Family Loans 101
An option too many people don't know
“Wealthy people do _____”
This is usually some clickbait. It is usually written by someone LARPing as being wealthy. Or even worse, a budgetpooor who thinks a million and no debt puts them on par with Billionaires.
There are levels to the wealth game. What works to get you to $100k net worth and what options you have at $100k net worth are very different than $100 million.
So when I read an email earlier today from a budgetpooor that started with “Wealthy people do not sell”, I was intrigued.
“You may have heard Elon never sells and that is how he got to be the richest man in the world. He borrows from his assets.”
So far so good. But the punchline of the email was:
You have $1mm portfolio
You borrow $500k to buy a house in cash (debt bad never forget)
The market drops 40% and your portfolio is $600k
You get margin called and your broker sells everything in your portfolio to pay back the loan
Anyone saying to borrow against your assets is lying (buy my course to learn how to budget instead)
Comparing Carl with $1mm in stocks and no other liquidity to Elon (or even someone with 8-figures) is silly.
Taking a 50% loan on a portfolio 100% in stocks just to avoid taking a mortgage is silly.
Ignoring the widely used ‘Buy, borrow, die’ strategy because you are comparing someone who is over borrowing and needs to pay it back is silly.
There is a huge difference between taking a 5% loan on a portfolio or life insurance or other asset that over a long-term should grow more than the loaned amount making it so you never have to pay back the borrowed amount vs what the budget gooroo used as a strawman.
But it got me thinking about another topic that is often used as something ‘wealthy people do with their money’.
Family loans or Family Banking.
Looking at the internet you would think you need a PHD in finance and tax to lend to a family and need an offshore LLC where you have a Trust and all sorts of complexities.
Or, like the above margin loan example, some wild strawman horror story that doesn’t reflect reality.
Let’s take a non-clickbait-y look at Family Loans and how it may fit in your financial situation whether you are super rich or just normal ‘well enough off’.