FYI all, Today's Wall Street Journal[19 May], front page section C1 discusses Gulf Coast condo speculators using secured or unsecured letters of credit to tie up condo units pre-construction instead of deposit/ down payment money. Now you can pay 1 to 3 percent of your deposit/down payment annually and control multiple condos pre-construction. Only thing interesting about this historically is that, the last time this practise was widely used [along with interest-only loans] was in the 1920s before the Depression.
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Beach Lover
This is partially true. Typically a developer will require 20% down. They want 10% of this as cash and will accept the other 10% as a letter of credit. I've not seen a project yet where the developer would let you put nothing down and rely on a letter of credit for the full 20%.
SoWal InsiderAuthor
I would say it's a wash. A 10% letter of credit is about as strong a pledge as the realtor's/ sales person's vision of future profits to a buyer. Most buyers will most likely walk from their down payments if values back up before construction is completed.
Beach Lover
Agreed. That's where the cards would come tumbling down. I'm not convinced that will happen though.
I would say it's a wash. A 10% letter of credit is about as strong a pledge as the realtor's/ sales person's vision of future profits to a buyer. Most buyers will most likely walk from their down payments if values back up before construction is completed.
SoWal InsiderAuthor
I sure the demand will continue for the long term. I just hope we can walk the fine line between innovative financing to meet the challenges of price and craziness. Americans [God bless us] tend to have that "all in" attitude about everything. Our greatest strength is also our biggest weakness.
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