🏠 What Beyoncé & Jay Z taught us about a Mortgage

0:00Yeah, it 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 Cha-Ching Yet. Or Cha-Ching for short. Can you push the button, please? Basically, it's like MTV Cribs meets Jim Cramer's Mad Money.

0:33That's how you can think of it. 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. 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 comments. 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.

1:06Here's the world premiere of the best cha-ching yet. Beyonce and Jay-Z are worth a combined$4 billion and just bought the most expensive home in California history. 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. Oh, boy. Bringing the total mortgage debt to$110 million. 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 Bel Air home.

1:47Four pools, a 15-car garage, 30 ,000 square feet, with a kitchen big enough for their own no-boom. 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. Yetis, this is the best cha-ching 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.

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3:26Monarch. Yeah, it is. You know my first money lesson? It was where to put our lemonade stand. I was wondering, it was on the Upper East Side. Do we do it on Lexington Avenue or Park Avenue? Wait a second. New York City has lemonade stands on the sidewalk? They didn't. We were pioneers, Jack. Lexington Avenue is more commercial. Park is more residential. So what did we learn, Jack? Families are willing to pay more for lemonade. So you set it up on park. Yeah, we did it on park. Besties, no one gives you financial lessons in life. You end up figuring most of it out as you grow up. But we love Monarch because it's like a financial advisor in your pocket.

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6:01Plus enough California real estate to split off and create a 51st state. Totally, Jack. But that$88 million they dropped in 2017 on their Bel 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. But let's open the door and invite ourselves into that Bel Air home. This McLean Architects design compound that took four years to complete because it includes a basketball court, bulletproof glass, and a spiral staircase carved from a single piece of wood.

6:43Jack, you just went full Ryan Serhant on that description. 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. 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 too. That is, if you like it, then you better put a 7-1 variable rate mortgage on it.

7:18Because yeah, Beyonce and Jay-Z, 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. All right, Jack, pause the pod. Can you please whip out the whiteboard to tell us what they're paying each month? Because we're going to need some mortgage math to get in formation here.

7:53I'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. That is a lot. Every 30 days. Oh, yeah, that'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 cost. And 4.1 % interest on$110 million of loans,$4.5 million that disappears from their bank account every single year. And yet, Jay-Z and Beyonce pay it voluntarily, even though they got F.U.

8:34money. For those wondering, the estimated property tax on this$88 million home? What is it, Jack? $100 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 2005 Jay-Z lyric, I'm not a businessman, I'm a business man. And businesses, they don't tie up cash in concrete buildings if they got better places to put their wallets to work. The initial$53 million that Jay and Bae didn't put towards their house by borrowing cash instead? What did 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.

9:13Like, let's assume Beyonce put that 53 mil into the S &P 500. The SPY ETF, 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. And besties, 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.

9:51Not too shabby. And the Jayances get to do whatever they want with that Bel Air home, like reportedly turning the door into something that was covered in lizard skin. True story. 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. Yetis, that is the return on their investment minus the interest costs on the mortgage. But Nick, you know Jay and Bae aren't everyday investors. No, they're not, Jack.

10:23They definitely had access to invest in some sexy startups too, with riskier venture investments that can out-earn the 10-15 % the stock market offers. Remember Tidal, 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 IPO'd. Same with Oatly, the oat milk 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, then the mortgage is worth it. That's what you got to do. You got to compare your investment opportunity to the interest cost.

10:59And if you like it, you should put a ring on that mortgage deal. But there's one more detail in the fine print that Jay-Z's accountants definitely want you to know. This is good. Interest on mortgages is tax deductible. Cha-ching. So that$4.5 million that they pay in interest on that house every year, it actually reduces how much taxes they have to pay. Nick, if mortgage 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.

11:33Yeah, 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 is really about a third less. Like, your 6 % interest rate effectively becomes 4 % because of 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.

12:07Like 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'd 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. Man.

12:41So 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 honeys making money more than that, Jack. Yeah, he's like, we know what you've been taught 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. 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.

13:12There's no guaranteed happy endings here. But simply investing in the S &P 500 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 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.

13:44No matter what, our hosts 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 prenup? Nick, that's coming in future episodes. So like, follow, and slam that subscribe button like it's a cash register.

14:09Whoa, Jack, what a show. What a ride, that felt good. Cha-ching! I have 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 can toss this transcript and double check us on that 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 And remember, this show takes celebrity money moves and shows how you can use them.

14:49So thank you, Yetis, for being part of the team and checking out the first draft.

14:56This is Jack, and my first CD I ever bought was Jay-Z's Blackout. 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. Nature raised farms. Yetis, you walk into the grocery store excited to cross off your list. That empty shopping cart is an ocean of opportunity. Then you get to aisle six and it hits you. Oh boy. Choice paralysis. Yes, we whipped up takeaways about this on the pod. Too many options. It's like a game of chicken. Do I go with that chicken or that chicken? Yeah, the irony of having so many chickens to choose from, you cannot choose.

15:28This one's raised on a farm. This one's raised on a prairie. Is this range-free or cage-free? Choice paralysis of all these options. It makes us feel dumber. So Nature Raised Farms is built on the simple belief that food shouldn't be complicated. Especially chicken. Definitely shouldn't be complicated. But the freezer aisle, it makes it that way. Too many options, too many additives, a lot of random compromises. But Nature Raised Farms chicken is free from gluten, dairy, and soy. Made with no seed oils or artificial ingredients, you know what you're getting. So you can make a simple decision, get on with your day, without stressing about the chicken parm recipe.

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