Buy Borrow and Die: How the Wealthy Keep Getting Rich

Introduction to Buy Borrow and Die

Ever wondered how the rich seem to keep getting richer while others struggle? It often comes down to smart financial strategies that leverage assets, debt, and tax laws in ways most people don’t fully understand. One of the best examples of this is the “Buy, Borrow, and Die” strategy—a simple yet powerful concept that explains how the wealthy use the American tax system to their advantage.

The phrase “Buy Borrow and Die” was coined over 20 years ago by Professor Ed McCaffrey as a way to summarize how rich families maintain and grow their wealth. It’s a three-step process: they buy assets, borrow against those assets instead of selling them, and finally, when they die, their heirs inherit those assets with huge tax benefits.

In this post, we’ll break down each step in detail, explore real-world examples, and discuss the pros and cons of this approach. Whether you’re a new investor or just curious about wealth-building tactics, this is a must-know strategy.

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Step 1: Buy – Acquiring Valuable Assets

Why Buying Assets Matters

The first step is straightforward: buy assets that will appreciate over time. Stocks and real estate are the two most common asset types used in this strategy. The rich focus on acquiring assets that not only hold their value but grow steadily over the years.

Stocks as an Asset

For example, consider a stock portfolio. At the time of this writing, I have around $240,000 invested in stocks through platforms like M1 Finance. This portfolio can be used as collateral—meaning I can borrow money against those stocks without selling them.

Real Estate: The Favorite Asset

Real estate is often the go-to investment for wealthy families, especially commercial properties like apartment buildings or office spaces. These assets tend to keep pace with inflation, generate steady cash flow, and allow the owner to borrow against their value.

From my experience in commercial real estate, I’ve seen many multimillionaires use this strategy. They own buildings worth millions but instead of selling, they refinance and take out loans against these properties. This process helps them avoid capital gains taxes and continue generating income.

Benefits of Real Estate for Buy Borrow and Die

• Appreciation: Real estate generally increases in value over time.
• Cash Flow: Rental income provides steady earnings.
• Depreciation: This can reduce taxable income.
• Collateral: Banks prefer lending against real estate, making borrowing easier.

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Step 2: Borrow – Using Assets as Leverage

Borrowing Instead of Selling

The second step is borrowing against these assets instead of selling them. Why? Because selling triggers a taxable event—you owe capital gains taxes on the profit. Borrowing lets you unlock cash without paying taxes immediately.

Borrowing Against Stocks

Let’s say you need cash but don’t want to sell your stocks. Platforms like M1 Finance offer margin loans where you can borrow up to 35% of your portfolio’s value at low interest rates (around 2%). That’s practically free money when you compare it to inflation.

Borrowing Against Real Estate

Similarly, if you own a building valued at $1 million, you could refinance and take out an 80% loan-to-value mortgage. That means you get $800,000 in cash without selling the property or paying capital gains taxes.

The Borrowing Boom

According to Morgan Stanley, borrowing against stock portfolios has more than doubled since 2016. This shows how many wealthy individuals use this tactic to get liquidity without losing their investments.

Why Borrowing Works

• Avoid immediate taxes by not selling.
• Keep assets growing while living off borrowed money.
• Low interest rates make borrowing attractive.
• Tax-free cash if you borrow rather than sell.

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Step 3: Die – Passing on Wealth Tax-Efficiently

The Final Step: Estate Transfer

The third step happens when the asset owner dies. At this point, the estate, including all assets and debts, passes to heirs or beneficiaries.

Step-Up in Basis Explained

Here’s the magic: heirs receive the assets with a step-up in cost basis. This means the value of the asset is “reset” to its market value at the time of death, eliminating capital gains taxes on any appreciation during the owner’s lifetime.

For example, if a building originally bought for $1 million is worth $2.5 million at death, heirs get it with a $2.5 million basis. If they sell immediately, they pay no capital gains tax.

1031 Exchange: Real Estate Tax Strategy

Real estate investors often use a 1031 exchange to defer capital gains by swapping one property for another. Combined with the “Buy Borrow and Die” strategy, many wealthy developers repeat this cycle, avoiding taxes until death.

Stocks and ETFs Example

If you bought an ETF at $10 per share and it’s worth $1,000 at death, your heirs inherit it at $1,000 cost basis. They can sell immediately without capital gains tax, pay off any loans, and keep the rest.

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Why Isn’t Everyone Doing This?

It Sounds Too Good to Be True

If this strategy is so effective, why doesn’t everyone do it? The truth is, it’s not foolproof or risk-free.

Loan-to-Value Limits and Margin Calls

Loans have limits. For example, stock borrowing usually maxes out at 35% of portfolio value. If your stocks drop sharply, you could face a margin call requiring you to add cash or sell assets.

Risk of Over-Leverage

Using borrowed money to live or invest can be a double-edged sword. Over-leveraging can lead to foreclosure, bankruptcy, or losing your entire portfolio, especially if the market turns sour.

The 2008 Financial Crisis Lesson

During the 2008 crash, many real estate developers who were heavily leveraged lost everything when banks called in loans and property values plummeted.

Estate and Wealth Taxes

There’s ongoing debate about estate taxes and wealth taxes in Congress, which could affect future strategies. Some proposals seek to tax wealth more aggressively, potentially limiting the benefits of Buy Borrow and Die.

Not Just for the Ultra-Wealthy

While this strategy is mostly used by the wealthy, smaller investors can implement parts of it too—but it requires careful planning and risk management.

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Key Tips for Using Buy Borrow and Die Wisely

Use Leverage Responsibly

Borrow only what you can comfortably repay and avoid overextending yourself.

Invest in Quality Assets

Focus on assets with stable cash flow and long-term appreciation potential.

Plan for the Long Term

This strategy is about building and preserving wealth over decades.

Consult Professionals

Work with financial advisors, tax professionals, and estate attorneys to ensure your plan is solid.

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Final Thoughts: Is Buy Borrow and Die Right for You?

The Buy Borrow and Die strategy is a powerful tool for wealth building and tax efficiency, but it’s not a magic bullet. It requires discipline, smart investing, and risk management.

For those willing to learn and apply it wisely, this approach can help you keep more of your money working for you, pass on wealth tax-efficiently, and avoid costly capital gains taxes.

If you’re interested in building wealth through real estate or stocks, consider how borrowing against your assets can free up cash flow without triggering taxes. Just remember to stay cautious and avoid the pitfalls of excessive debt.

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FAQ: Buy Borrow and Die Explained

What is Buy Borrow and Die?

It’s a wealth strategy where you buy assets, borrow against them instead of selling, and pass the assets to heirs with tax advantages when you die.

Why do the rich use this strategy?

It helps them avoid capital gains taxes, keep assets growing, and access cash without selling.

Can I borrow against stocks?

Yes, many financial platforms allow borrowing against stocks at low interest rates.

What are the risks?

Market volatility can trigger margin calls, and excessive borrowing can lead to financial trouble.

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By understanding and applying the Buy Borrow and Die strategy, you can take a page from the wealthy playbook and make your money work smarter, not harder. Just be sure to handle leverage carefully and plan for the future!