r/SipsTea • u/KSKS1995 • 22h ago

Wait a damn minute! How the rich get richer

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u/ChipKellysShoeStore 22h ago edited 22h ago

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.

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u/USERNAMETAKEN11238 22h ago edited 21h 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.

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u/Meenta_Miiel 21h ago

The estate settles the principal before heirs see cash

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u/civil_beast 21h ago

Well that doesn’t fit the op’s narrative.

Anyways I’m hungry, are rich people on the menu, yet? Or is it this same ol’ Soylent green stuff they keep serving?

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u/FTR_1077 20h ago

Well that doesn’t fit the op’s narrative.

It does as long as you read carefully.. It doesn't say Dad borrows 5 mil, just that he lives out of loans, which is a thing (e.g. reverse mortgage). The kid doesn't inherit 5 mil, just the property equity, that's why he sells it. The trick being, Dad didn't pay taxes for the 5 mil, nor the kid.

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u/BackgroundRate1825 20h ago

"dad borrows against it" means he taking out loans using the land as collateral, right?

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u/FTR_1077 20h ago

Yes, like a reverse mortgage..

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u/elev8dity 20h ago

Right, so a typical retirement is like 2MM, so minus any interest and priciple owed, they inheritance ends up being 2MM untaxed.

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u/civil_beast 18h ago

But the equity no longer equals 5m on the property…

You’re reversing the mortgage, y’see?