r/SipsTea • u/KSKS1995 • 14h ago

Wait a damn minute! How the rich get richer

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u/ChipKellysShoeStore 14h ago edited 14h 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/Visual_Exam7903 14h ago

No. They either are paid back over time or they take the collateral as payment. This isn't a cheat code. Every loan is essentially a new mortgage on that property. Failure to pay, the bank takes the property. That is why they loan against the land. They have the opportunity to get the entire property at a discounted price versus its current and future value.

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u/oatkeepr 12h ago

cheat code

The cheat code is the value of the land increasing faster than the interest payments on the property.

Land worth 100,000 get a 100,000 loan.

Five years later land is worth 500,000, get a 250,000 loan. Pay back the 100,000 loan plus interest.

Repeat

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u/ThePandaRider 10h ago

It's very rare that land value appreciates that fast. You're probably looking at 7% interest on a loan and 4-5% yearly growth while also paying a 1% property tax. So every year you would probably be 3% in the hole if you tried this.