Can someone explain how the Buy, Borrow, Die strategy works for holding real assets, borrowing currency against them? I can't wrap my head around how you avoid selling the asset and avoid racking up ever increasing debt. #asknostr
Discussion
I believe the concept is borrow an amount that you live off and use to pay the monthly dues.
Hope that assets appreciate much faster than debt interest... Take tax deductions on interest
Bring out new bigger loan to:
-pay off old loan
-fund life
-Pay monthly dues
Rinse repeat...
I think it works of your capital grows fast enough
So the goal is not necessarily percentage rise as much as net profit. While continuing to stack, it basically just turns into an economic engine at that point. Also sounds like a vector.
I'm thinking out loud, but if the dollar collapses, does that mean you are accountable to forfeiture? In which case NGU turns into NGWTHU. Does that mean never collateralize a number of sats, but a dollar value in sats?
I think the goal is to stay humble and stack sats ... But if one has an enormous stack one could live off rolling debt without losing capital and without a ton of risk.
I hate to be that guy but I'm already leveraged with a personal loan. And two years from now when the bear market is in full swing I'm going even deeper to stack. With the payments I make using fold, my rewards points will counter the interest so I'll damn near break even.
At least that's what I'm hoping.
It's that "bring out a new bigger loan" part that I find sketchy. I know the Bitcoin sits as collateral to balance the loan, but in my mind, debt should be temporary 🫠
I hear you different frame of thinking for sure. I don't do it but if you think in % terms then it's easier to understand why people are comfortable.
$50k is 5% of $1M Loan 1
$500k is 5% of $10M Loan 2
Yes you have more debt nominally but as a percent of your assets it probably feels the same
If you have enough of something that's going up forever, Laura, the total amount borrowed will get ***smaller*** as a proportion of the total assets. In fact the total amount of bitcoin posted as collateral can go down over time if you are at this critical mass. If anything goes south, you can only lose up to this amount of the asset, and if not, you still at any time in the future have the option to discharge the debt by selling some of the asset and just go debt-free, though this would have to be for a good reason, such as changing jurisdictions, transferring the asset to an heir or anyone of your choosing, going under the radar, refinancing, or a change in living circumstances or emergency need for the asset.
For myself, I would never do the borrow indefinitely thing until I was pretty sure I was at this critical mass where the total borrowed, even with taking out new loans, went down in BTC terms over time. I plan on living for a very long time and using my bitcoin for much more than mere consumption, like a business and stockpile for my kids.
I spent some time trying to get it too. Even though it doesn't work in the UK 😅.
You do incur ever growing debt. Ideally you pay the interest so you're not growing faster than you need to. As long as your asset keeps growing faster than your debt, you never need to pay the debt.
It isn't as easy as it sounds, but if your asset pays dividends and the dividends (after tax) help to keep the debt in control, then it is manageable.
If you ever settled the loan by liquidating the asset, you would be liable for Capital Gains tax.
When you die, you pass on the asset. The inheritors also inherit the debt. The "cost basis" is reset. This means that if THEY pay off the loan by selling the asset, then there is no capital gains to pay.
They settle the loan and have no extra bills, then they start again with whatever is left of the asset.
If they can afford not to sell, they keep going without paying off the inherited debt first.
Look up the BRRRR real estate investing technique. Buy, Rehab, Rent, Refinance, Repeat.
Problem is you’re building a business, not “passive income” like they sell you in the books. I prefer a good store of value asset and a business more in line with my skills.
It works because since somewhere after 1971:
Money debasement rate > consumer price inflation > interest rates
The difference is also getting bigger over time.
So answer is you don't :D just value of your asset portfolio goes up faster then your debts against that portfolio.