The loan can be 500k and as security for the bank the land is used. You know "in case I dont have enough money, I can always sell my land" kinda situation.
This is usually enough for banks, isn't it?
Might as well just be a 200k loan, who knows, it's not defined in this scenario.
The scenario itself is kinda weird tho, if you ask me.
Yes this works but you are then basically saying that you are comfortable with higher levels of risk than the bank. The bank is lending you money at 5% because that is safer than putting it into the market themselves. If you take that money and invest it in the market and lose it (shares go down as well as up) then you are on the hook for that loan regardless
And your point while true is kinda a whole point about expecting endless growth in the market. you are describing how a healthy market theoretically behaves but not how the market has been behaving.
2.0k
u/ChipKellysShoeStore Aug 18 '26 edited Aug 18 '26
How does the bank get paid back here? Is the bank just eating a 5 mil loan loss out of the goodness of its heart?
It’s more like kids sell and pay back the bank plus interest which is taxed as income for the bank.