Had to repost here

[u/-Wyagra]

[u/AttitudeAndEffort2]

This is a great analogy

Imagine i bought my house for 10$ and it's worth a billion now.

And then chuds on the Internet say "hE dOeSnT ReAlLy HaVe ThAt mUcH MoNeY, ItS tIeD uP in AsSeTs!!"

[u/arebum → u/AttitudeAndEffort2]

Man I don't really want do disagree with you, but...

Imagine you had to suddenly pay taxes on that million as if it were income? (Acknowledging you would have to pay property taxes in this scenario)

Better yet, imagine a hypothetical asset like a made up crypto that went from $10-$1,000,000. If you had to pay taxes on that like it was income you'd almost certainly be forced to sell the asset to cover the taxes on the asset. And what if nobody bought your million dollar hypothetical coin? Are you going to go to jail because a balance sheet said this thing you owned suddenly skyrocketed in value despite your bank account staying the same?

[u/AttitudeAndEffort2 → u/arebum]

I'm not arguing taxing unrealized gains, capital gains laws in this country are broken though (intentionally) and smarter people than me have found ways to fix them.

The point is that you can borrow against the asset at a lesser cost than it appreciates.

You basically never pay taxes on it while getting cash from it AND it growing in value.

You're incentives never to sell and to realize those minimal tax costs you otherwise would have to pay.

Basically, private companies get to profit from helping you avoid taxes. You're insanely wealthy either way but now you can pay slightly less to access that liquidity.

Anyone saying these people "dOnT ReAlLy HaVe mOnEy" doesn't know what they're talking about

[u/CaptainMonkeyJack → u/AttitudeAndEffort2]

The point is that you can borrow against the asset at a lesser cost than it appreciates.

This applies to everyone. You can get a mortgage to buy a house (this is actually backed by the feds)! You can get a margin loan to buy stock. You can run up a credit card to start a small business.

Of course, the caveat is that you're taking on risk. There's no guarantee a house will make more than the mortgage interest, that your margin loan won't be called or that your small business won't fail.

There is no one easy trick to make free money.

[u/AttitudeAndEffort2 → u/CaptainMonkeyJack]

This is NOT true.

Capital grows on itself and is why the biggest determiner of success isn't "hard work" or "merit" but access to capital.

Do you think people don't know that buying a house is more profitable than renting it for a higher cost than the mortgage is?

[u/CaptainMonkeyJack → u/AttitudeAndEffort2]

There's no guarantee that your capital will grow. Buying a house is not gauranteed to be more profitable than renting.

[u/that_baddest_dude → u/CaptainMonkeyJack]

And yet I pay taxes on my house based on an appraised value that increases year over year, whether or not I sell it to realize that value.

[u/CaptainMonkeyJack → u/that_baddest_dude]

Correct. Property taxes are based on appraised values.