The Best One Yet - 🏠 What Beyoncé & Jay Z taught us about a Mortgage

Starting point is 00:00:00 Yet is Nick and Jack here from the T-Boy Studio for something special that we've never done before. As you know, we're on vacation for the next two weeks. We'll be back Monday, August 31st. That's right. But in the meantime, we've been cooking up a special new series, ultimately meant for YouTube. A new YouTube video series about the number one thing you DM us about. Money and investing. So, Jack and I created a new concept that reveals the money secrets behind the world's biggest stars. And it's called The Best Ch-Chiching yet. Or Ch-Ching for short. Can you push the button, please? Basically, it's like MTV Cribs meets Jim Kramer's Mad Money. That's how you can think of it.

Starting point is 00:00:34 We haven't launched this new show yet. We haven't even finalized the first episodes. So no polish, no graphics yet. This is the raw studio cut. And we wanted to share this pilot with you because we care most about your opinion. And we want your thoughts because we respect your thoughts. You're with us every day. So in spirit of the able, always be launching everything.

Starting point is 00:00:51 This week, we will drop our first episodes right here on this feed before hard launching the new series on YouTube. And we'd love to hear what you think about this in the comment. Let them rip. Jack, now that we sprinkle on the context to this sneak peek, it's less than 10 minutes long, so let's hit it. Here's the world premiere of the best your chain yet. Beyonce and Jay-Z are worth a combined $4 billion and just bought the most expensive home in California history.

Starting point is 00:01:16 But why do they have a mortgage? Oh, not just a mortgage, a $53 million 30-year mortgage. Oh, wait, they actually took out a second mortgage on that same home, bringing the total mortgage debt to $110. million dollars. Holy Halo. Did America's hip-hop royalty fall off the throne? What's going on here? No, they haven't. In fact, we'll tell you the secret reason why Beyonce and Jay-Z took on so much debt and why you might want it too. And it's all hidden in their record setting $88 million bell air home. Four pools, a 15-car garage, 30,000 square feet with a kitchen big enough for their own no boom.

Starting point is 00:01:51 Oh yeah. Their epic H to the his house features one financial trick shot that you can actually use. And by the end of this video, you'll know the difference between. good debt and bad debt and how mortgage debt can help you get rich. Because Jay-Z made a Yankee hat more famous than a Yankee hand, but he won't brush the debt off his shoulder. Yeties, this is the best chiching yet, where we reveal the money secrets of the world's most famous stars. And today we'll tell you what Beyonce and Jay-Z taught us about getting a mortgage.

Starting point is 00:02:21 Beyonce and Jay-Z are the first power couple of hip-hop, the Cleopatra and Julius Caesar of songs. And if Jay-Z really has 99 problems, remembering which key is for which house is about seven of them. Yeah, because he and Beyonce have a Manhattan penhouse, a Hampton's Pondhouse, a Spanish broke church-turned residence in New Orleans, and a 58-acre plot just outside London. Plus enough California real estate to split off and create a 51st state. Totally, Jack.

Starting point is 00:02:46 But that $88 million they dropped in 2017 on their Bell Air compound in lovely Los Angeles, it's 200 times pricier than the average house in America. Yet that was apparently their starter home, because their bigger splurge was $200 million for a Malibu pad, a short drive up the coast. Not too shabby. Oh, and that mansion, it set the record as most expensive home purchase in Cali history.

Starting point is 00:03:08 But let's open the door and invite ourselves into that Bel Air home. This McLean architect's design compound that took four years to complete because it includes a basketball court, bulletproof glass, and a spiral staircase card from a single piece of wood. Jack, you just went full Ryan Sirhant on that description, and I love it. Beyonce could have paid for that entire home with just one month of her cowboy Carter tour, but she didn't. Nope.

Starting point is 00:03:33 Here's why she and Jay put only 40% down, asking Goldman Sachs for a 30-year mortgage to pay for the rest. And why last year, they took out a second mortgage on that same home from Morgan Stanley. Now, we basically did the same things for our own homes, but with a few fewer zeros at the end. And that's why there's a money takeaway in it for you two. That is, if you like it,

Starting point is 00:03:55 then you better put a 7-1 variable rate mortgage on us. Because, yeah, Beyonce and JZ, they got a mortgage on that dream. Casa. Even though a mortgage application includes a colonoscopy-like financial probing to assure your credit worthiness. And not even a ranking on the Forbes list bypasses that. Hey, Jay, did you send me those bank statements? Speaking of Forbes, Nick, Jay-Z and Beyonce are worth $4 billion, but they still took out a combined $110 million for two separate 30-year mortgages for this one single property.

Starting point is 00:04:25 All right, Jack, pause the pod. Can you please whip out the white boar to tell us what they're paying each month because we're going to need some mortgage math to get information here. I'm actually whipping out the spreadsheet because the combined mortgages have an average interest of 4.1%, meaning a monthly interest payment of $379,000. It has a lot. Every 30 days. Oh yeah, it's a lot. That is $12,000 per day in interest. Oh, yeah. And that's just interest. It's interest. It doesn't build equity. It's just the interest charge. It doesn't improve the value of the home. It's simply a lost and 4.1% interest on $110 million of loans, $4.5 million that disappears from their bank account every single year.

Starting point is 00:05:09 And yet, Jay-Z and Beyonce pay it voluntarily, even though they got F-U money. For those wondering, the estimated property tax on this $88 million home? What is it, Jack? A hundred grand a month. Wow, Uncle Sam, wow. So with interest costs like that, why is the first couple of cool cuffing it with a mortgage? Because the best way to think about mortgages is from the 2000. 2005, Jay-Z Lyric, I'm not a businessman. I'm a business man. And businesses, they don't tie

Starting point is 00:05:37 of cash in concrete buildings if they got better places to put their wallets to work. The initial $53 million that Jay and Bay didn't put towards their house by borrowing cash instead? What do they do, Jack? They probably invested that cash into the stock market, where the gains have easily covered the interest rate that they pay on that mortgage. Like, let's assume Beyonce put that 53 mil into the S&P 500. The S-P-Y-E-T-F, that's an easy way to do it. it gives you a piece of the 500 biggest companies in America that are publicly traded. And that ETF is up 12.8% on average since 2017. Almost 15% if you include the dividends you received.

Starting point is 00:06:11 Investees, that is the brilliance of relatively low-interest debt. It lets you invest your cash in the stock market. Nick, let's do some investing to mortgage math. Hit me, Jack. They gained almost 15% in the stock market while paying 4.1% interest on their mortgage. That means they walked away with a 10.9% net stock market gain. Not too shabby. And the Jayonne says get to do whatever they want with that bell air home, like reportedly turning the door into something that was covered in lizard skin. True story.

Starting point is 00:06:40 Now going forward, there's no guarantee their stocks will grow like they have in the past. Fair point. But the S&P 500's historical average of 10% growth per year easily beats the 4.1% interest on their mortgage, netting them out at an expected 5.9% per year. Yeties, that is the return on their investment minus the interest costs on the mortgage. But Nick, you know Jay and Bay aren't everyday investors. No, they're not jacked. They definitely had access to invest in some sexy startups, too, with riskier venture investments that can outerun the 10 to 15% the stock market offers.

Starting point is 00:07:11 Remember title, the music streamer? Jay-Z was an investor and probably took a huge gain when he sold that music streamer to Square. Or how about Uber? Jay-Z invested early before they IPOed. Same with Oatley, the oatmeal company. But as long as the money they didn't put down in the house, earned a larger percentage than the 4% interest that they pay for the loan, than the mortgage is worth it.

Starting point is 00:07:34 That's what you got to do. You got to compare your investment opportunity to the interest cost. And if you like it, you should put a ring on that mortgage deal. But there's one more detail in the fine print that Jayzey's accountants definitely want you to know. This is good. Interest on mortgages is tax deductible. So that $4.5 million that they pay an interest on that house every year, it actually reduces how much taxes they have to pay.

Starting point is 00:07:57 Nick, if mortgage makes, math is a song, then the following formula is the course. And here it is. Your effective interest rate is equal to your nominal interest rate times one minus the tax rate. Now, there's a limit to how much interest you can deduct that Jay and Bay absolutely exceeded. Yeah, they did. But for regular people, if you itemize, the effective interest rate on your mortgage is probably about one-third lower than the number your banker tells you. So, Jack, basically what you're saying is that because once you account for the tax savings of paying interest, your total interest paid, really about a third less. Like, your 6% interest rate effectively becomes 4% because

Starting point is 00:08:34 the tax savings on interest. Exactly. So don't think of the mortgage as simply debt. Think of it like a business. Comma, man. But besties, just as no album success is guaranteed, neither is investing. Like, if Jay-Z and Beyonce had bought that house in 2007, not 2017, like right before the stock market crash, numbers wouldn't look very good. They look bad. They would have been better off paying for the house in all cash because the stock market fell 50% in two years. And if you do buy a house in all cash instead of using a mortgage, you may feel a peace of mind knowing that you don't have any debt to deal with. But since the stock market usually goes up, any mortgage with an interest rate under 6% is music to our ears. You can bet on beating that with stock market gains like a business.

Starting point is 00:09:20 Man. So Jack, what's the takeaway for all our honeys making money? Beyonce and Jay-Z taught us that mortgage debt can actually be a financial trick shot. Now you're going to like the honey's making money more than that, Jack. Yeah, he's like, we know what you've entire your whole life. Debt is bad. But sometimes debt can be good because it lets you invest your money in bigger and better opportunities. And mortgage interest, it's tax deductible.

Starting point is 00:09:44 The government is literally subsidizing your mortgage. They are encouraging it. So how do you get that interest beating return? Well, Wall Street's not a Hallmark movie. There's no guaranteed happy endings here. But simply investing in the S&P 5th, has proven long term to be the most reliable interest rate beating money move in the markets. It's what we do personally. This is Jack. My house was bought with an 80% mortgage so I could

Starting point is 00:10:07 maximize my money in the stock market. Or besties, you could pick your own stocks, invest in mutual funds, or exchange traded funds, or even look at bonds with a clear interest rate return. This is Nick, and the S&P 500 is one of my bigger investments. But I also host a daily news show about the markets with Jack, so I own a bunch of individual stocks, too. No matter what, our host Jay-Z and Beyonce have taught us why even the wealthiest are crazy in love with a mortgage. But, besties, if your finances are a song, then a mortgage is only one stance in it. You also got to think about your stock portfolio. Your tax strategy, Jack, what about a pre-knup? Nick, that's coming in future episodes. So like, follow, and slam that subscribe button like it's a

Starting point is 00:10:44 cash register. Oh, Jack, what a show. What a ride. That felt good. Cha-ching! It was so much fun to research, to write, to craft. By the way, this was all Nick and Jack. No AI went into the creation of this episode. Yeah, true. You tossed this transcript and double check us on that.

Starting point is 00:11:05 And we've got three more pilot episodes coming this week at you. Now Yetis, you are the review committee. We want to know what you think about everything you just heard. We're not looking for like a 7, 8.8 or 9.2 like at the Olympics. We want to know like qualitatively. Yeah, like the ahas, the icks, the topics you'd crave for future episodes. Drop them all in the comments. We want to read them all.

Starting point is 00:11:25 And remember, this show takes. celebrity money moves and shows how you can use them. So thank you, Yenis, for being part of the team and checking out the first draft. This is Jack, and my first CD I ever bought was Jay-Z's black album. And just about every CD I burned in high school had Beyonce's halo on it. Now you owe Beyonce money, Jack. Now you owe Beyonce money.

The Best One Yet - 🏠 What Beyoncé & Jay Z taught us about a Mortgage

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