Hacker News Reader

Comment by hkmurakami | Hacker News Reader

Correct me if I am wrong, but I was under the impression that you can get a mortgage using a LLC, but you do need to go to a private bank and arrange a custom deal for it.

(I seem to recall Zuckerberg doing this for his Palo Alto home with a variable interest rate loan that started with 2% or so)

View on HN

For clients of that size it's most likely a variant of a pledged asset line http://www.schwab.com/public/schwab/banking_lending/pledged_... at some subsidized rate in order to win their wealth management and private banking business. I mean, if you have significant holdings and if you're okay with borrowing on a floating rate, and if you think you can survive a margin call, Interactive Brokers will lend to you at 0.86% if you park $1m+ of securities with them. https://www.interactivebrokers.com/en/?f=interest You'd be hard-pressed to find a mortgage on similar terms.

It's a mortgage in layman's terms as there's some principal and interest, but in reality the financial institution won't send an appraiser, there's no mortgage deed issued to the bank, the balance and interest payments are not sliced and diced into securities to be resold.

With that said, mortgages for LLCs are the preferred financing instruments for real estate investors, so they're actually a significant line of business for some banks and yes, they're very doable.

There are a lot of banks that will make mortgage loans to an LLC. It isn't common in general though because you would end up paying a higher interest rate (~+2%) since your newly formed LLC doesn't have an established credit record and if you were using the home as your residence you wouldn't be able to deduct the mortgage interest from your taxes. Those to costs would far outweigh any privacy benefit an LLC would afford to the average person.

So, even Mark Zuckerberg can't afford a house in the bay area. /sarcasm

Interesting, how come he had to get a loan at all? Is all of his wealth tied up in investments and Facebook stock?

Or is it that the loan is such a low interest rate that it makes more financial sense to keep making money with his cash through investments, say at ~10% return, to offset the loan interest?

Securing low interest loans to buy assets that appreciate in value with relatively low out of pocket money is basically investing on margin. The ROI on just the downpayment portion is many times more than if you'd lock up all the money by paying the entire amount. A game that only the rich can play.

I doubt it's all tied up, as his last recorded sale (in 2013) http://www.secform4.com/insider-trading/1548760.htm must have left him with quite a bit of cash. So motives are not perfectly clear.

On a macro level, the government penalizes selling of assets at 23.8% (current long-term capital gains + ACA surcharge) and on the other hand encourages borrowing by keeping the rates low and allowing the interest portion to be deducted as an investment expense, so what's a rational person to do?

You borrow against your stock, of course, so you don't have to realise the capital gain yet get access to the cash. If you're worried about downside protection, you can always buy a put option for the stock you pledged at its current value.

Many publicly traded companies prohibit their employees from buying puts or selling calls on their stock, as it misaligns incentives, similarly to how shorting the stock causes you to benefit from a decline in price.

Reply on news.ycombinator.com