Are you curious about how billionaires like Jeff Bezos afford those fancy 6-figure watches, luxurious vacations, and $100-million super yachts? 

Well, let me tell you, it’s not through any shady business or secret tax loopholes that only the ultra-rich can access. In fact, it’s a completely legal strategy that you and I can use to our advantage too! Introducing the Tax-Free Buy, Borrow, Die Strategy! Just to be consistent and take one baby step at a time. The important thing is that you keep moving forward! Remember Overnight Success Stories — Are Years in the Making. 

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The Tax-Free Buy, Borrow, Die Strategy (TBBD strategy)

They all use the Tax-Free Buy, Borrow, Die Strategy. The Buy part of this strategy consists of buying stocks. The Uber Wealthy are “wealthy” on paper. It’s not like they have 10 million $100 bills under their mattresses. Usually their paper wealth consists of stock holdings. The most important part of the Tax-Free Buy, Borrow, Die Strategy  is the Borrow part and it revolves around P.A.L. 

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The P.A.L.

P.A.L. stands for Pledged Asset Line of Credit. It is a line of credit that has an ultra low interest rate. The “security” used to secure this line of credit are those stocks we mentioned earlier.

As long as the value of the stocks goes up, Jeff Bezos can constantly refinance the PAL. He can then use the PAL to buy Mega-Yachts, Italian Villas, SNP500 companies, or private Caribbean Islands.

Remember, the PAL loan is not secured with the assets purchased from using the credit line. The PAL is only secured by the pledged Stock. If the stock loses value, The Billionaire can always add more stock to keep the PAL fully secured.

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An Example of TBBD Strategy at Work

Larry Ellison (the cofounder of software giant Oracle, who owns about 35% of Oracle stock to this day) has a $10 billion line of credit that he paid zero taxes on and can use the money however he wants. 

When Larry dies, he can write in the “pour over” will that’s part of his Trust to transfer the remaining wealth to his children through a stepped-up basis and avoid the inheritance tax. 

This process of buy, borrow, die can be repeated generation after generation. If Oracle stock falls to zero, the $10 Billion PAL goes away, but the lenders can only use the now worthless pledged Oracle stock as the sole recourse to recover their losses. Billionaires don’t sign personal guarantees like the rest of us. 

Other Billionaires like Bill Gates, Amancio Ortega , Mark Zuckerberg, & Jack Ma, all have massive PAL personal lines of credit and of course Elon Musks’ $15 Billion – tax free – non-recourse PAL personal credit line.

Before we get into what happens when a PAL tanks, do hit that subscribe button to show the creative team that slaved away on this video your support. We love you for it! Now back to …

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When a PAL system Fails 

Let’s dig up WeWork. That office rental company masquerading as a high-tech company? Well, WeWork’s CEO Adam Neumann took out a $Half-Billion ($500 Million) PAL personal credit line using some of his WeWork pre-public Stock. 

WeWork was exposed for the fraud they were and the IPO kept getting delay until it never was.

But WeWorks primary investor SoftBank had to eat that 500 Million $ loss – Neumann on the other hand took the 500 mill and just …never paid it back and he still owns whatever assets he bought with that 500 Million $ in the Free and Clear.

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How To Spend – The 3 Iron Clad Rules!!

When billionaire Masayoshi Son goes to buy a 500 million $dollar yacht, does he have to sell shares of stock or does he have that cash in a bank account on hand?

Yes, you know the answer – Mr.Billionaire takes out a loan! You’re starting to think like the wealthy already!

Rule #1: 

The first rule is to always preserve capital (money). Especially money that can be invested to earn more money. 

Rule #2: 

The second rule is always use leverage (other people’s money) when you can. 

Rule #3: 

The third rule is to look for the tax advantages in every transaction.

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An Exercise 

So if you have a billion dollars that is invested and earning a good rate of return, the last thing you want to do is convert it to cash to buy a yacht that will depreciate in value.

So let’s assume that billion is earning a modest 7% return or a cool $70 million per year. As a major customer of a bank, you’ll be eligible for a preferential interest rate – which is usually pretty close to the Fed fund rate (currently 2.5%). 

So instead of liquidating your stock portfolio and paying cash, you finance the yacht (aka. take out a loan) at less than 3% interest and your investments keep generating cash to pay off that loan, which would be around $3 million per month, or $36 million a year.

The next strategy would be to structure the purchase to maximize the tax advantage. Many high net worth individuals list the yacht as a second home as it generally meets the tax requirements of having a bathroom, a kitchen, and sleeping quarters. That makes all or part of the $360 million in interest payments on that loan tax deductible, which would recover about $100 million of your money. 

Meanwhile you still have your initial stake of one billion happily earning interest.

Thanks for coming by and reading till the end!

Do drop us a comment below and we’ll see you soon.

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