Cash buyers who provide a proof of funds letter for offers...is this a legit guru tip?

This past weekend I attended my local REIA meeting as I often do. This month the speaker was a wholesaling guru who's now moved into Rehabs. Anyway, he suggested contacting local rehabbers and asking questions about what they were looking for..you know the normal questions. But he threw in one that I'd never heard of. He said that as wholesalers we should also ask cash buyers if they were willing to provide a proof of funds letter to submit with offers. Of course this would be used only when attempting to secure properties that fit the cash buyers requirements. Have any of you ever had a cash buyer provide your proof of funds letter or or even asked this question to your cash buyers? And if so, how successful have you been? I thought it was interesting, but don't know how well this would work in my particular market.

Edited: 06/26/2010 at 01:17PM

Kevin Kaczmarek

Real Estate Investor · Carmel, Indiana

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Icon_minipost Jun 21 '10, 02:35 AM

Shania,

We make it a requirement when a potential buyer submits an offer that they include proof of funds. I know exactly why the speaker mentioned that tip, as we are also a wholesale specialist and trust me, when you are doing your deals, and you have your $1000 EMD and a signed purchase agreement, you want to make sure your buyer can close. The proof of funds letter is one more piece of security to let you know that your buyer can close.

Why did he recommend this? Imagine a scenario where you have accepted a deposit on a property, have a signed purchase agreement. You are not sure if they have the cash to close. Along the waiting period for the close, you get contacted by an older buyer you talked to who wants to pay $2000 more for the house, and has proof of funds.

At this point you are stuck. You can't back out of your purchase agreement, nor would you want to for reputation sake, but now its killing you inside because you have a buyer you know would close on the property for $2000 more and your under contract buyer that you are nervous about.

Just an example of why we always require proof of funds.

Edited: 06/26/2010 at 01:18PM

Kevin Kaczmarek, Capital Blueprints, LLC
Telephone: 317-564-4820
317-564-4820 kevin@capitalblueprints.com www.capitalblueprints.com

Shania Hill

Real Estate Investor · District Heights, Maryland

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Icon_minipost Jun 21 '10, 02:50 AM

Thanks for the reply Kevin. I understand that as a wholesaler, it's vital to know that your end buyer can close. I guess I'm looking at it through my market's eyes. If you are buying properties in Maryland, DC, or Virginia that are on the MLS--no one will even look at your offer unless you have a proof of funds letter or bank statement. As a wholeslaer, I know that I could use my own proof of funds to tie up a property. But I guess I'm trying to figure out the motivation for my end buyer to provide me with proof of funds before I've even secured a property that he/she is interested in. I hope I'm making sense. I'm typing this while I'm at work.

Edited: 06/26/2010 at 01:18PM

J Scott

Real Estate Investor · Atlanta, Georgia

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Icon_minipost Jun 21 '10, 03:09 AM

Shania -

It sounds like he was suggesting you use your *potential* end-buyer's POF as your POF for the offer *YOU* submit...

This sounds like a very bad idea to me.

The seller of the property wants proof that the person who is contractually obligated to close this deal can close this deal. Until you either:

1. Assign the contract, or

2. Have another contract obligating your end-buyer to the purchase, or

3. Have an agreement from your end-buyer that he will provide you the funds to close,

you must be able to prove that you can satisfy *YOUR* contractual obligation to close this deal. Offering a proof of funds from someone who has no vested interest in the deal (and may never) does not satisfy this requirement.

Just my opinion...

Edited: 06/26/2010 at 01:19PM

Shania Hill

Real Estate Investor · District Heights, Maryland

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Icon_minipost Jun 21 '10, 03:23 AM

That's what I thought he was implying and it didn't soung right to me. Although, I actually asked the question to a local buyer and he agreed to present me with a POF after I'd tied up that contract. But that, obviously, makes sense.

Edited: 06/26/2010 at 01:19PM

Kevin Kaczmarek

Real Estate Investor · Carmel, Indiana

328 posts
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Icon_minipost Jun 21 '10, 08:52 AM

That actually was not was I was implying. Sorry for the mixup. I was looking at it from purely a wholesale selling strategy. The proof of funds would come from the buyer of the property from you.

Shania, from your follow-up question I would never suggest you use proof of funds other than your own. I would say to never use that strategy (I re-read your question) to mis-represent yourself to agents or brokers that might accept your offer.

Sorry for the confusion!!

Edited: 06/26/2010 at 01:19PM

Kevin Kaczmarek, Capital Blueprints, LLC
Telephone: 317-564-4820
317-564-4820 kevin@capitalblueprints.com www.capitalblueprints.com

Shania Hill

Real Estate Investor · District Heights, Maryland

8 posts
81 Influence
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Icon_minipost Jun 21 '10, 10:47 PM

It's ok Kevin. Your answer actually made me think about what was proposed. As a person of integrity in my trained profession of Social Work, I would never contemplate doing anything that wasn't legitimate. I will be applying that same level of integrity to my real estate endeavors.

Edited: 06/26/2010 at 01:19PM