Buying & Selling Houses

3 Ways to Handle Requests for Proof of Funds When You Don’t Have Any

Expertise: Business Management, Commercial Real Estate, Landlording & Rental Properties, Real Estate Deal Analysis & Advice, Mortgages & Creative Financing, Personal Development, Real Estate Investing Basics
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I write a lot about raising money from others, especially as a way to get started with multifamily investing even if you don’t have your own cash or good credit.

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The challenge is that if you’re raising money, chances are that you don’t have the net worth or liquidity to satisfy a seller’s request for proof of funds. As a syndicator, you don’t already have the funds sitting in a bank account. You’re going to raise it from others and deposit the money into an escrow account for closing. But you don’t have it right now.

This can be a real challenge to get a seller to ratify a contract with you. It’s not uncommon for the broker and/or seller to want to see proof of funds. This can be a major problem that you need to know how to address, and many sellers won’t accept your contract, even if you offer an outrageous price.

The underlying issue, of course, is that the seller doesn’t really believe you can actually close on the property. This is why they want to see proof of funds. While showing the seller actual proof of funds would certainly satisfy them, there are other things you can do instead.

Here are three tips you can follow when you get the request to show proof of funds.

Related: 4 Priceless Contract Negotiation Tips to Keep You in Control of the Deal

3 Ways to Handle Requests for Proof of Funds When You Don’t Have Any

Tip #1: Push Back

A request for proof of funds is a question of trust—or rather a lack of it. If the seller knew for sure you were going to be able to close, they wouldn’t ask you for this.

The first thing you should do is to push back with something like this:

“I understand you’re concerned about our ability to close since we will be raising the money. But I already have the verbal commitment from my investors for the money we’ll need to do the deal. It’ll be in the escrow account when we close, but I don’t have it in a bank account right now. So I can’t give you a proof of funds.

But how about this? Why don’t we get together and get to know each other? If you don’t feel 100% comfortable with moving ahead with us, we’ll part as friends. What do you say?”

If you’re feeling gutsy, you could add:

“If your seller insists on a proof of funds, we’re going to have to move on. I have another four deals I need to look at today.”

People do business with people they like and trust. The best way to build trust is with an in-person meeting with the broker and/or the seller. This gives you a chance to build rapport, tell them what you’ve done and what you want to do, and share with them the team members you have around you.

If you can’t meet with the broker or seller in person, then you’ll need to do it remotely with a phone call and email. If only email is possible, create a cover letter that provides an overview of your accomplishments and how you will be raising money to complete the deal. Include your bio and the investor package for this deal. Do the best you can to make the seller comfortable with moving forward with you.

If the first tip fails and you still want to get into the deal, here are two more ways for you to potentially satisfy the seller’s request.

Tip #2: Demonstrate Intent by Your Investors to Invest

Another thing shy of an actual proof of funds is to offer to the seller letters of intent signed by each of the investors that indicates their interest to invest and the amount they are interested in investing. I’ve done this with at least a couple of offers recently, in addition to a cover letter and bio, and it has satisfied the seller.

To the investors, the letter of intent is not legally binding in any way, and it doesn’t cost them anything to sign it; however, it adds significant credibility to your cause.

marketing-presentation

Tip #3: Get Proof of Funds From One of Your Investors

If the second tip doesn’t satisfy this obstinate seller and you’re intent on getting into the deal, there is yet a third option. And that is to get one of your investors to give you a proof of funds. Proof of funds can take different forms: It can be a bank or brokerage statement, or it can be a letter from the investor’s banker or broker. Many times investors prefer the latter because it doesn’t disclose exactly how much they have. It only confirms the amount that you need to show.

(If you want an example of such a letter, just message me through my profile and I’ll email it to you.)

A proof of funds statement or letter doesn’t cost the investor anything. It’s not legally binding, and it doesn’t require the investor to invest any money at all. So there is no obligation whatsoever on the part of the investor.

Related: The Simple, Effective Way to Build Seller Trust & Land More Deals

The Bottom Line

It’s not uncommon for a seller to want to see proof of funds. It’s the BEST way for the seller to stave off the riff-raff from tying the property up for the next 60 days without the ability to actually close. If you’re faced with a request for proof of funds, push back and try to make the seller comfortable with your ability to perform. If that fails, show the seller letters of intent signed by your potential investors. If even THAT fails, ask one of your investors to provide the proof of funds.

If you follow these tips, you’ll never get stumped by a proof of funds request again.

hard-money-lenders

What strategies have you used when asked for proof of funds that you can’t necessarily provide?

Let’s discuss in the comment section below!

Michael Blank is a leading authority on apartment building investing in the United States. He’s passionate about helping others become financially free in 3-5 years by investing in apartment buildi...
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    Steven Francis Real Estate Investor, Realtor from New Bedford, Massachusetts
    Replied almost 5 years ago
    Very new to all of this. If my question seems simple, or you have already answered it, I apologize. When a broker is requesting prof of funds, are they only looking to see that you have the percentage needed for down payment? I may be talking apples and bananas, excuse if I’m mixing up ideas.
    Derek G. Investor from Toney, Alabama
    Replied almost 3 years ago
    I would add this also goes for if you purchase a property with cash 100%. I bought one property and had to empty my short-term stocks investment portfolio and move money around to satisfy the sellers. It was stressful, but it got the job done.
    Bob Mason from Pittsburgh, Pennsylvania
    Replied almost 4 years ago
    Good question!
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    That’s right. Many times, when a proof of funds is requested, the broker and/or seller wants to see enough to cover the down payment.
    Steven Francis Real Estate Investor, Realtor from New Bedford, Massachusetts
    Replied almost 5 years ago
    Great post, btw.
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    Thanks Steven …
    CK Hwang from Capistrano Beach, California
    Replied almost 5 years ago
    Actually, jus to add one more technique, depending on the deal structure with the investor, odds are that if a person was borrowing money from an investor, there would be a loan document created ahead of time (normally by an attorney) that needs to be given to escrow in order to generate a trust deed to secure the investor’s funds. This document is pretty much like a cover letter issued by the bank indicating their willingness to lend, this could be used as proof of funds as well.
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    Yes, but that kind of document wouldn’t be available until later, and the proof of funds would be required at or around the time of contract signing …
    Johnson Ejalu from Waldorf, Maryland
    Replied almost 5 years ago
    Nice post but I think it depends on the deal….If you are pursuing a institutional deal, lets say Fannie Mae for example you will be required to have 10% down for cash and/or a pre-approval letter if financing. Anything short of that and your offer will most likely be trashed. Tip 1 & 2 will probably work with non-institutional motivated sellers but even in such cases your chances of winning the seller’s trust is low especially if your competition is willing to show the money. Also some sellers may require a significant deposit as a result. What is your success rate in the DMV market without having to produce POF?
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    Hi Johnson – for Fannie, they require proof of liquidity of about 10% of the loan balance and a net worth equal to the loan balance. I don’t address these specifically in this article, but you could use an investor to satisfy these. But if you do, then that investor would need to be a signor on the loan docs.
    Randy Reed Real Estate Professional from Odenville, Alabama
    Replied almost 5 years ago
    How about putting the seller at ease by putting up substantial earnest money down payment. Say $5000-$10000 with no refund? That might work in some cases.
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    That’s a good idea, Randy …!
    Andrew Cordle from Alpharetta, Georgia
    Replied almost 5 years ago
    Great information!
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    Thanks Andrew …!
    GLORIA DULAN-WILSON
    Replied almost 5 years ago
    That was extremely helpful – I’m still on the info gathering, not yet getting my feet wet stage – but there are some properties I am scheduled to see, and I don’t yet have any private money lenders lined up. I thought the letters of intent were the most helpful of the three recommendations – I don’t know if I’m at the point where I could bluff my way into getting around a seller wanting to see Proof of Funds. Thanks Michael, your information is always helpful and on point.
    Susan Maneck Investor from Jackson, Mississippi
    Replied almost 5 years ago
    Since I often buy from HUD or Fannie Mae I have always had to give proof of funds for a cash deal. I don’t deal with private investors but I have been known to buy houses on my credit card. So what do I produce for proof of funds? My retirement accounts. Now aside from my solo401K which has been used to buy three houses, I have no intention of buying a house with my other retirement funds, but my use of them as proof of funds has never been questioned.
    William Hochstedler Broker from Logan, Utah
    Replied almost 5 years ago
    Most hard money lenders will write a letter saying that the funds are available. This might not satisfy some REO’s, but I’ve never had a problem with a private seller accepting this.
    Aaron Ramm Investor from Marysville, WA
    Replied almost 5 years ago
    Thanks for the good read Michael! I never thought of using an LOI in place of POF. As William stated, many hard money and private lenders will write you a POF letter for the amount you ask for to help you get it under contract.
    Jack Tyler Investor from Arlington, Texas
    Replied almost 5 years ago
    I am brand new to REI (zero experience yet), but I have been trying to read up as much as possible too. I recently came across some information where, for a monthly fee, you can get a “proof of funds” statement. Is this legal, and/or ethical? I just want to make sure that when the time comes, I am acting legally and ethically, and don’t want to do anything that creates that “shady deal”. Thanks for the info!
    Michael Blank Rental Property Investor from Northern Virginia, VA
    Replied almost 5 years ago
    Jack – sounds cool, can you share more info?
    Jack Tyler Investor from Arlington, Texas
    Replied almost 5 years ago
    I came across a video (advertisement) for a proof of funds service. Basically, you pay a monthly fee (I think this one was $29 or $39, don’t remember) and when you go to purchase a property, you can show them this proof of funds letter to show that you have access to funds. Since I’m new, I didn’t know if this is what most people do, meaning it is legal and ethical, or if this is something that might be “shady looking” at the very least. I believe the name and account numbers were blacked out. I guess it can make sense, especially for me, since I have no money, but through investing networks, technically the money is there (obviously not for me to just run down to an ATM and make a withdrawal). But I just wanted to get other experienced investors input to make sure it something that can be done legally and ethically. Sad part is though, right now I don’t have the money to do that anyway, I would just post a deal for other investors and let them work it out for now…after all, I’m as new to investing as it gets at this point lol
    Trevor
    Replied over 4 years ago
    Even if you use a proof of funds letter from an outside source and am able to get the property under contract, wouldn’t most lenders want, “YOU,” the investor to come up with 10% liquid cash to put into the deal? How are we as investors able to do so to accomplish 100% financing?
    Michael Pittman Real Estate Agent from Houston, TX
    Replied almost 3 years ago
    Never thought about these options. I was stymied by someone about a month ago. They have the same house on the market and came down 10k on their asking price (flood damaged property). Wish I knew this sooner!!! But better late than never!
    Karen Young
    Replied almost 3 years ago
    Really like the idea of getting a letter from your bank. Our short-sale purchase price was raised after we provided POF and I suspect it was because of the amount shown on our bank statement.
    Jeremy M. Investor from Advance, North Carolina
    Replied almost 3 years ago
    @Karen Young Something I always do when getting POF letters from my bank is I ask them for 2 (or 3 depending on the situation) in escalating amounts. I don’t like to submit proof of funding way north of whatever I’m bidding on. I may be paranoid but it’s served me well so far.
    Susan Maneck Investor from Jackson, Mississippi
    Replied almost 3 years ago
    I don’t work with investors but I’ve been known to buy houses on my credit cards. What I show for proof of funds is my retirement accounts.
    Thomas Fawole Wholesaler from Brooklyn, New York
    Replied almost 3 years ago
    Thank you, Michael. This is a very helpful post. It’s encouraging for new investors without proof of funds to know that there are some possible ways to successfully get over this huddle whenever it comes up.
    Ron Rohrssen Rental Property Investor from Marion, IA
    Replied almost 3 years ago
    Michael, I agree with the others; good post. Could I get a copy of your proof of funds sample letter?
    Tara
    Replied almost 3 years ago
    Please email a sample letter?
    Carmen Massie Financial Advisor from Houston, TX
    Replied almost 3 years ago
    Michael, Good article. I just want to toss in my two cents from previously working in the banking arena on loans and mortgages. It’s good to use the Letter of Intent (LOI) and the Proof of Funds (POF) letter it does put you in a position of being serious about your offer. But there is one draw back to a POF and that is never ever provide a POF with an amount more than your offer being submitted to a bank/REO. They will most of the time negotiate an increase in your offer according to the amount on your POF letter. The same thing goes when someone is purchasing their home never reveal more in your bank accounts that is too much over the amount submitted on your purchase agreement. Banks are notorious for increasing the down payment amount or purchase price according to the amount you have revealed in your bank accounts/retirement accounts or whatever accounts you are using to finance the deal or your home. To often they will do this 1 or 2 days before closing or just when you think the deal is moving smoothly when they believe you have put a lot of time into the process. They play on your emotions being attached to the deal. This is where many people always get this wrong they want to show they have more than enough money to purchase the property and that is the lenders dream a person giving up more financial information than necessary. Can you email me a copy of you proof of funds letter. Thanks
    Eric V. Rental Property Investor from Red Bank, NJ
    Replied about 1 year ago
    Great advise I was “overcompensating” with my broker letters for proof of funds. Lesson learned! Thanks
    Meg Ross from Madison, WI
    Replied about 1 year ago
    Sometimes the comments on insightful articles here on BP are every bit as valuable as the article itself! I thank my lucky stars for this one — I’m pretty sure it’s going to save me all kinds of headaches down the road.
    Sara Aviv Berger Flipper/Rehabber from Tel Aviv
    Replied 5 months ago
    Good post! What about foreign investors, what I can offer if I don’t have an US bank account yet? can POF can be a letter from a foreign finance institution like bank or broker? It will be great if you can send me the Sample letter :)
    David Young Wholesaler from San Francisco, California
    Replied 3 months ago
    You can say all you want the other person that have the funds say the same thing will get the deals. We Americans always want the easy way out.
    Victoria Leon Rental Property Investor
    Replied about 2 months ago
    Can I get my hands on that example letter for proof of funds a bank/ broker would provide either myself or another investor?!
    Alain Suurkask New to Real Estate from Tampa
    Replied 27 days ago
    Thank you for this insightful post .Can you email me a copy of you proof of funds letter. Thanks