Buying homes with no cash down

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Boomer Links

In beach communities in Florida, Alabama and Texas, Baby Boomers, who don't want to tie up cash, are buying second homes using a letter of credit.

Using letters of credit to buy condos is fairly simple. Typically, a developer "presells" by letting a buyer reserve one or more units with a small cash payment. The buyer then has 30-60 days to get a letter of credit covering up to 20% of the purchase price. Once the developer gets the letter, the deal is binding, and the reservation becomes a sale. The buyer may then get back that initial cash payment.

This is another example where the US has transformed from a "real economy" (where capital market manias tend to be contained by the availability of savings and credit) to a "financial economy" where the unlimited availability of credit leads to speculative bubbles (read: the roaring '20s & '90s) which get totally out of hand.

To learn more about the real estate bubble, go to: http://home.att.net/~coachthee/whats_new/index.html

John G. Agno, certified executive & business coach, www.MentoringandCoaching.com

Source: The Wall Street Journal, May 19, 2005