📘 What is Equity Stripping?

Equity stripping is a financial strategy where a property owner intentionally reduces the amount of equity in a property. This is typically done by taking on additional debt, such as a second mortgage or line of credit, secured by the property.

While sometimes used for legal asset protection, it can also be misused in fraudulent schemes, so it must be approached with caution.

📌 When and Why It’s Used

Equity stripping is commonly used by real estate investors to protect assets from potential lawsuits or creditors. By reducing the apparent value of equity, it can make the property less attractive for legal claims.

It’s also used to access liquidity without selling the asset, especially in cash-out refinancing or restructuring efforts.

🧮 How It’s Calculated or Applied

There isn’t a single formula for equity stripping, but the process involves determining the property's current market value, subtracting existing debt, and then securing additional loans to reduce the remaining equity. The goal is to convert equity into cash or secured debt.

This strategy requires careful planning to stay compliant with laws and avoid abusive practices.

✅ Pros

• Can provide quick access to capital for other investments
• Used to protect assets from lawsuits or creditor claims
• May be helpful in restructuring or refinancing situations

⚠️ Cons

• Can be considered fraudulent if used to avoid legitimate debts
• Increases overall leverage and financial risk
• Complicated to execute legally and ethically