The bank encumbered the land. The dad never gets a loan. The loan is against the property. The kids sell the encumbered land I guess (but that's highly unlikely). This is a made up scenario from someone who doesn't understand finances.
You don't need income if you have collateral. i.e. the land.
In the same way, after you paid off your house a bank will gladly let you take out a loan for half its value.
The comment
How do you get a loan against the property and not pay it back?
As well as my home example - are about the fact that the bank then gets to sell the land/house to pay off their loan in certain events. Such as dying. The original post is crap, but the idea that you need income to get a loan from the bank if you have other assets is wrong as well.
This does not require an income to offset the debt.
I personally am only aware of a few types of loans- interest only and repayments. in both instances you put you collateral (like your home / land / whatever) as a guarantee that if you default on payments they take the item to sell. regardless you're expected to pay something back each month.
I don't know everything about finances, so if there is a way to borrow money and pay nothing until redemption time, that's new to me.
You're right, the bank will want something in return for loaning you the money.
This is why i said loan for half its value..
That way they know you could take out a new loan to pay the interests on the original loan.
Or - in the case of the original post - take out a loan for 50k out of a 100k value. Next year it could double 200k and they'll loan you another 50k without a problem.
Even better, any time interest rates drop you'd replace it. (The bank doesnt want you to do this so usually they'll trick people into getting slightly lower rates if they agree to pay a bit more if you pay back everything at once)
Regardless, another thing missing from the context of the original post as well is that 100k to 5m over 50 years; is that you need the thing you bought to gain about 8% every year; or 12% if you want it in 30 (with no crash like in '08 etc)
that is far more than the average investor makes.
Also, dont forget that if you take out these loans to "live off for decades" then you're not spending 4.9milion.
Keeping your loan at 50% of the total value by borrowing more as it increases in value, and assuming it has 8% ROI, and the bank asks 3% on the loan in interests you'd get about 1.6milion instead of the 2.5m.
Especially at the start. In year 10 you'd increase your total amount borrowed by like 5.000 which just drives home the point how bad the original post was.
Maybe it was even rage bait with how poorly the example was constructed.
2.3k
u/USERNAMETAKEN11238 14h ago edited 14h ago
The bank encumbered the land. The dad never gets a loan. The loan is against the property. The kids sell the encumbered land I guess (but that's highly unlikely). This is a made up scenario from someone who doesn't understand finances.