Real Estate Term of the Day – Stripper

In terms of real estate, “stripper” refers to an individual homeowner who strips the equity out of their home through mortgage refinancing, or to an investor who buys a property in foreclosure and then rents it back to the defaulting homeowner, which also strips the value.

There are many reasons for a homeowner to decide to “strip” their house. They may do it because they don’t want their residence to be used as payment on a debt they owe, or because they need money quickly and don’t understand the consequences of stripping the equity from their home. The former can be a way to make a property unattractive to a creditor, because it will be almost impossible to sell the house without clearing off the lien created by the mortgage. By refinancing the mortgage or taking out a home equity line of credit, the homeowner makes the home a weak target for creditors. In the latter case, the homeowner might take out a home equity line of credit and spend the money without adding value to the house. This strips the equity out of the house without any benefit for the owner. This puts the owner at risk of losing their home if they cannot repay the line of credit.

Stripping as an investor, where you strip the equity out of a home by buying it in foreclosure and renting it back to the original owner, is diminishing value by buying the house for a price that doesn’t reflect equity, and renting it to the original owner who also gets no equity. This can be dangerous to an investor, because the equity is stripped so no one is benefitting from the sale, and the rental arrangement does not create substantial value for the investor, especially if the renter is delinquent on payments.