Why does Bill Gates own so much farmland?

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Link: https://apnews.com/article/fact-check-b ... 8010130032

The news does an awful job of telling you why. It just tells you the facts. The "why" takes some explaining. I work in the the banking industry and I will explain why rich people are putting all their money towards real estate - and what that means for you.

Here is tax avoidance 101 in the Modern US:

Step 1: have a few million in cash. This is key. None of this works without this. You can get to this point by inheriting (this is the easiest and about 35%-45% of wealth is inherited in the US) or maybe you are an aging medical professional who can get a few million cash together from a lifetime of overcharging your patients (yes, the medical field in the US colludes to keep their wages high, they are not your friends).

Step 2: Do you have the cash? If not, get back to Step 1. Also, this can't be "I have $4 million cash but $2 million in debt" type stuff. Pay the debt and get back to me when you got $4 million in cash that no one can claim a debt against.

Step 3: Get a 40% loan to value (LTV) loan on an apartment complex. These are balloon loans as this is now Commercial Real Estate (CRE). (https://www.commercialrealestate.loans/ ... -is-a-5-25)

Basically, balloon loans pay interest only or near interest only for most of it. Then when the term is up, the whole loan is due. Most borrowers refinance and roll the principal over.

Remember: interest costs are tax deductible. So are operating costs. The idea is you set it up so that your operating costs + interest expense just match your rental revenue. If you have too much revenue, it means you didn't borrow enough.

You pay your bills by taking out 2nd Liens on the property as it appreciates. That interest expense is tax deductible.

Here is why it works: as long as the interest rate is below the appreciation of the property (and it generally is!) you can do this forever. You pay zero taxes on the money you take out. Best part: if your tenants get all complain-y about rental increases when the interest rate goes up or the economy crashes, you just "strategically default." Yup, you can just stop paying and the bank is willing to renegotiate terms. Residential mortgages have some of this, but its a pretty bad deal. What they will do for a residential mortgage is re amortize it over 40 years instead of 30 (that works in the banks favor big time).

For CRE loans, they may give you a new deal. Of course, they can also "call" a loan and request the money back. If you can't refinance, you are screwed (or your LLC is, you personally will be ok). So, if you do this you gotta keep up with maintaining your property.

To sum up, what Bill Gates is doing (that the article is not explaining) is this:

1) He is taking his cash assets gained from selling Microsoft shares and putting it into >40% LTV loans on farmland. This is probably due to some special tax benefit of specifically agricultural land. We have tons of agriculture subsidies in the US and it wouldn't surprise me if there is one going on there.

2)Then, he is renting out that farmland to people who actually farm it. They pay him rent (and I imagine farmland doesn't need as much maintaining - maybe that is why) and he deducts the interest cost from his taxes.

3) He probably has all his liquid assets in these loans. His debt initially was more than his equity - Let say for example he took $1 billion (in reality far more) he would turn that into a 40% loan on a $2.5 billion piece of land. At the beginning, he would own $2.5 billion of assets paid for with $1.5 billion in debt and $1billion in equity.

Over time, the land value grows and that loan to value gets pushed down. But what he does is cash out and buy more land. His wealth keeps growing. The more debt he can take on to buy more land, the more his wealth grows faster.

The risk is land stops growing in value. That has yet to happen over a long run - and he can weather multi year dips. My belief is if that happens, it will be something on par with an alien invasion or super volcano going off (and in that case, why would you have wanted to put it in gold or stocks? we're all dead).

I work in banking/finance and this little secret is kept from even people who work in it. We are just told about this category of loans called "Private Wealth Management" (PWM). Not many people know too much about how it works, even the people making the loans. That is intentional because I think if my coworkers knew they would feel bad about what we are a part of.

The impact on you is that as the rich get richer, they buy up real estate. This drives up rental and housing costs for everyone else.

When the rich have more money, art pieces go up in value. When they get less money, they still buy the same art pieces but pay less for them. Not many of us are impacted by this as we aren't in that market. But replace "art pieces" with "land" and now you see why them having a lot more money is bad for all of us if they are using it to buy up land.

The tax favoritism will never stop because the typical citizen rolls their eyes at accounting terms. Thats why they win. They use these little schemes to get away with it because the common citizen does not know what capital gains taxes are because their whole experience is wage taxes.

The people doing this know if it became common knowledge, we'd put a stop to it.

The rich are funding news agencies to distract us with pointless crap like rage against wokeism to distract from the appalling tax avoidance schemes they have been able to legalize over the past few decades. Every minute you argue with your neighbor about an NFL protest, it is one less minute we are talking about what is really going on.

What do you think should be done about this?

Almost the identical crap here in Canada except mortgage interest isn't tax deductible. Probably about the same worldwide, really.

I suppose one additional benefit of farmland, besides being an asset class large enough for Multi-Billionaires to pump money into, is that if TSHTF, at least he owns something tangible that's Actually useful in the event of a financial/societal collapse.. fertile farmland will still be useful to produce food for himself & others even if the monetary value of it evaporates.


As for what should be done about it all.. I think most peoples initial reaction to questions like this are things you can't write on the internet because people will think you're making an actual threat. I Also think that wealth disparity is at such large magnitudes worldwide that during our lifetimes we're going to see what people do about it. Might be some sorta revolutions or reckonings in the years ahead..

Because he has more money than he knows what to do with. At least the money that he used to buy the land didn't go into Planned Parenthood.

Maybe he wants to impress Scarlet O'Hara.


land

Last edited by naturalplastic on 13 Oct 2022, 5:42 pm, edited 1 time in total.

Got tired of paying for royalties.

Wealth tax for people above >25 million or so in wealth, or at least stronger inheritance taxes.

The middle class would be bombarded with ads convincing them that its coming after them, but the reality is the middle class already DOES have a wealth tax for the largest portion of its wealth - property taxes (not every state has them, I know).

The inheritance taxes were absolutely gutted recently. They somehow convinced millions of people making salaries that it was applying to poor farmers when in reality at the time the first 11 million per child was exempt. You even had like 7 years to pay it so you could inherit $20 million in stock and you had 7 years to pay taxes on the $9million - by then the dividends/capital gains would have more than paid for it.

Aristocracy is a very bad idea. People need to work. Rich kids end up divorced from reality and end up out of touch and with significant monetary power to influence elections. The rich (and you aren't rich if you are working for a salary, by the way) have significantly different views on society and they want to pay zero tax, invest nothing into society, and if we get invaded they'd send their kids off to another country.

If we don't make the jerks pay into society, they won't.

When Marco Polo first visited China in ~1250 it was richer per person than in 1850. It was a successful society with no invasions and internal stability during this time period.

In successful societies, what tends to happen is wealth pools at the top. While wealth is less tied to land today, land still is the "inelastic" input to production so it tends to suck up most of the gains to productivity - this is why the people who made the most money in the Silicon Valley tech boom weren't tech workers it was land owners. The workers ended up just paying more in mortgages.

The result in China was that by the time Mao came around, the typical Chinese peasant was barely above starvation. If you can't be sure you can feed your children, you don't care about ideology. Mao came to the village, killed the landowner, redistributed the land, and said "if you don't join me, when they come back they will kill you." It was a powerful way to get recruits.

Other societies have "let off the steam" before it gets to this. I would say that the modern social safety nets are a way to prevent societal revolt. Before social safety nets, the poor in America and other rich countries were dependent on private charity which tended to pick and choose who they felt should get help (and the charity dried up in economic downturns).

In the modern West, we have internalized failures so if you aren't able to support a family or get to the point where you are marriage material (a big, big problem today) we tend to believe it is something wrong with ourselves. If it is one person - sure. When the trends seem to show that more and more people can't make it to the point where they can support a family, its systematic.

Instead of revolting, people are overdosing on drugs and killing themselves with other methods.

And here we have deflection in action.

Where else was he going to bury all the bodies?

And now stratozyck understands why more and more people are saying 'F all of this,' and living off grid. System is so rigged against people that they're just opting out of the system.. living in the forest, hunting/fishing, keeping warm by a fire at the beach etc. I literally know people living this life, and while they trade some stresses for different struggles, I get it.

Shouldn't all the people like you get together and form an awareness campaign? Set up a bandwagon for all the average citizens to get on?

Next question: How can the propaganda against taxing the rich be effectively counteracted?

This will require some massive political organizing, it seems to me. What do you think?

Your tax analysis fails to account for the interest tracing rule. Business and investment interest is not deducted based on what you took the loan out on, but based on how you used the funds. Now, it is true that most investors will leverage the existing rental properties to buy new rental properties, thus keeping the interest expense deductible as rental expense, albeit now officially attached to a different property.

The biggest benefit comes from the ability to complete tax free exchanges and then step the basis up for free when you die.

The piece is the most unfair, IMHO, is when a taxpayer has enjoyed the benefits of depreciation deductions all the years the property was appreciating, and that ends never being recaptured or taxed in any way because of the free step up at death.

Taxes are what I do.

Real estate is a good investment.They aren’t making any more land and people always need food.
If I had a few extra mil laying around that’s what I would buy.

^
This.

The supply of land stays the same. But demand for it goes steadily up.