POF Letter?

Question

Hello fellow investors. I'm very new to investing but I have pick up a ton of info from both reading and taking action on what I've learned. I've submitted a good amount of offers but have never got a property under contract. Although I have had negotiations with banks ( I go after REO's ) I continue to run into the same problem. So far I've used a POF from a HML that I've personally meet with to discuss terms and things of that nature. So the POF isn't generic but, banks in my area ( PG County, MD ) haven't been that receptive of my Subject to HML approval clause. Is there a way around this?

Curt Davis · Answer

Well,  here are my 2 cents.

Quit trying what you are doing.  Banks are not going to take your POF letter from your HML.  Any type of contingency in your contract will kill the deal with the bank.  Your offer needs to be all cash and close quickly if you want to get the deal.  What does " subject to hard money approval " mean anyways?  If I was the bank I would think, well, this potential buyer has a POF from a HML but it says subject to HML approval?  Now this does not make sense?

Use a real POF, no contingencies, cash and close quick.  You need to be prepared to close on the home if need be.

John Klahn · Answer

Anthony,
I have to agree with Curt.  A real POF and less contingencies.  My offers usually have only the inspection as a contingency and are cash offers.

If you have a good relationship with someone who has a decent bank balance ask them to pseudo-partner with you so that you can get a legitimate bank statement as a POF.  You can have them write up a short, non-binding letter that says that you are partnered with them and have permission to purchase real estate with their money.  I've done this, it's no big deal, and I've gotten properties under contract doing this.

I am with many of the folks who replied with the belief that POF from HM lenders are viewed as a joke now days.  Just like Eric said, I think that they want to see a cash balance.

Cheers,
John

John Klahn · Answer

It's always good to have a back end investor who doesn't need to finance the deal, if they don't have cash the second best thing is a hard money loan.  Vetting your end buyer for their ability to perform on the purchase is critical.  I don't sell my wholesale properties to investors with no cash and/or no experience with a hard money lender - I absolutely won't sell to an investor who is trying to put any kind of conventional lending together.

You don't have to pay cash for the property if you get your cash offer accepted.  In my experience, as long as the purchase gets funded they don't much care how.  HOWEVER, if you make an all cash offer and can't perform (close) because of funding reasons then you will lose your earnest money and you shouldn't have been going after this property at this price in the first place.  If you make all cash offers you should be certain that you can put your money (or financing) where your mouth is.

Cheers,
John

Scott Karg · Answer

I used a combination of cash(bank statements) lines of credit, 401K, etc for my POF on my recent deal, then used a HML.

Marcus Mccray · Answer

I really think Anthony's problems lie in the contingencies. I print POFs all day like candy and have made offers on all types of sales REOs, Short Sales, and Regular. I send my offers with the POFs and write the offers ALL CASH.
90% of my initial offers come back either rejected for being too low, countered, or accepted.
I have never had an issue with POF letters although they are easy to come by nowadays.

Eric M. · Answer

The only POF I have ever seen that was worth the paper it was written on has been a bank statement showing a balance.
Anything else is meaningless IMO.

Marcus Mccray · Answer

In my experience (limited as it may be) I have found that helping distressed sellers as an investor where the situation is a win-win for everybody involved is a little easier than going after REOs.
          
          A la short sales and situations where folks have inherited property that they cannot afford to repair or keep up payment on.
          
          Anthony as far as your POF and the contingency problem go Curt is right on the money. You ARE A CASH BUYER. 
          1.Review the guidelines of your HML.
          2.make your offers accordingly (no contingencies) 
          3.get your exit strategy together (this should actually be #1)
          4.Close the deal and execute your exit strategy
          
          There's some things in between and I'm sure some folks here may suggest a different order but generally that's the basics.
          
          Hope that helped.

Jerry Puckett · Answer

So are you saying that investors who don't have cash should not pursue REOs ? Or just not in this way? HML's don't work for REO properties? REO's are not on my menu...yet...I'm just now getting more comfortable with hard money. I don't know what it's limitations are.

Anthony Makins · Answer

If I changed my contingencies to make them more suitable and submit an all cash offer, wouldn't I need a all cash back end investor?

Anthony Makins · Answer

My goal is to wholesale. I have some cash but really don't want to use it. It's not a whole lot anyway. Thanks guys.

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