Can someone explain to me how one pulls money out of the investments equity by creating debts/making loans?

[Unit1]

Can someone explain to me how one "pulls money out of the equity" by creating debts/making loans? I don't understand this. All I get from this is that it's effectively avoiding paying capital gain taxes.

[Soteris]

Not entirely sure how this works in other countries but the general idea of rich people is that they for example have investments or assets such as shares in a company but rather than selling those off to get money they take out a loan from the bank with those shares or assets as the collateral.

Doing this you can do a bunch of things such as being more strategic of when/how much tax you end up paying and whatnot. Even better if your assets increase faster in value than the loan increases in rate which means you are actually gaining money by doing this.

All you are essentially doing is trying to avoid making an actual gain on paper. As long as your assets are just sitting there you are not seen as if they have made a profit, that only happens when you sell them. Normally this prevents you from using that invested money for anything which is where the loans comes in. Those allows you to use that invested money without it being seen as you cashing out and gaining a profit which would be taxed.

It also sidesteps a problem that rich people has. It can be hard to find someone who would want to pay the "full price" for something truly expensive that you have. If you take a loan you dont need to find a buyer or even really prove that what you are offering as collateral is actually worth that much. As long as the bank is satisfied they will just provide you with that money with the understanding that you will pay interest one way or another.

[NaultD]

If you get paid in stock options you go to a bank and get a loan held at that price. As time goes on so long as the company is rising in stock prices the banks is no risk of losing money. So the loan is like 0% . Then the person is getting cash.

It's basically the bank just buying stocks outside the market and directly from the ceo. So the ceo is getting a roundabout income from stocks and that should be taxable.

[Unit1]

I see

[alice55]

I don't know how it work in others country but in France you can do bet, so if you bet on the loss of an action you possed and it lose then you gain money from it because you won your bet.

That's the general idea after in detail I don't know, my father explained it to me when I was a child so he didn't really into details.

[Unit1]

That's not the question. I do CFD trading and it matches what you just said.

[SnowedIn]

Very simplified but you use the debt/loan to earn more than the payment to service the debt/loan while not tying up your capital.

For instance: you take out a loan to buy an apartment building. Your monthly loan payment is $100,000 while the rent you collect is $300,000. After your other fees you might be ahead $100,000 per month. Again, that's simplified but that's just one way.