How Elon Musk Made $1 Billion Dollars Using Debt

 That 61 million would grow to over $976 million. Ladies and gentlemen, that's just short of a billion dollars. I work in a company, but I'm not sure if it is. All right guys, in this video, we're gonna be talking about Elon Musk, why he used debt instead of paying cash for a house that he could easily pay cash for. And we're also gonna look at the math and speculate a little bit. And just to be very frank, I don't have the exact numbers, so don't sue me. You're going to jail. You're going to jail. But I think we can use history, use some numbers that we know in the news and speculate why Elon Musk went this route and why it was very, very profitable, we'll just say, to go this route versus paying cash. My name is Caleb Williams. I make videos on money and business to help you live more intentionally. And this video just came to my mind as I was going through with the news and I saw someone write an article on this. And it just got me thinking because in the article, they talked about why even Warren Buffett, one of the world's wealthiest men in the world, used a mortgage instead of paying cash. And I also mentioned one of our favorite gurus out there, Dave Ramsey. One of the things that I thought of, does anyone in the world think that Elon Musk is in debt? Like would Dave Ramsey say, Elon Musk needs to pay off debt because he's a slave to the creditors? Okay, okay, okay. Or is it easier to say Elon Musk is using debt? We could maybe disagree with that, but he's using debt because he might know something that we don't or he might be betting on something that we don't. So I think it's the first thing that really hit me is the difference between being in debt, which I believe your net worth is in negative because you have more debt than your assets versus using debt where some people can use debt to be more efficient, grow wealth, be more insecure, have more liquidity, have more control, all those reasons. It doesn't make something good or bad. Everyone's situation is different. I also wanna be very, very clear. This is not investment advice. And I will say that multiple times because I don't wanna get in trouble or people to take a word phrase out of this video and say, you know what? I'm gonna go make a ton of debt and buy a bunch of call options on Tesla because they're going to the moon. That's not what I'm saying. This article, which I'll link down below, pretty much said that Elon Musk took out $61 million in 2018 to buy multiple properties instead of paying cash. He chose a mortgage. And in this article, they speculate a 5% debt interest rate that would be used, which if we're being frank, I think probably you've gotten a better interest rate, but we're just gonna use 5% because I think the numbers will iron themselves out. What I did as a math nerd is I just said, okay, in 2018 in January, what was the stock price of Tesla? And what is it now in January of 2022? And so the difference is in 2018 in January, the stock price was a little over $64. And now it's over $1,077. So again, massive growth that is on average over the four years, 102% growth. If you take that $61 million, that Elon Musk paid that loan or took out that loan. And if you just put that into Tesla over those four years, that $61 million would grow to over $976 million. Ladies and gentlemen, that's just short of a billion dollars. Need that to sink in. We're talking four years, four years, $61 million at this crazy growth rate to almost a billion dollars. So what you could say, and this is again fake money, but let's just say this is $61 billion. So Elon Musk could have paid cash for those houses. And you could in this assumption say that that $61 million property or properties, which is a lot of money, would cost him opportunity cost wise, almost a billion dollars that money wasn't invested. Now, what I also want to address is, and I want to be very fair, is many people out there and a lot of financial gurus will say, whoa, okay, but he's got to pay interest. And people, interest is horrible and you're a slave to the creditor. And so let's do the math. $61 million alone, I mean, you're gonna pay some interest there. I'm being like very generous, I think with the numbers. And I'm saying over the next four years, we're assuming that one of the world's most influential wealthy men can get a 5% interest-only loan, okay? So it doesn't get any deals. And we're also not assuming that Elon Musk is accelerating his debt payoff because I just want to be as fair as possible with the amount of interest he would pay over those four years. Elon Musk would have forked over $12,200,000 of interest. $12,200,000 of interest. That might sound terrible. It's like, why would Elon Musk pay over $12 million to live at the homes instead of paying cash? Like he's got the money. So again, what I did was I took out a future value calculator and I put in $12,200,000 into the present value. And then I also just put in the $976 million and put that into the future value over four years. You get a cash on cash for growth rate over those four years of 199% year after year. Again, for those math gurus out there, they're like, I'm sure this could be done a little bit cleaner. But I just wanted to point out that, yes, that $12 million is a lot of interest, but it's all in context. By him paying over $12 million of interest, he was able to earn, you know, $976 million. I'm not saying that, again, you should sell everything and put it into Tesla. I'm not even saying that Tesla is a great investment. I'm just saying that, well, if Elon Musk, who's the world's richest or one of the world's richest people, if he's taking out a mortgage, what does that mean about me? Anytime we make a decision or we make a purchase, it really comes down into two things. Number one, should you buy that house? Should you buy that car? Should you buy that plane? Should you go on that vacation? And the reason why people like Dave Ramsey and many people advise against debt is a lot of people are being enabled to make a bad purchase because of debt. And I'll be the first to say that. But assuming that's off the table and saying, I am going to purchase this house because it's a good decision, or I'm gonna purchase this car because I can pay cash, the next question is, what is the most efficient way to purchase that? So we really have to separate that equation into two decisions, not just one. And the most efficient way may be to use debt, even if you're buying a liability because of the opportunity costs of what you could do. It takes a lot of discipline to have this separation in your mind, but if you can do that, you're just gonna find yourself looking at opportunities all over the place. And I truly believe that Elon Musk has like a, has an internal opportunity cost calculator going on to his head. That's probably why he has a jet because he understands the opportunity costs of his time. And that's why he takes out a $61 million mortgage, probably because in his mind, even over four years, just imagine we'll open the next 30, whatever those four years, he knows the mass difference he can have just by having control. Every dollar matters, let's be efficient and have that mindset when we're making financial decisions in our life. We'd love to hear from you. We'd love to hear your thoughts, your biggest takeaways, if you have questions. I love doing videos like this and I just wanted to share that with our community.