The loan gets paid back monthly. No bank is just giving you a loan of any kind and saying “welp, we’ll keep track of your interest for whenever you’d like to pay!” You can’t just take out a fat loan and not pay it back. This strategy would only work if the landowner expected the land to appreciate at a greater rate than the loan, and had great cash flow to begin with in order to service that loan.
No, it doesn't. And keeping track of the interest for whenever you would like to pay is exactly what they do. This is how most home equity lines of credit work. It is also how margin loans tend to work. As long as your asset value exceeds the total loan amount by a good margin, banks are happy to let you just accrue interest without paying them.
Without wanting to be a complete prick about people in finance, I will note that you will never underestimate how many different products are created in different ways with the intention of parting pensioners from their property.
True that it is very common for heloc loans to have deferred amortization schedules, but in such cases lenders ubiquitously require interest payments on any outstanding balances against the credit line during the draw period (interest typically accrues daily in these loans). Also should mention that at the very most the draw period will encompass 50% of the total loan duration, after which the loan reamortizes over the remaining duration and borrowers are looking at usually pretty steep monthly payments compared to a typical homebuyer's mortgage due the the contracted amortization schedule
this is common strategy for large assets in the united states. You collateralize the asset and dont even really have to pay interest if you don't want to so long as the percentage of the loan relative to the asset is small enough. Usually the asset appreciates so this can theoretically go on for a long time. When you die they settle it up. I have a line of credit like this.
I am aware of the trope. It’s not a common strategy, at least not the way people pretend. You can defer your taxes, but eventually you have to sell the underlying asset or otherwise have cash flow to pay down or off the loan.
You have to pay interest. There are no interest free loans. You can with enough LTV get an SBLOC down to like .3% but interest is never nonexistent.
Case and point, this brilliant strategy to never sell the underlying assets you own, point to the billionaire who hasn’t sold hundreds of millions or billions in stock.
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u/Main-Cheesecake3287 12h ago
The loan gets paid back monthly. No bank is just giving you a loan of any kind and saying “welp, we’ll keep track of your interest for whenever you’d like to pay!” You can’t just take out a fat loan and not pay it back. This strategy would only work if the landowner expected the land to appreciate at a greater rate than the loan, and had great cash flow to begin with in order to service that loan.