This mortgage expert just revealed the trick to how rich people buy houses. Does he have a point, or is the trick nothing more than hype?
TikTok user Paul Leara (@homeloanhero_) calls himself the mortgage hero. In a video posted on Dec. 6, he says he recently learned “how the wealthy actually buy houses,” and he wants to explain the process to the average TikToker.
“I thought I knew money until I learned this,” Leara says to start the video. “The rich and the wealthy? They don’t get a traditional mortgage like you and I do. It’s baffling to me why it took me so long to figure this out.”
How do ‘rich people’ buy houses?
Leara explains, “What people with assets and money, what they do is they don’t get a mortgage. They don’t take out their money from their portfolio [or] from their bank account and buy a house with cash. They take a lien—like a loan—against their money. And what it does is it keeps building—it keeps compounding—while they pay off their house.”
And the result? “They’re basically making money while they pay off their house,” Leara says. “So they’re basically making money to own their house. And not everyone can do this. You don’t have $1 million, $2 million sitting in a portfolio? You can’t do this.”
Leara says the average homeowner can overcome this obstacle by taking out a home equity line of credit (HELOC). “If you think I’m lying, please prove me wrong,” he says.”
Is this how the wealthy buy homes?
In a 2022 article titled “How the Rich Use the Buy, Borrow Die Strategy to Avoid Large Tax Bills,” author David Rae of DRM Wealth Management confirms Leara’s claim. Rae writes that the “uber-wealthy” are able to “fund their lifestyles while minimizing their taxes” by using loans taken out against the value of their stock portfolios.
The article notes that the benefits of the Securities Backed Line of Credit (SBLOC) are favorable payment schedules, easy approval, and, importantly, low interest rates. “These loans can allow tech employees to avoid selling when stocks are down or up dramatically,” the article states. It also points out that “you must have substantial assets to borrow against” in order to take advantage of a loan like this.
Leara is correct that HELOCs and SBLOCs are related; however, there is a bit of fine print to add to that statement. For instance, it’s important to realize that you’re using your investments as the basis for your SBLOC, but your actual property is the equity for your HELOC. That means there are serious consequences if you can’t keep up with the payments, like losing your home.
@homeloanhero_ You think you know money? Same—until I learned this about mortgages. It changed how I look at buying a home forever. 💡 #MoneyTips #HomeBuying101 #MountainMortgage #creatorsearchinsights ♬ original sound – Paul Leara – mortgage hero
Viewers weigh in
The video has amassed more than 1.6 million views as of this writing. In the comments section, viewers offered their opinions on Leara’s advice.
One viewer said, “This is kind of a confusing way to explain a HELOC.”
A second viewer said, “Yep! I used a home equity line of credit to purchase a second home! Also, I am not rushing to pay off the primary original mortgage, as my cash is growing faster than my interest rate costs.”
Another viewer simply said, “Man, I don’t wanna be rich. I just wanna be free.”
The Daily Dot reached out to Leara via TikTok comment and direct message for comment.
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