Proof Of Funds

During a coach call tonight we were talking about Proof of Funds. This one is is an old post, but still relevant, so I decided to repost it hoping its seen by new eyes in the community and you find it useful.
Tip of the week #5 – Proof Of Funds (POF)
Sorry if this is a super long post but there is a lot to talk about this topic. I’ve seen a lot of questions and frustration around POF so I figured I clarify a couple of things and share a few things I have done We investors inherited the need to show POF from “normal” home buyers that have to prove to sellers that they have in cash enough money for downpayment and closing costs, usually 3% to 20%. Since we buy “cash” we need to show we have 100% of the money to buy the place. One KEY thing to understand is that contrary to a “normal” buyer is that you DO NOT have to use the cash from your POF to actually buy the property. “Cash” in real estate investing is a proof of time to execution, not of actual currency. Think about this, would a seller care if you could buy his/her place in a week getting a 30 year conventional mortgage without an inspection or an appraisal? NO! The seller cares about time to close not where the money is coming from.
Also, there are different qualities of POF, experienced people (i.e. Realtors or Asset Managers) will recognize a low quality POF, i.e. a generic letter printed online. From worst to best POF are: on-line letters from HML (also the verbiage on the letter places a key factor in your offer being accepted or not), private money in investment accounts, private money in liquid, true cash. I have had offers accepted because the way my offer was presented, even though was not the highest. To get offers accepted you need a high quality, verifiable and good looking POF. Knowing that you do not need to use the money from your POF to actually buy the property, here are a few options:
1). look for potential private lenders or friends that have healthy bank accounts and ask them for a copy of their account and a letter stating that money is available to you, your LLC or S Corp to buy real property. 2). You just sold a deal and your bank account has a higher balance than normal? Print that statement, you can use it for 30 days. 3). Have several bank accounts and credit cards? Move all the money to ONE account, get cash advances on your cards the last week of the month, print that statement and use it for 30 days. 4). Find a great deal on a property, having a great deal will make it easier to meet private investors, which by the way can give you POF.
About two years ago I found myself for a few weeks without POF, a friend of mine had a very healthy bank account but was not a believer in real estate investment, I asked him if he could give me a letter and a copy of his bank statement so I could write offers, he said “no”, I said “I’ll give you $500 for it”, he said “yes”. I used that POF to write offers that got accepted that allowed me to talk to new investors, one of them funded my next 11 deals. Right now I am doing this: the fiance of one of my investors scans and emails me the first page of my investor’s Schwab account statement every month and I have a letter signed by him and with his phone number stating that the money is available to my LLC. I write my offers with no loan, no inspection and no appraisal contingency, I only used two days contingency to talk with the building department and tax assessor, not a scary thing in the eyes of the seller. On the loan section of the offer document my Realtors type “buyer reserves the right to secure private funding, all other conditions remain the same”. This way seller and Title know I may (I know I will) get a hard money loan but I am meeting my COE timeline and I am not adding any contingencies if I get a hard money loan. Works like a charm, sellers do not care where the money comes from as long as you close when you say you would! Another misconception is that you need ONE POF, two letters and two accounts showing $50,000 are as good as one showing $100,000, so talk to friends, talk to FB peers here that are lending, ask them if they would provide you with POF. Point is, you need a high quality POF to get more offers accepted, so go get one! Make it this week’s main objective to get it, just do it, be creative, use the people around you, make it happen!

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