Ask Lemmy

As long as the market’s doing well, yes.

You borrow $100 at 3% against a $125 asset and then invest it in an asset that appreciates 10%. After a year, your debt is $103 against a $137.50 asset, and your asset you bought with the loan is worth $110.

You take a second loan of $88 against your new asset (80%). Your first asset is now worth $151 with a $106 loan against it. Your second asset is now worth $121 with a $91 loan against it. And you have an extra $88 to spend on top of it.

So after 2 years, you started with $125 in assets and now have $272 in assets with $194 in debt, for a net gain of $78, and have pulled out $88 in cash tax-free. Whereas if you’d just left the money in the market you’d have only gained $26, and would have to sell and pay taxes on it to actually access that money.

This is the essence of the “borrow, repeat, die” strategy. It gets more complex as you’re typically making minimum payments on loans and working with large sums of money, but this is the basic strategy. It works as long as your investment profile keeps generating interest, which is why the rich use hedge strategies and other tricks to keep the money flowing during recessions. But an unexpected downturn can have the bank suddenly margin call you when you’re underwater on your loan, and then you might be facing bankruptcy if you didn’t do it right.