Ways to protect your Equity With Shreya & Colin Ley!
*** Shreya & Colin’s background – Shreya & Colin Ley are Attorney’s at the Layroots firm, coining themselves as Lawyer-humans. They specialize in different strategies, and tools involved in protecting you from the potential risks of lawsuits, and minimizing the potential damage that can occur if you find your self in a pickle. Shreya & Colin are not only Attorney’s at law, they are adventurers, and explorers. From Ballet dancing, rock climbing, to being a drummer in a Punk rock band, they’ve done it all! You can find more about them, and how they can help your protect your business at www.layroots.com
** The coined term that explains Shreya & Collins value so well is: Lawsuit repellent!***
“Were going for perception, not perfection” – Julie Clark
Shreya pro tip – Put a “TM” next to your intellectual property (Intellectual property is an asset) that gets posted online, or on a brochure, before you register to patent it to signify your intent in using this intellectual property. For free!
Joe talks on breaking knee’s. Figuratively of course! :p
How long have Colin & Shreya been working together?
Shreya -Leyroots started four years ago. After some debate of when we started working together, we decided four years is the most accurate number.
Colin – Before that I started out by helping employees who had a disability/injury occur to them that prevented them from working. I would help them figure out how they were going to get disability payments, and essentially help get these people in a terrible situation, back on there feet. It’s a difficult business trying to put together the pieces for such an unplanned event, so ultimately I made a switch to try and help people plan for unfortunate events, that can occur so there in a better spot if something does occur.
Joe – Did you do that because it was more fun, or lucrative? Why did you go that route?
Colin – It was more fun, I felt like I could do more in helping people protect from the unknowns. Coming in to these situations where someone already had something bad happen to them leaves you with a very limited amount of options for that person.
Joe – What is equity protection, and why is it important?
Colin – Equity is something of value that someone can come after. If someone feels you did something wrong, and decides to file a lawsuit against you, it’s what there going to be targeting.
Shreya – It’s usually in relation to how much debt you have, who is in line with a lean on your asset? How much principle do you have? Whats the worth of the asset? These are all things that are going to effect your equity, and the risk of having someone target it.
Colin – Equity in property creates a challenge because it’s in one fixed location. Places Like Nevada, and Wyoming have great laws to protect you from creditors, and lawsuits. But if your property is in a different state you may be dealing with a whole different set of issues.
Shreya – When your in a place like Seattle, where property prices are sky rocketing, and the equity protections by law are relatively low (this is for your personal residence, not investment property).It puts most homeowners in Seattle in a position where they have far more equity than what is protected by the law. What we do is show you how you can close the gap in a way that can help your business’s, and other investments, while making you look like less of a target for potential lawsuits.
Joe – Is there a flat number that the law protects you with, to know what the difference is that you need to protect?
Colin – Personal residence is protected at $125,000 in equity in the state of Washington.
Example – if you had 130k in equity on a home. Someone could foreclose, pay off the lean holders, you would get the left over up to 125k, and the creditor would get the 5k.
** Key lesson – If you are not protected, and a creditor wants to get paid back, they can legally foreclose on your home for that $5,000. Reducing the incentive for someone wanting to pull money out of your assets is what will keep your assets safe **
Shreya – This exemption of the 125k only applies to personal homes, it does not apply to your investment properties.
Joe – Is there a state law protection for investment properties?
Colin -No, the 125k is a state law protection to personal residence’s. There is no state law protection for investments.
Julie – Wouldn’t we start protecting our assets using single asset LLc?
Colin – Correct, you want to protect your investment properties through LLc’s. But as long as something is in your own name, there is no protection from state laws.
Shreya – But, there are ways to protect properties that are beyond just putting your properties in an LLC!
What is Equity Stripping!?
Julie – Equity stripping?……. bow chicka bowoowwww 🙂
Colin – Equity stripping is a strategy that makes you appear to have less than you actually do in order to reduce incentive to come after you. You are essentially making it more expensive, and much harder for someone to come after you. This gives you more room for negotiating with creditors, and less incentive for them to come after you.
**!!Important!! You need to have these protections set up before you are in trouble. Trying to hide, and change these things during a lawsuit is fraud.**
– Equity Stripping Techniques
There are many techniques to equity stripping.
Colin – What your attempting to do is tie up the equity that you have in that piece of property, making it harder to come after.
Shreya -If you have a home that has 2 mortgages on it. Those 2 mortgages are going to have first and second priority leans on the home. This means that in the event of a foreclosure, lawsuit, etc. Those 2 company’s will get paid first, and the creditor will attempt to get third position to receiving equity. The key in equity stripping is putting yourself in this line of lien holders, reducing the chance of a creditor squeezing in a lean line.
Colin – One option is getting a home equity line of credit, and using the cash from the equity in one home, and putting it into another investment that will get a higher return than the interest on the HELOC.
Julie – It’s like shifting your money from one pocket to another?
Colin – Correct
Julie – My fear is; Lets say I bought a piece of Real Estate (not liquid). That investment needs to produce enough income that covers your payment on the HELOC? This imply’s that that there is another type of risk involved in putting your money in another non liquid asset. Your investment return needs to be enough to cover the payments on the HELOC?
Colin– Thats correct, so you need to use those proceeds in a way that cover the extra payments that you took on.
Julie– Iv’e always followed the philosophy. Never touch your nuts! :p
I feel like im being safest when im not taking the equity in my home out, just leave it alone. But when your equity is in your home, it’s more at risk? Unless you have a umbrella insurance policy or something of thos sorts?
Colin– Yes, equity stripping is one leveraging activity. There are many different ways to protect your assets.
Shreya – Exactly, things to pay attention to are – Having a proper entity, not having it in your name, maintain your books correctly, having insurance. Equity stripping is just one tool, there are other ways of protecting yourself that offer more or less control. In the end you want multiple different forms of protection.
Julie – Im thinking about the food pyramid, do you have a similar model for protecting your investments?
Yes!! We do.
Colin – The foundation to any persons investment portfolio is having the proper insurance for what your doing. We run across so many people that start getting in to these investment properties, and never upgrade there insurance from regular homeowners insurance.
From there you would move up to the state exemptions. The 125k protected on residential property would be an example of State exemptions.
Julie – What if you reside in Wa, but your property is in a different state?
Colin– Equity protection protects your personal home only. In Washington state any type of retirement account is safe. But states like Texas & Florida will protect your home. Thats why, when Enron happened, a lot of people started buying homes in Texas, and Florida as well….becasue it’s safe. These laws are there to protect people from going completely destitute.
Shreya – Thats also why professional athletes buy homes in Texas and Florida.
– Joe takes notable interest in this. –
Joe- How long do you have to occupy a home to count it as a primary residence?
Collin – 2 years typically. Commonly someone who is in trouble and is possibly going in to a bankruptcy may move to Texas early, to get in to a home that is protected and live in it long enough to keep there home. Fortunately theres other ways of protecting yourself ,especially if you start ahead of time.
– The next level of the pyramid
Colin – Protective entities. Things like LLC’s, equity stripping.
Shreya – They can be used by people who don’t have LLC’s. Sometimes that person may not want a protective entity, but they may use equity stripping techniques to protect themselves.
Colin – An example: Most new investors use there personal credit, when getting in to a new project. They haven’t built up a business lines of credit, So they have to use there name in order to get in to a property.
Julie – If you buy a property in your own name, cant you do a quit claim deed to your LLC?
Colin – It can trigger a due on sale clause. (a clause requiring the borrower to pay the rest of the mortgage)
Shreya – some people find it beneficial to refinance. Others don’t want to deal with the mess of the due on sale clause.
Colin – In the end it really depends on the lender and what there willing to do.
Julie – You see a lot of investment properties owned by LLC’s? How does that happen/ Did they all pay cash?
Colin – Yea, again it comes down to the lender, if you can show that you own the LLC out right, etc.
Shreya – As far as investment properties, some lenders are ok with transferring to an LLC. But there are other ways to protect that asset, like land trust’s, etc. to get the protective benefits.
Colin – You can always go for it, and transfer it. Due on sale clauses are rarely triggered. At your own risk though.
Julie – Is there anything after the LLC and equity stripping in the pyramid of investing?
Colin – Yea, after these methods you would start moving your funds overseas. This takes it out of the US court system.
Julie – Do you have any movie recommendations that display what your talking about? Like “Catch me if you can?” with Leonardo Dicaprio?
Colin – hahaha yea, but we try to highlight the positive and legal things that you can do!
Pop quiz – What movie does Julie refuse to watch?
Julie – Talks on the importance of getting together with an attorney and starting to plan a way to protect yourself. It’s not something that you can put off. It’s something that you need to start and continue to move forward on.
Shreya – Talks more on the importance of setting these protections up, and why it seems so difficult.
“The point is that its supposed to seem difficult to set up, and it is. Thats why you need to seek someone out that can help direct you in the different ways to protect yourself.” – Shreya Ley
Do not be intimidated by what you don’t know, there are people who can help!
Happy Bday Julie!
Julie – Makes the point that we as investors spend a lot of money on different facets of this business like marketing, education, and networking. But this is a very inexpensive way that can have a massive effect on your business. So the next time your thinking of your business spending, start thinking of different ways you can start protecting yourself.
Joe – Who is the starting ideal client? This is something that isn’t taught in our school sysytems, it isn’t knowledge that most people have. At what time in someones life is it important to start seeking this advice out?
Colin – Thats an excellent question. Different people worry more or less than others. So its different for every person, and how risk averse they are.
Shreya – It really is a personal decision. When you start feeling uncomfortable about the thought of losing what you have. It’s probably time to start talking to someone. How much risk are you willing to take on?
Julie – Mentions having a home that has anything over 125k, you need to start getting protection for your home!
*** Plug for Julie! Anyone interested in a free evaluation of their home. Call 206-910-2985. With Homelink international Seattle**
** If you are planning on holding your properties for rental purposes, you need to start thinking of different ways of protecting these assets**
Colin – There are some strategies that can reduce your risk of IRS audits. So there are a lot of advantages to talking with someone about the different options you have.
Julie – As a new investor, how deep do you need to go in protecting yourself?
Colin – you start by working that pyramid. You get the proper insurance, exemptions, and knowing how it apply’s in your state.
** The first thing to tackle when getting in business is not the LLC. Its planning your insurance protections and getting the right insurance with the most protection!**
Shreya – Its good to get that LLC early if you know that your going to continue, for the purpose of building business credit. But the insurance is whats going to protect you, your life, and assets.
Julie – Speaks on being a wholesaler and thinking about errors and emissions insurance. This is what brokers have to protect themselves. If you are a broker/ investor. Your broker will not cover your personal deals!
Shreya – Speaks on the importance of having the right insurance for what your doing. A big mistake she comes across is a broker showing clients homes, and gets in to a car wreck. A lot of vehicle insurance plans exclude vehicle accidents when being used for commercial endeavors.
Colin – Uses a metaphor that getting a ride half way to the airport isnt really helpful. If your going to start doing creative things like registering your LLC in a different state, or one size fits all plan your not going to be getting the whole picture. You need to tailor every plan to what your goals, and situation is.
Shreya – Talks on Broker not having the right insurance for what they’re doing. Some insurance packages have exclusions that exclude people from commercial use, etc.
Julie – Speaks on the importance of realizing that a lot of this is a personal issue. Using the example of her and Joe being partners, but they still need protection for themselves as individuals.
**Closing remarks – Some of these things may be complex, and not easy to understand. We are investors who want to focus on finding more deals! But don’t let it stop you from planning for the future, and having the proper business protection set up. Find people who can help you put your plan together, and learn to implement it to provide you with the most amount of coverage possible. **
—> To find out more, or to schedule an appointment go to www.layroots.com <—
Insurance—>State exemptions —> LLC’s, equity stripping —> Off shore accounts.