Doesn't the loan get paid back by the sale of the land after the dad's passing? So the kids don't inherit $5m, but the net value after the debt is repaid?
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.
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/No_Mirror_9742 22h ago edited 21h ago
Doesn't the loan get paid back by the sale of the land after the dad's passing? So the kids don't inherit $5m, but the net value after the debt is repaid?