A Super-Powerful Asset Protection Strategy – Debt!

Post Date: June 2013

 

Asset protection is more important now than ever before because there are 82,000 lawsuits filed DAILY with real estate being a BIG target. There are numerous vehicles to protect you – LLCs, trusts, insurance – including combinations of these.

Equity Stripping

82,000 lawsuits are filed DAILY and real estate is a BIG target.


There’s a also very powerful (but overlooked) asset protection technique called “equity stripping.”

Equity stripping basically is being drowned in debt with no equity, so no one would ever want to go near you with a legal action, unless they are nuts!
The debt will be owed to a company (LLC) you control but separate from you. Regardless of the number of properties you have, with equity stripping you only need two LLCs.

The first LLC is your “real estate LLC” holding all of your investment properties, which is typically formed in the state of the property location.

The second LLC is your “lender LLC” to create secured loans on properties in your “real estate LLC,” so there is NO equity in your real estate LLC. As such, there is NO target for wrongful creditors and money-hungry lawyers. Because it does not own any property, the lender LLC can be formed in Wyoming, which has the absolute best privacy.

Equity stripping is like getting a secured loan from an outside lender, except here the lender is your own LLC company under your control. The lender LLC company (now holding your equity) is not reachable by creditors and it owns a non-risk asset – “paper” – which does not cause lawsuits.
Properly structured,  equity stripping can be done with or without cash being transferred as part of the secured loan, which again strips out the equity in the real estate LLC.

Using multiple LLCs separates each property’s equity, which is protective, but does not totally strip out the equity like equity stripping and is much more expensive.  Equity stripping can be used in any state. See below for an equity stripping diagram-example with $100,000 of equity being stripped out.

 

Valid Secured Debt Between Two Separate Statutory Entities

Real Estate LLC	Lender LLC (WY)
Value      $   400,000
Bank Mtg.  -300,000
	NO-Risk Mortgage
2nd Mtg.    -100,000	Asset….+$100,000
Your RE Equity=ZERO	Paper (Protected) Equity = $100,000

The Great Benefits Of Equity Stripping

• Lawsuit Prevention - Stops legal actions before they would ever begin because no one wants to sue people in debt, unless they are prepared to pay large non-contingent fees to an attorney, who still would not give any guarantees.

• Much less expensive and less time consuming than using an LLC for every property, saving you thousands in legal fees, plus your time.

• Ironclad. Properly structured, it is the only asset protection vehicle that has never been collapsed!  And combined with a properly structured LLC, it gives impenetrable protection!

Source: creonline.com - Al Aiello, CPA, MS Taxation

DISCLAIMER: This blog has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger and does not necessarily represent the opinion of Pacific Coast Commercial.

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