Rich Use Home as ATM Too
Ronald Burkle, a grocery store billionaire and Bill Clinton supporter, has apparently borrowed $56 million against his two homes, including $9 million in the past year, according to the Journal.
The craziest part of the scenario may be the rate Mr. Burkle pays on this super-jumbo loan -- a reported 3.25 percent, less than most people can get on a traditional 30-year.
Pretty sure you or I can't get that rate just by walking into the local bank branch.
At the same time, hopefully these billionaires are not using the money to buy groceries or a new flat-screen, but investing it.
"U.S. Trust, which is the private wealth-management arm of Bank of America Corp., has seen a 33 percent rise this year in home loans, compared to last year, with the average size over $3 million. Jan Reuter of U.S. Trust says clients are using the cash to buy stocks and other assets. ... The federal tax code doesn't smile upon giant mortgages. It allows mortgage interest to be deducted only on home borrowings of about $1 million or less."
While we don't see this becoming standard practice for the well-to-do, it's never a smart investing strategy to have all of their money tied up in one asset, whether it's a house, a car or an IRA with Bernie Madoff and friends.