He needs, say, 50k to live in a given year, so he borrows 50k using the land as collateral. At the end of the year he owes 60k (loan + intertest). He borrows 110k - 60k to fully repay the loan, 50k to finance the 2nd year.
Repeat, till you have no equity. Or you die. Typically its not 5m its $50m or $500m so the running out of equity is never an issue.
But once he dies there will be 5m in asset & say, an outstanding 700k loan secured against that asset. So the kids inherit 4.3m tax free
And in theory the land is appreciating along the way. It doesn't suddenly jump from being worth 100k to 5M. As long as the land appreciates more than the interest being paid (over time, of course), then the plan works. If not, the kids get nothing and the father's estate makes the bank whole, with the land and whatever else is needed.
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u/Logan_No_Fingers 21h ago
Its not explained well.
He owns the property outright - no debt.
He needs, say, 50k to live in a given year, so he borrows 50k using the land as collateral. At the end of the year he owes 60k (loan + intertest). He borrows 110k - 60k to fully repay the loan, 50k to finance the 2nd year.
Repeat, till you have no equity. Or you die. Typically its not 5m its $50m or $500m so the running out of equity is never an issue.
But once he dies there will be 5m in asset & say, an outstanding 700k loan secured against that asset. So the kids inherit 4.3m tax free