Saturday, August 13, 2005

Leveraged to the Hilt

[Multitalented Joaquin L. Thompson of Mableton, Ga., is a baker, a nurse for an insurance company, and now, a successful real estate investor. On Aug. 3, he made $14,500 by flipping a house he owned for only 53 days. A small Atlanta bank financed his entire purchase price. All Thompson put up was $1,200 in earnest money that went into escrow. Not bad: In less than two months, Thomson walked away with a 1,100% gain on the money he started with.

More and more homebuyers are discovering that in a bull market, acquiring assets with other people's money is the path to riches. They're borrowing a rising percentage of their purchase prices, contributing to the housing boom. The danger is that if prices begin to fall, people who have stretched to buy houses with 100% financing will be under water on their mortgages and at risk of default if they have to sell. "I always tell people, look at the worst scenario," says James R. Gillespie, chief executive of Coldwell Banker Real Estate Corp. (CD ). But many buyers ignore the warning.]



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