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Question: if you or I need a loan to buy a house the interest rate is 6% or so, currently. Does JPM have a source of far lower interest rate loans than that?

Question: if you or I need a loan to buy a house the interest rate is 6% or so, currently. Does JPM have a source of far lower interest rate loans than that? Or are they simply creating the money out of thin air by creating credit, in effect, loaning money to themselves?

prepend 4y ago
The corporate bond rate for AAA companies is currently 4.71% [0] so they are likely able to borrow at a lower rate than you or I could mortgage. They can’t just create money out of thin air. And even if they could, that money would compete with other investments. In some ways, that’s what banks do as there are deposit reserve ratios and what not where they take in deposits and loan out more. But JPMorgan internal projects would “borrow” similarly to anyone else who wanted to use $1B to buy a bunch of houses. [0] https://ycharts.com/indicators/us_coporate_aaa_effective_yield https://ycharts.com/indicators/us_coporate_aaa_effective_yie...
- mpeg 4y ago
  When you buy new builds in bulk you also don’t pay full price, the builder will extend a nice discount as it provides a great channel to get rid of inventory and move on to the next site.
- impossiblefork 4y ago
  But wouldn't there be an additional tax advantage: Suppose that we have a company buying houses and an individual buying a house using his salary. In order to move money from a company to an individual income tax must be paid and if a company instead invests its money, I assume that no tax is paid immediately. Consequently if companies start bidding for houses, they will have much more money available than individuals, ensuring that houses will in the long run hardly ever be owned by individuals. The result would thus be large company-owned estates, filled with renters.
  - prepend 4y ago
    The individual would just form an llc or even c-Corp and use that to purchase the real estate. I think most real estate rented out is technically owned by a corporation because of the liability issues. So we’re already there. But I think there’s a difference between a solely owned Corp and a huge Corp. But for tax purposes, they seem the same.
    - impossiblefork 4y ago
      Yes, but ordinary people earn their income from wages, which are always taxed before they can be put into any LLC. Thus they will end up severely disadvantaged in competition with actual companies for ownership of housing and land.
      - prepend 4y ago
        No, not really. Individuals can deduct the depreciation of rental properties and reduce their taxable income. I think the advantage of corporations over individuals is their ability to more easily raise capital. If an individual is making high levels of income, it’s likely they are already deferring and rerouting income into tax advantaged mechanisms. Kind of like a partner in a high value partnership. But I don’t imagine an individual directly funding a billion dollars through their income. The issue with individuals is that they just aren’t likely to use earned income as the source for these investments. If it were me and I wanted to say invest $1M in rental properties. I would form an LLC and take out a bit loan in the LLC’s name backed by my personal assets as collateral. Then I’d buy property using the loan and collect all income into the LLC to pay the loan and invest in new properties over time. The taxes on my personal income don’t really factor into it.

prepend 4y ago

The corporate bond rate for AAA companies is currently 4.71% [0] so they are likely able to borrow at a lower rate than you or I could mortgage. They can’t just create money out of thin air. And even if they could, that money would compete with other investments. In some ways, that’s what banks do as there are deposit reserve ratios and what not where they take in deposits and loan out more. But JPMorgan internal projects would “borrow” similarly to anyone else who wanted to use $1B to buy a bunch of houses. [0] https://ycharts.com/indicators/us_coporate_aaa_effective_yield https://ycharts.com/indicators/us_coporate_aaa_effective_yie...

mpeg 4y ago
When you buy new builds in bulk you also don’t pay full price, the builder will extend a nice discount as it provides a great channel to get rid of inventory and move on to the next site.
impossiblefork 4y ago
But wouldn't there be an additional tax advantage: Suppose that we have a company buying houses and an individual buying a house using his salary. In order to move money from a company to an individual income tax must be paid and if a company instead invests its money, I assume that no tax is paid immediately. Consequently if companies start bidding for houses, they will have much more money available than individuals, ensuring that houses will in the long run hardly ever be owned by individuals. The result would thus be large company-owned estates, filled with renters.
- prepend 4y ago
  The individual would just form an llc or even c-Corp and use that to purchase the real estate. I think most real estate rented out is technically owned by a corporation because of the liability issues. So we’re already there. But I think there’s a difference between a solely owned Corp and a huge Corp. But for tax purposes, they seem the same.
  - impossiblefork 4y ago
    Yes, but ordinary people earn their income from wages, which are always taxed before they can be put into any LLC. Thus they will end up severely disadvantaged in competition with actual companies for ownership of housing and land.
    - prepend 4y ago
      No, not really. Individuals can deduct the depreciation of rental properties and reduce their taxable income. I think the advantage of corporations over individuals is their ability to more easily raise capital. If an individual is making high levels of income, it’s likely they are already deferring and rerouting income into tax advantaged mechanisms. Kind of like a partner in a high value partnership. But I don’t imagine an individual directly funding a billion dollars through their income. The issue with individuals is that they just aren’t likely to use earned income as the source for these investments. If it were me and I wanted to say invest $1M in rental properties. I would form an LLC and take out a bit loan in the LLC’s name backed by my personal assets as collateral. Then I’d buy property using the loan and collect all income into the LLC to pay the loan and invest in new properties over time. The taxes on my personal income don’t really factor into it.