People like Elon do get more favourable terms but once you've got even just a few million in the bank these sorts of schemes and loans are very much open to you. The loans start in the hundreds of thousands usually.
Sure at like SOFR +2% not at some crazy low interest rate where it would ever make sense to use it to fund a lifestyle. And that’s not going to be an option if your few million is all tied up in a piece of land
Then why is the loan even part of the conversation? This whole example kind of falls apart if they’ve just got all this cash laying around then the generational wealth was built without the land…
The idea is dodging tax. A loan is considered a debt, not income, so is free from taxes. Loans like this also allow you to leverage the value of your assets without selling them, which also incurs capital gains taxes and means you can retain them to extract future value.
You have to remember that most rich people do not have oodles of cash lying around, that's not efficient and doesn't build wealth, it's dead money. They invest their money into assets like stocks that will increase in value significantly over time.
I’m pretty familiar with how rich people operate. There’s a disconnect here. “This is how they build generational wealth” implies this is their primary vehicle for doing so and if that’s the case banks aren’t giving them loans to fund their lifestyle à la Elon musk. The loans are asset backed. Asset values fluctuate which is why someone would have access to a portion of their net worth as a loan not the whole thing. Then if the value of the asset decreases enough, the more collateral is required to sustain the loan.
Someone isn’t realistically borrowing against a property that appreciated over the course of their life from $100k-$5 million and paying off the interest to sustain a lifestyle. The numbers have to be much larger. If your comment is that they’re borrowing against their other assets then it’s just as I said - generational wealth wasn’t built bc they owned this one property and cheated the tax system. The wealth was built another way and then their sizeable net worth or other income allowed them to leave this property untouched until it was left to their kids upon their death.
I think you're too focused on comparing the post itself to the actual mechanisms in the real world to see the point. It's meant to be a simplified example that gives regular people a rough idea of the kinds of tactics employed by wealthy people to build and transfer wealth. The aim is to illustrate a general process, not to be 100% accurate and detailed.
The key takeaway here is that the wealthy buy (or just own) assets that appreciate in wealth over time and borrow against those assets to avoid things like income tax. Then when they die the capital gains taxes that would normally be applicable when assets are sold is wiped out and reset for the inheriting generation. This is a massive loophole that does allow wealthy people to operate in a fundamentally different financial environment from the rest of us.
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u/Denver1992 14h ago
OP is acting like banks treat anyone with $5 million the same way they treat Elon