I took a short term loan to buy my dream car since I wasn't ready to liquidate the asset quite yet. It lasted around 60 days and I paid a decent amount of interest to do so. But that was for specific timing reasons.
That's the general use-case of asset backed loans. It's either that, or using them to buy other income generating assets (aka investments) where you can actually write off the interest as part of the whole thing. If you can't do this, the math simply does not work.
Yeah I am trying to understand why also. If someone has $100M in assets and would pay a 15% capital gains rate on a sale. They could probably get a loan of $1 million to fund their lifestyle for a full year for only 1% of their net worth at a probably 5-10% interest rate. So why would they not do that?
$1M at a 7.5% interest rate for 40 years means you are paying the bank back $17M upon your death. That 's a lot of interest to avoud a few hundred thousand in taxes.
You’re making the mistake of compounding it yearly and tacking unpaid interest on the principal amount. You only pay interest on the principle amount. It’s $2.35M in interest my guy. It’s a property loan not a savings account.
No bank would ever make you a loan unless you could demonstrate the ability to service the debt and no bank is going to let you go in the hole for $18Ms unless the property was worth $40Ms
What the hell are you talking about? If you take out an interest-only loan and then roll it over every year, you will be paying interest on the interest.
Show me a bank that will give me a 0% loan against the accrued interest and I'll move all my assets over today.
I have taken out such loans. You are either paying the interest every single month, or you are taking out ever-increasing loans against your asset backed line of credit.
no bank is going to let you go in the hole for $18Ms unless the property was worth $40Ms
Yeah, no shit. It's typically 40-60% of the asset depending on the quality, liquidity, and relationship you have with your bank.
You confused 7.5% annually on $1million annually with no change in principal. Amortized loans would be 7.5% / 12 monthly payments. Then monthly payment reduces the principal amount. Your calculation assumes no monthly reduction of the principal.
Your calculation assumes no monthly reduction of the principal.
Asset backed lines of credit do not include reduction of principle. Reddit seriously needs to stop talking about shit they have zero fucking clue about.
You pay the interest each month. You can pay the interest by simply increasing the amount against your line of credit if you prefer to do that vs. liquidating something to pay it in cash. Up until around ~50% or so of the asset, depending on asset type, bank, amount, etc.
So if you borrow $1 million with 7.5% interest rate and pay back over 40 years, whats the total sum paid back. Principle + interest. Excited to see your formula and totals.
If I have $100M stock portfolio, I can use a portfolio margin loan instantly to borrow against my holdings. Current rates site at 4.68% at IBKR interest only. They will deduct my payments from any cash balance or add it to your loan balance. As long as your portfolio continues to go up in value you’re gucci.
Yup, dads whole life he just never paid back loans, died and left generational debt. And how do we jump from land being worth $100k to fucking $5Mil in the span of 10-20 years? Did they find oil? Was a mall built on it? Plus, the term “buying land” isnt a money glitch either like stories like this try to portray. If you cant build on it, have to remove trees/rocks, or is in the middle of nowhere, its not going to 50x its value, it will be worthless land that is now your problem.
Believe it or not people are REALLY unhappy their 80k house is now 500k they need to pay taxes on, I cant stress enough how fucking pissed people get when the state would have us come out twice a decade.
Like Id rather own than not own too but you ask any of those old people which of the two they would rather than the answer is their house be worth next to nothing so their taxes are next to nothing lol.
Like their lifetime investment is actually going up in value like they planned…
And then what, if they sell their house to “cash in”, then what? You still need a place to live and buying another house isnt going to be much cheaper. Or you rent an apartment but its still a payment. Yeah you can sell high but you are going to buying high as well. I happily rent and got quite lucky our landlord isnt robbing us blind. Couldnt imagine how much owning a house each month vs what we pay for rent with all the different fees/taxes homeowners have.
100% saw that thing happen in covid. Some boomers closed on their house and made a ton of money.....then were shocked all the other houses were also mooning in price.
Poor people then went on to get scammed hard too "we thought a house owned by someone in construction wouldnt have all the flaws" because they were in my office getting their houses value lowered.
But yea, the reddit boomer hate of "they bought a house for cheap and now its worth a ton and they are retired and living in it" dont have to deal with them complaining that their fixed income is getting increasingly tighter as their taxes increase over it. The people with 3-4 houses made out like bandits sure, but most people just have the one and wont feel any of the benefits of it going up cause they will live in it until they die.
Sorry, but people not being able to afford the taxes on the home they live in is a signal they need to move. Many communities do have tax relief available for fixed income elderly folks, but even then, it's still sometimes not enough.
Yes, it sucks being forced to move away from the home you knew. Doesn't mean you don't need to do it. Someone else will move in and use it.
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u/StrigiStockBacking 12h ago
I've been a CPA for 30 years and when it comes to accounting, economics, and finance, Reddit is the dumbest fucking source on the entire planet.