Another quick primer on how rentier capitalism works in the system for those that don't know.
- Rich person approaches bank with $15-20k in cash to get a loan for a rental property.
- Bank will loan 85-90% margin with which to buy said property.
- Rich person then takes possession of rental property.
- Rich person uses cash-out refinance to immediate take positive equity out of the property, and use it to do the landlord special to get it ready for renters.
- Rich person rents out house for 2.5-3x the mortgage cost.
- Rich person gets their mortgage paid for by the tenants, and pockets a nice, fat profit on top of it.
- Rich person goes back to bank and uses first house as collateral for second mortgage on new rental property, and uses tenant income to count toward their own income (which they can).
- Rich person repeats this AD FUCKING NAUSEAM until they own a massive amount of properties and are extracting value on a large scale.
- Rich person, as soon as they can, transfers each house into it's own LLC or trust which acts as a holding company for that property and protects them from legal action by the tenants.
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- If they get sued by tenant, they sell the house and burn the LLC.
- If the house has a problem, it's the LLC's problem, not the rich person's problem.
- If they lose the house for whatever reason, it's only one house of many, and they can write that off as a loss on their taxes.
- If tenants want to pierce the corporate veil and go after rich person's assets directly, they would have to prove LLC's aren't legit. Good lawyer makes that difficult.
- Finally, after everything if rich person wants to they can sell all their properties wholesale to a REIT which is basically just a bigger version of what's described above. They get a cut for the rest of their lives with basically zero risk, while every tenant being rented to infinitely pays for the privilege to live, work, and produce value in an area.
And that's how real-estate investing and rentier capitalism works in a nutshell.
Tune in next week for fractional-reserve banking and derivative markets that create debt and money out of thin air while the rest of us work ourselves into an early grave for it! 😀