Most people think of borrowing money as something you do when you do not have enough. For the ultra-wealthy, borrowing is something you do precisely because you do have assets, and because selling them would cost you significantly more than the interest on a loan.
Real estate is one of the most effective assets for this kind of financing. The mechanics are different from borrowing against stocks, the loan structures are different, and the tax considerations are specific to property ownership in ways that make real estate a cornerstone of serious wealth strategy.
This article explains how it works, why property occupies such an important role in billionaire financing, and what the underlying logic looks like. If you have not read our overview of the broader buy, borrow, die framework, that article covers the general principle. This one goes deeper into the real estate layer specifically.
Why real estate as collateral
When the ultra-wealthy borrow against assets, they are typically using one of several asset categories as collateral: publicly traded securities, private business equity, art and collectibles, or real estate. Each works differently.
Mortgages and Home Equity Lines of Credit on appreciated real estate are a common tool for ultra-high-net-worth individuals who frequently own multiple high-value properties that have appreciated significantly. Loan-to-value ratios for real estate are generally around 70 to 80 percent of the property’s appraised value, minus any outstanding mortgage. Vdr-service
Real estate has specific characteristics that make it particularly effective as a borrowing base.
It appreciates over time but does not generate a taxable event simply by increasing in value. The gain is unrealised until a sale occurs. That gap between economic wealth (the appreciated property value) and taxable income (which only appears on a sale) is where the borrowing strategy lives.
It also generates ongoing cash flow in the form of rental income, which can service the interest on loans secured against the property. The property works as both the collateral and the income source that pays the carrying cost of the debt.
And unlike stocks, real estate comes with a specific tax benefit during the ownership period that stocks do not: depreciation.
Depreciation: the paper loss that does not exist for stocks
Although real estate typically appreciates in market value, the IRS allows property owners to deduct the wear and tear of their investment properties over time. Residential rental properties depreciate over 27.5 years. Commercial properties depreciate over 39 years. Each year, property owners can deduct a portion of the building’s value, helping to offset taxable rental income. TimO
This is one of the most powerful features of investment property ownership. A property that is increasing in market value simultaneously generates a paper loss on paper through depreciation. That loss offsets the rental income the property is generating, reducing the taxable income from the property significantly.
For ultra-wealthy property owners with large portfolios, the accumulated depreciation deductions can be substantial. A portfolio of commercial properties worth hundreds of millions of dollars will generate tens of millions in annual depreciation deductions, sheltering much of the income those properties produce.
Cost segregation studies can accelerate this further by reclassifying parts of a building into shorter depreciation periods, front-loading the deductions into the earlier years of ownership. For large acquisitions, the first-year tax savings from cost segregation can be significant.
Cash-out refinancing: accessing equity without a sale
The central mechanism for extracting liquidity from appreciated real estate without selling is the cash-out refinance.
When you do a cash-out refinance, you are not earning income. You are incurring a debt obligation that you must repay with interest. There is no net accession to wealth at the moment you receive the funds, and the tax authorities do not tax accessions to debt. Bundesfinanzministerium
The practical effect: you can access the full appreciated value of a rental property in cash, completely tax-free, while continuing to defer the embedded gain indefinitely.
The cycle this enables is straightforward once you understand the logic. Buy a property. As it appreciates, the equity builds. Rather than selling and triggering capital gains tax on that appreciation, take out a new mortgage (or increase an existing one) to extract a portion of that equity as cash. The cash is a loan, not income. No tax event occurs.
Real estate investors can refinance and use 1031 exchanges during their lifetimes, then pass the entire portfolio to heirs with a stepped-up basis. TimO
Long-hold investors sometimes build a deliberate serial refinancing strategy: acquire property, depreciate it over 27.5 years, and as the property appreciates pull equity via cash-out refinances, tax-free each time. Deploy proceeds into additional properties, repeating the cycle. Hold until death. Heirs receive a basis step-up to fair market value, permanently eliminating all accumulated recapture and capital gains. Bundesfinanzministerium
How private banking makes this accessible to the ultra-wealthy
The retail version of borrowing against property is a home equity loan or HELOC, available to most homeowners. The ultra-wealthy version operates differently.
Private banks and wealth management divisions offer bespoke credit facilities to high-net-worth clients that use their entire asset base, including real estate, as collateral. These are not standard mortgage products. They are customised credit lines structured around the client’s net worth rather than their income.
Private banks may offer broad bespoke lines of credit collateralised by a mix of assets including securities, real estate, and other valuables, providing a single flexible credit facility tailored to the client’s overall net worth. Vdr-service
The interest rates available to ultra-high-net-worth borrowers are typically significantly better than retail mortgage rates. The lender knows the collateral is substantial, diversified, and appreciating. The risk of default is low. The terms reflect that.
This means the wealthy can borrow at rates that make carrying the debt economically rational even before considering the tax advantages. If a property portfolio is appreciating at 6 to 8 percent annually and the borrowing rate is 4 to 5 percent, the maths favours borrowing rather than selling even without the tax component. The tax advantage is additional.
The risks the strategy carries
Borrowing against appreciating assets may provide access to cash without triggering taxable gains, but it also creates debt that must be repaid. Large personal loans secured by real estate can become difficult to maintain if values fall or interest rates rise. If the underlying assets lose value, a lender may require additional collateral or repayment. Finanztip
Real estate is generally less volatile than equities, which reduces the margin-call risk that makes stock-backed loans more dangerous. But commercial real estate in particular can experience significant value corrections, and rising interest rates increase the carrying cost of the debt.
The strategy also depends heavily on estate planning rules that allow heirs to receive a step-up in cost basis. Changes to tax laws could limit or eliminate this benefit in the future.
There is also the depreciation recapture issue. All the depreciation deductions taken during ownership do not disappear on death under current rules in some jurisdictions, but if the property is ever sold during the owner’s lifetime, the IRS requires depreciation recapture, taxing the previously deducted amount at a rate of up to 25 percent. The 1031 exchange mechanism defers this by rolling the proceeds into a new property, but it does not eliminate the liability permanently unless the property is held until death.
What makes real estate different from other assets in this context
The comparison with stock-backed borrowing is instructive.
Securities-backed lines of credit are faster to arrange and more liquid, but the collateral is more volatile and loan-to-value ratios are more conservative to account for market swings. Real estate moves more slowly, requires appraisals and more complex underwriting, but the LTV ratios are often higher and the interest deductibility on investment properties is more straightforward.
Uniquely to real estate: the depreciation benefit runs alongside the borrowing strategy during the ownership period. Stocks do not generate a depreciation deduction. Real estate does, creating an ongoing tax offset that has no equivalent in securities-based borrowing.
The combination of depreciation-sheltered rental income, tax-free cash-out refinancing proceeds, and the eventual step-up in basis at death is what makes real estate such a central asset in ultra-wealthy portfolios. It is not just that property goes up in value. It is that the entire ownership and financing structure is designed to generate economic benefit while minimising taxable events at every stage.
A note on jurisdiction
The mechanics described in this article primarily reflect the US tax framework, where rules around depreciation, cash-out refinancing, the 1031 exchange, and the step-up in basis are well-established. Germany and Ireland operate under different rules. German property depreciation (AfA), the German approach to capital gains on real estate, Irish CGT on investment property, and the treatment of cross-border real estate holdings all differ materially from the US framework. If you own property in Germany or Ireland, or hold property through a company structure, the specific tax treatment of borrowing, depreciation, and eventual disposal needs to be reviewed in the context of those jurisdictions.
For a broader overview of how high-net-worth individuals structure their finances to preserve wealth and reduce tax, our guide to how billionaires reduce their income tax covers the wider strategic picture.
Frequently asked questions
How much can you borrow against a property?
Loan-to-value ratios for real estate typically run at 70 to 80 percent of the appraised property value, minus any existing mortgage. For ultra-high-net-worth borrowers using private bank credit facilities, the terms are bespoke and often more flexible than retail products.
Is borrowing against property taxable income?
No. Borrowed money is a liability, not income. Revenue does not tax loan proceeds regardless of the size of the loan or the value of the collateral. The gain on the property remains unrealised and untaxed until a sale occurs.
What happens if the property falls in value?
If the property value falls significantly, the lender may require additional collateral or partial repayment to restore the loan-to-value ratio. This is the primary risk of the strategy and is why conservative LTV ratios matter.
Does this strategy work in Germany and Ireland?
The broad principle of borrowing against appreciated assets applies in both jurisdictions. However, the specific tax treatment of property depreciation, interest deductibility, and what happens at death differs materially from the US framework described in this article. Always take advice from a qualified professional in your jurisdiction before making financing decisions.
The bottom line
Real estate financing for the ultra-wealthy is not simply about buying property. It is about structuring ownership and financing so that the appreciation of the asset is never realised as taxable income during the owner’s lifetime, the ongoing income is sheltered by depreciation deductions, and the liquidity the owner needs is extracted through borrowing rather than selling.
The strategy is legal, well-established, and documented. It requires the right asset values, the right lending relationships, and the right planning to implement effectively.
Your first consultation with Richmond Blackwood is free. If you want to understand how property financing, borrowing against assets, or wealth structuring applies to your specific situation in Germany or Ireland, get in touch.
Disclaimer
This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax outcomes depend on your facts, residency position, entity types, and the jurisdictions involved. Always take advice from qualified professionals before restructuring, signing transaction documents, or completing a disposal.
