A look at the specific flaws in the leverage as an asset protection mechanism theory. Contact us at 1 800 879 0984 for more information, or a FREE consultation.

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Let’s say you have a $100,000 rental. Well, if you have that paid off, you are an attractive target to a contingency lawyer. They know where $100,000 of your assets are when their client comes to them and says you done them wrong! The theory being that lawyers are lazy and don’t know how to do research or even hire it out. However, if you have a 95% loan, then you only have $5,000 in exposure to those lazy incompetent contingency lawyers. Okay, I am adding some sarcasm here, but really that is the basic theory. High percentage loan reduces your exposure to lawsuits.

Now, please don’t misread me. I am not saying all leverage is bad. Leverage is a great thing to use when acquiring income producing property. There is validity and great satisfaction in knowing you control an asset and each month your tenants are paying for it for you. Yes, leverage has its place in the real estate investors’ toolkit. In the current market, I would argue, in fact I do argue, smart investors have pulled back on the exposure they have through leverage. That means, they have reduced their loan to value ratios and consequently their monthly payment obligations. But, that is a discussion for another post.

Let’s look at the specific flaws in the leverage as an asset protection mechanism theory.

For a moment, let’s assume I have a judgment against your company, not you personally, and the amount of that judgment exceeds your insurance coverage by $100,000. Furthermore, you own $1,000,000 in rental property. But, you crafty investor, you have them all mortgaged through a succession of refinances and lines of credit at the 95% level. Wow, unlucky me, even if I seize all of those properties, or the LLCs owning them, I am still “out” $50,000. Yeah, that is sure how the gurus teach it, huh?

However, I am going to actually have the value of your $1,000,000 in rentals appraised based on the cash flow it generates. Hmmmm, they all just break even, or have small negative cash flows, or small positive ones. So, no real value there. No problem. The cash from the refinances and lines of credit must have gone “somewhere” so my attorney compels disclosure. Your lawyer shows it is just gone. It was used for operating expenses and salaries and services and, well, “it’s just gone” he argues. But, since I didn’t hire one of those lazy knuckle-dragging lawyer types mine knows how to deal with this.





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When it comes to making the right legal and financial decisions pertaining to long-term care, you want the best PA Elder Law attorneys on your side! Shields and Boris Law Office provides experienced professionals who concentrate SOLELY on Elder Law - issues such as Medicaid, Asset Protection, Veterans Benefits, Special Needs, Wills, Trusts, Estate Taxes, Probate, CALL US and see how you can protect the money you've worked your entire life for.


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