Hello,

In your last lesson we discussed how to protect your deposits from access by the developer or any other party.

This lesson will focus on how to invest using letters of credit instead of making cash deposits. This lesson can dramatically increase your leverage and your return on investment.

Deadly Mistake Number 5:
Making deposits in cash when
letters of credit can be utilized

Why would you invest with cash when you don't have to? Success in any investment depends largely on leverage. Letters of credit (NOT lines of credit) can turn a 40% profit into a 2000% profit...so pay attention!

Nothing is more exciting about pre-construction investing than this...and almost nobody knows about it!

Buying preconstruction as part of an investing group with a small cash deposit can result in significant profits...as we've been discussing. However, letters of credit can grant you far more flexibility and leverage with little or no additional effort or risk.

Read this lesson carefully because most people confuse letters of credit with lines of credit. A line of credit is a loan against assets like home equity. We are NOT talking about loans here.

A letter of credit is simply a letter from a financial institution, often a bank, saying that you have assets to back up your commitment to a developer. Essentially, a letter of credit allows you to use capital or equity you already have invested somewhere else as collateral for the letter...thus giving you the ability to make deposits on real estate without putting cash in escrow. Since we never let our developers access our deposits anyway, why shouldn't they let us use letters of credit?

Most institutions will charge you a fee equal to one percent of the face value of the letter (per year) for their assurance to a developer that you have the capital to back up your promise. So long as your money continues to be invested through their institution there is no reason they couldn't issue a letter to any developer. So your money continues to be invested...and you get control of the real estate too. What could be better than that?

Traditionally, most letters of credit have been issued against stocks, bonds or other assets owned by the investor. The way in which capital is held will determine what percentage of the capital is available to be used for the letter. For instance, if you have a $100,000 stock portfolio, a lender may issue you a letter for only 60 or 70% of the value...since there is a risk of the portfolio value going down. There are other types of restrictions as well...depending on how secure the money is.

So what does this have to do with you? What it means is that you may be able to generate substantially greater profits with the use of capital you have already invested (or saved) somewhere else. Let me explain.

Let's say you have $100,000 in a bank CD earning 5% per year. A financial institution would likely be willing to give you a letter of credit for the full amount since the money is safely held in a secured account and is not subject to volatility. Let's say they give you a $100,000 letter of credit at 1% per year. In this example your $100,000 letter of credit costs you $1000 per year.

Next, let's say you find a developer (or we introduce you to one) willing to sell you a pre-construction unit for $1,000,000 with a 10% deposit of $100,000. He is willing to accept $100,000 cash or $100,000 in the form of a letter of credit. Using the letter of credit, you now have control of a $1,000,000 pre-construction condo unit for $1,000 per year.

If it took two years to resell your property, the $2,000 cost for the letter would return at least $40,000 (if you are a member of our group)...just based on the terms of your purchase agreement (assuming the units are completed and don't increase in value). If $2,000 turns into $40,000...that's a 2,000 percent return on investment.

If the developer failed, you would only be out the cost of the letter. I'm sure you can see the added benefit the letter of credit can provide. Of course you will still receive the 5% annual interest on the bank deposit (or profits from your other investments) regardless of how the real estate investment does.

While the institution issuing your letter will use your assets to guarantee payment to the developer, you don't give them the money to hold in their possession...so you can continue to earn the same return the money has always provided...with the possibility of additional profits from the real estate.

Many savvy investors are beginning to realize that letters of credit against current holdings (cash and otherwise) can be used to leverage a wide variety of real estate transactions. Did you know you can freeze a line of credit and get a letter of credit against it? That's right! It basically means that you can gain access to letters of credit...against equity in real estate (without borrowing the money)...so long as you first acquire a line of credit against the equity. While this strategy is new to most financial institutions and may require more diligence on your part, it is possible.

Our buying club has several deals with developers willing to allow us to use letters of credit instead of or in combination with cash deposits. This is a trend we see continuing for some time...especially in the US. But as an individual buyer you will likely never get such concessions from any developer.

By the way, our buying club has established special relationships with financial institutions offering high interest rate CD's, monthly interest disbursements and FREE letters of credit in exchange for your deposit. Whether you are interested in our buying group or not, letters of credit should be a large part of your strategy.

If you have any questions about this topic, feel free to call me at the number below.

In the next lesson we will discuss another important issue in detail...how to protect yourself from losses in declining real estate markets. We'll show you how to get the developer to take on these risks and give you your profits...even if they come out of his pocket.

Feel free to call me anytime. We don't sell any products or seminar tickets. We're a private investment group committed to education and partnership. Our purpose is to provide you with a comprehensive education so you can properly invest in what we believe to be the greatest opportunity anywhere for intelligent investors...pre-construction real estate.

Respectfully,


(847)793-0146
Joint Venture Partner
Senior Executive Advisor, BPV
Founder, PreConstructionSecrets.com
President, Freedom By Design, Inc.

P.S. To regain access to your 12 page report and the pre-construction audio explaining the details of our investing club (and more about letters of credit), simply click here.

P.P.S. If you are a real estate developer or know developers who are looking for project funding, please give me a call. Our buying club may be interested in acquiring a large percentage of your pre-construction units.

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