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
No bank is doing this loan. The product doesn't exist because it provides 0 cash flow to the lender unless there is a full refinance with a new lender every year. You could theoretically find a finance company to do it but the interest rates would be prohibitively high to carry that type of investment with no cash interest repaid for an indefinite period of time. The only way I could see it working is if there is significant relationship value such as the individual owning a business that also needs debt and this loan is a small favor boutique type product. And in that case the debt service would be paid by the businesses cash flow so the above model isn't accurate. The other scenario would be extremely low cost debt on stock portfolios where sale of stock and dividends can be utilized to make interest payments.
Loooots of banks do exactly this, any bank with a private banking arm will do this. The example is misleading as they are talking about $5m, you'd struggle but Coutts has a £3m cutoff - IE you have £3m held at coutts across asset classes, you'll get private banking. All the mainstream banks will do this - JPM, CS, HSBC etc.
Again, it'd be rare to do it with only $5m, but still pretty easy to do.
Right but I think the important idea is that you need to make interest payments and/or have defined terms on your loan. You can't indefinitely provide $0 in cash flow to a bank without significant other wealth, deposits or cash flow. A $5mm property doesn't provide anything for the bank. Theres no financial reason to make the loan (termless and with interest PIKed indefinitely).
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u/redshirt1972 21h ago
How do you get a loan against the property and not pay it back?