don’t understand that; they send all these extra principal payments against the mortgages. They get sued, and all their equity is wiped out in one lawsuit.

Number five reason: To keep my real estate equity safe from real estate market downturns. The fact is the real estate market goes like a roller coaster—not as violently or as often as the stock market—but it can drop 30% in a single month, as it did in March of 2020 with COVID-19.

Savvy wealthy people keep their real estate equity separated. It doesn’t matter if their real estate loses value; they won’t lose because their money isn’t in there; it’s over here earning a rate of return that is immune from market downturns.

Number six reason: Your home needs a house or a safe place for your money. Some people think a paid-off home is safe. No, you have to have your money in a position of safety that will preserve your principal.

Things beyond your control can cause your real estate to go down in value. Also, you can participate when the stock market does well without your money being in the stock market by using indexing.

I keep my real estate equity over into my max-funded IUL laser funds. If anything happens to the real estate or if I have vacancies, it doesn’t matter because I can peel off half of the interest I’m earning on my IUL, make my mortgage payment, and still have 100% more than that in profit or positive cash flow.

If you have all your equity tied up in the property and it goes down in value, you will lose. If you have vacancies, you still have to make the mortgage payment. If you still have a mortgage outstanding on that, where are you going to get the money?

Reason number seven: High net worth people say they want to be treated more favorably by financial institutions during market downturns. And they want to sell their property quicker and for a higher price.

You wouldn’t believe how many people don’t understand this, but wealthy people do. If there’s a downturn in the market and real estate drops 20, 30, or even 40%, like it did in 2008 with the mortgage meltdown, and suddenly there are mortgages being foreclosed on, who do you think the mortgage companies will foreclose on first?

It’ll be the people who have a bunch of equity in the property because they can turn around and sell it to get their money back. If you have your property mortgaged to the hilt, they’ll work with you. I’ve seen them do it countless times.

They’ll bend over backwards to extend it, help you out, and so on. They’ll treat you more favorably if you need to borrow because you have liquidity, the money isn’t trapped in the property.

Reason number eight: Wealthy people understand opportunity costs. They incur one of two costs when they own real estate: opportunity cost or employment cost. If you pay off the real estate, you give up the opportunity to earn a rate of return on that real estate equity.

The property will appreciate or depreciate regardless of whether it’s mortgaged to the hilt or free and clear; it has nothing to do with how much equity is in there. But if your equity is separated, you can earn a rate of return. Most of them do this.

If you borrow money at 4.5% tax-deductible interest, that’s a net cost of 3%. If I make 9% tax-free compounding on my IA laser funds, that’s 300% more.

Savvy wealthy people say, “You’re going to incur one cost or the other: non-deductible opportunity costs or deductible employment costs. Which would you rather incur?”

Reason number nine: Most wealthy people define being out of debt by having more assets on the balance sheet than liabilities. They know that by keeping their money separate rather than sending extra principal payments to the mortgage, they can acquire more assets faster.

You’ll get out of debt two and a half years faster by not sending extra principal payments to the mortgage company. Many people don’t understand this math.

Reason number ten: They want to leverage with full liquidity. Leverage without liquidity is stupidity. They keep their real estate equities separated.

I usually mortgage at 80% loan to value when I close on a property. I've never paid a down payment out of my pocket for any real estate; I use second or third mortgages, leveraging 100% and keeping all the money liquid.

That’s why they have a mortgage; they understand safe, positive leverage—the ability to control assets with little or none of your money tied up at risk in that asset.

Reason eleven: They want to earn a return that’s greater than the net cost of the mortgage. The rate of return on real estate equity is always zero. Your house will appreciate or depreciate regardless.

If you separate the equity, you’re not just making money on the property’s appreciation; you’re also making money elsewhere. If you can borrow at 6% tax-deductible interest, that’s a net cost of 4%.

Reason number twelve: They want to become their own banker and make double to triple the cost of the mortgage. By separating assets, they can earn a rate of return on money that would otherwise contribute to mortgage equity.

Final reason: There are many ads encouraging the purchase of title theft protection. What does someone do when they steal the title to your house? They try to put it in their name and borrow against it.

But who would steal your title if there’s already a big mortgage lien on it? They’d inherit your debt. Smart people ask, “Why do we need title theft protection when we keep our real estate separated?”

If it’s in a position of liquidity, safety, and earning a predictable rate of return, you're getting the picture. These are the 13 reasons many wealthy people keep their real estate mortgages.

I suggest you consider them, no matter what stage you're at; you don’t have to be wealthy to understand or implement them. If you want to learn more about a safer place for your money than tying it up in real estate, study my book, The Laser Fund.

A Laser Fund is a property-structured, max-funded IUL. This book retails for $20 to $60 on Amazon, but I’ll give you a copy for free. Click the link below or go to laserfund.com and contribute a nominal amount towards shipping and handling. I’ll cover the cost of the book and send you a hard copy via priority mail.

It’s actually two books in one. The white side has 200 pages and 14 chapters with all the charts, graphs, and explanations. If you’re a left-brain learner, that’s for you.

The flip side is 100 pages with 12 chapters and 62 actual client stories, perfect for right-brain learners. You can engage both sides of your brain by reading both books.

Also, if you want to listen and learn, those formats are available. We offer free educational webinars regularly. You can even schedule an appointment to talk to an IUL specialist to see how a property-structured laser fund can work in your circumstances.

There’s no cost or obligation. It’s beneficial to do it correctly with a specialist. I trust only the top 50 out of 5,000 trained advisors to do it right.

This is not about me; this is about you and your brighter future. Hopefully, you’ve gained some insights into why wealthy people with money keep their real estate mortgaged.