Reply #10: I came close to 'flipping'. Surprisingly easy. [View All]

[trof]

I'm retired, living on S/S and a small pension.
I also have a fairly substantial IRA as a result of a cash lump-sum conversion of a company pension plan.

In 2005 and 2006 the condo craze was in full swing on the Alabama gulf coast. Friends had made some big bucks 'buying' at pre-construction prices for as little as 10% down and then reselling at much higher prices a few months later.

One condo had changed hands 10 times before the owner who actually took possession had a key to the front door. And every seller made money. Very tempting, but I was reluctant to cash out that much of my IRA.

And then I heard about 'The Deal'.
You didn't need 10% in CASH. A letter of credit would be perfectly acceptable. I didn't have enough cash to be comfortable with such a risky 'investment', but...I DID have a hell of a lot of equity in my home. Several hundred thousand dollars worth.

After a cursory review of my net worth, a local bank would be happy to issue a letter of credit based on the equity in my home. The pre-construcion price of the smallest unit in the proposed condo project I was considering was $300,000. So for a $30,000 letter of credit I could buy in. The annual fee to the bank for this was negligible.

I thought about it for a few days and then chickened out. Just more risk than I was comfortable with.
Good move.

The project was never completed.
The developer is in bankruptcy and being sued by all of the buyers.
And the bottom has dropped out of the condo market down here.
whew