Equity Stripping for Real Estate Investors

Make yourself an unattractive target for lawsuits and creditors with equity stripping.

As real estate investors, one key issue for protecting our assets is making sure we have very little or no equity exposed to the world. Why? Quite simply, the equity in a property is what can be seized and sold off in the event of a successful lawsuit and judgment against you. So what’s the smart investor to do?

Fortunately, this is where equity stripping comes into play.

What is Equity Stripping?

Equity stripping is any process that will reduce the value of a given real estate asset. It is a classic among asset protection strategies, well known for being a tried-and-true method of creditor protection. Equity stripping may be used to protect your home or an investment.

Wait. I want to look poorer than I am?

Yes, you do. It’s the smart play. You can invest and earn all you like yet still appear to qualify for food stamps. The illusion that you own little to nothing makes initiating a lawsuit incredibly difficult for the other side.

Is Equity Stripping legal?

Equity stripping makes you less desirable to sue because you appear to have less than you actually do. Some investors wonder if this is ethical or even legal. The answer is yes, provided you set everything up before a creditor or lawsuit comes your way. Be proactive!

We Simplify Equity Stripping For Real Estate Investors

Don’t attempt equity stripping alone. There are some tasks that require a professional’s oversight, and this is one of them. Fortunately, the pros at Royal Legal Solutions are happy to help you out.

Who Needs Equity Stripping?

Equity stripping is a viable solution for many types of real estate investors and even ordinary homeowners. Therefore the answer to what type of person needs this service can be varied and diverse.

For instance, not all laws protect the equity in a homestead equally across the United States. For those who have paid off more on their home than is statutorily protected, equity stripping is one legal method for protecting that homestead.

There are many methods for equity stripping. Anything that encumbers an asset on purpose, or moves it from a position of exposure to safety, could be considered a form of equity stripping.

For most of our clients, we recommend domestic equity stripping. To employ this tactic, you use one of Royal Legal Solutions’ Traditional LLC structures. You can then use the LLC to strategically issue notes on the properties you own.

Which of these options is most appropriate for you?

That will depend on your needs and the advice of your attorney.

Offshore equity stripping is legally similar but has a key difference. With this method, you would need an offshore trust to issues notes on your properties. This type of offshore trust, also known as a bridge trust, offers additional benefits. However, while the offshore option is highly secure, there is a price trade-off. Bridge trusts can cost thousands to establish.

Another means of harmless debt creation we have used is instructing investors like you on the less conventional, although far easier-than-it-sounds, tactic of creating your own mortgage company. And there are even more ways to get the job done.

Last Updated: 
April 15, 2021

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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