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The problem is super rich people don't make income. if an asset keeps making money you probably don't sell it. you just borrow against your assets at a lower ra

The problem is super rich people don't make income. if an asset keeps making money you probably don't sell it. you just borrow against your assets at a lower rate than your assets increased in value.

Rebelgecko 5y ago
What's the advantage of doing that? Don't you have to eventually sell your assets to pay off the loan?
- bennysomething 5y ago
  I'd also like to know the answer to this. I understand one method that property investors use, borrow more money to buy more property and keep leveraging up and up hoping you exit before s crash.
- elevenoh 5y ago
  You can refinance into perpetuity.
- mister_tee 5y ago
  You do eventually need to pay the loan, though at the very least you're able to control when. You can avoid selling into a down market, realize gains in a more tax efficient year, or keep holding the assets as they appreciate faster than the interest rate of your loan against them. Rates are pretty low; I wasn't super-familiar with the terms but quick web searches show threads confirming 2%, one even down at 1.26% given interest rates are so low right now. A huge win in terms of generational wealth under current law is if you keep the loan until you die, the loan still needs to be paid off but your heirs inherit the assets with a step up in basis to the new value, so capital gains are never paid. For this strategy you can search for "buy, borrow, die." Addressing this was in Biden's proposed budget but we'll see if it actually passes... there's likely to be a ton of pushback even though there are some carve-outs for family farms, family businesses, primary residences, etc.
- jlokier 5y ago
  No you don't. Consider a landlord who takes an interest-only business mortgage to purchase a buy-to-let property. In good times for landlords, the rent pays the mortgage interest and some more which is profit for the landlord. Even if there is a slight loss, when property prices are rising the landlord does ok because they can refinance against the higher valuation. This loan never needs to be paid off, as long as there's enough rent and/or refinancing to keep paying the interest. Both the bank and the landlord profit from keeping this arrangement as long as they want it, it can even be passed down generations or sold to someone else, as an ongoing business.
sharemywin 5y ago
if you have enough assets you repeat the process until you die.

The problem is super rich people don't make income. if an asset keeps making money you probably don't sell it. you just borrow against your assets at a lower rate than your assets increased in value.

Rebelgecko 5y ago

What's the advantage of doing that? Don't you have to eventually sell your assets to pay off the loan?

bennysomething 5y ago
I'd also like to know the answer to this. I understand one method that property investors use, borrow more money to buy more property and keep leveraging up and up hoping you exit before s crash.
elevenoh 5y ago
You can refinance into perpetuity.
mister_tee 5y ago
You do eventually need to pay the loan, though at the very least you're able to control when. You can avoid selling into a down market, realize gains in a more tax efficient year, or keep holding the assets as they appreciate faster than the interest rate of your loan against them. Rates are pretty low; I wasn't super-familiar with the terms but quick web searches show threads confirming 2%, one even down at 1.26% given interest rates are so low right now. A huge win in terms of generational wealth under current law is if you keep the loan until you die, the loan still needs to be paid off but your heirs inherit the assets with a step up in basis to the new value, so capital gains are never paid. For this strategy you can search for "buy, borrow, die." Addressing this was in Biden's proposed budget but we'll see if it actually passes... there's likely to be a ton of pushback even though there are some carve-outs for family farms, family businesses, primary residences, etc.
jlokier 5y ago
No you don't. Consider a landlord who takes an interest-only business mortgage to purchase a buy-to-let property. In good times for landlords, the rent pays the mortgage interest and some more which is profit for the landlord. Even if there is a slight loss, when property prices are rising the landlord does ok because they can refinance against the higher valuation. This loan never needs to be paid off, as long as there's enough rent and/or refinancing to keep paying the interest. Both the bank and the landlord profit from keeping this arrangement as long as they want it, it can even be passed down generations or sold to someone else, as an ongoing business.

sharemywin 5y ago

if you have enough assets you repeat the process until you die.