Savvy real estate investors have found a new and interesting way to escape the down payment – they substitute a letter of credit for it. This means was previously employed in the industries that have lags between the times of striking and closing a transaction, securities transactions or the import/export business among them.

Letters of credit are guaranteed by the bank that will repay the amount in case of the borrower’s default. Some of them are secured by the borrower’s assets while others are not.

This way of property purchase is used by more and more by buyers of beachfront condos in Florida, Alabama and Texas who invest in housing that only waits to be built. This is a convenient option for someone unwilling to commit cash to a long-time endeavor. This means protecting their cash resources at the time when the houses will start being built as this process may not begin until at least 60% of the condos are pre-sold.

Letters of credit can be used to finance up to half of the down payment on the condominiums. Usually the first portion of the down payment is small and allows the buyer to book a certain unit within a condo. The letter of credit arrives with the rest of the down payment, and from that moment the contract becomes binding.