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Money

Buy, borrow, die

A strategy of holding appreciated assets for life, borrowing against them for spending instead of selling, and leaving them to heirs with a stepped-up basis.

Explanation

The strategy has three steps:

  1. Buy assets expected to appreciate, such as a diversified stock portfolio or real estate, and hold them.
  2. Borrow against them, often with an SBLOC or margin loan, to fund spending. Loan proceeds are not income, so there is no tax on them.
  3. Die holding the assets. Heirs receive a step-up in basis to market value, and the estate can sell assets to repay the loan with little or no capital gains tax.

The appeal is largest for people with very low cost basis and high tax rates. For a typical diversified investor, the tax saved by not selling is often modest compared with the interest paid, because only the gain portion of a sale is taxed and long-term rates can be 0% or 15%.

Practical risks:

  • Interest compounds. If you do not pay interest from income, the loan grows every year, raising LTV even if markets are flat.
  • Variable rates. SBLOC and margin rates float with short-term rates. A few percentage points of increase can make the strategy far more expensive.
  • Market crashes. A decline can trigger a call and force sales at low prices, realizing the very gains you were trying to defer.
  • Longevity. A long life means more years of borrowing and compounding interest.
  • Law changes. Step-up in basis and estate tax rules can change. Estates above the federal exemption ($15 million per person in 2026) or state thresholds may owe estate tax regardless.
  • Lender discretion. Advance rates and lines can be cut.

In scenarios, the app can fund spending from a loan instead of sales, accrue interest, track LTV and cushion, and compare the ending after-tax estate against a plan that sells.

Example

You have a $1,000,000 portfolio with a $200,000 cost basis and need $50,000 a year.

Selling: each $50,000 sale is 80% gain. Tax at 15%: $40,000 × 15% = $6,000 a year.

Borrowing: you draw $50,000 at the end of each year at 6.5%, with interest added to the loan. After 10 years:

  • Loan: $50,000 × (1.065^10 − 1) ÷ 0.065 = $674,721
  • Interest included: $674,721 − $500,000 = $174,721, compared with $60,000 of tax under the selling plan (selling also shrinks the invested portfolio, so a full comparison needs a projection like the app’s)
  • If the portfolio grew 7% a year: $1,967,151, LTV = 34.3%
  • If it grew 3% a year: $1,343,916, LTV = 50.2%, near or above many lenders’ comfort levels

The outcome depends heavily on returns beating the loan rate.

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