CASH OFFERS AND PROOF OF FUNDS LETTER

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CASH OFFERS AND PROOF OF FUNDS LETTER

Jonathan Lane
Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes

Hello World,

I have been doing research on "cash" offers as an investor and the results I have came up with is a "cash" offer can be consider any funding that is or has the ability to be liquidated without contingency from a bank; i.e. hard money, private money or your own cash. Is this correct? However, I was speaking with my real estate agent today and they mentioned that I could not offer a "cash" offer if the cash is: 1) Coming from a third party and 2) The cash offer has to come from my approved bank account. Is this correct? That said, there has been some confusion set in and I am looking for clarity on: 1) how to go about a "cash" offer? 2) Define what a "cash" offer is?

With all of that being said, does anyone have a legal soft proof of funds letter (pre-approval) that is editable and will work in all 50 states? If not, how can I go about obtaining something like that or can I even obtain a soft proof of funds letter?

Connected to this email is a link of a soft approval letter- does this work? if not, what needs to be done for it to work? Or again, how can I can one that works in all 50 states that is approved by different brokers?

I want to thank you for your time and your guidance on this topic

Soft Proof of Funds Letter

Thanks,

Jon Lane

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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
6y

@David Kuhlke - This is going to depend on what the contract you are using states in the Cash versus Financing section. 

Here in Florida, our most common contract states:

"Buyer will pay cash for the purchase of the Property at Closing. There is no financing contingency to Buyer's
obligation to close. If Buyer obtains a loan for any part of the Purchase Price of the Property, Buyer acknowledges
that any terms and conditions imposed by Buyer's lender(s) or by CFPB Requirements shall not affect or extend
the Buyer's obligation to close or otherwise affect any terms or conditions of this Contract."

So in this case, clearly we can check the "Cash" box, but still use hard money, a HELOC, or whatever. The key is there is no financing contingency, and if the buyer does not perform, they lose their deposit.

But, obviously, anybody can check that box and sign an offer. If you don't actually have the cash (or access to it), then you'd be tying up the seller's property for no good reason and wasting their time and money. That's why a savvy seller or realtor is going to say "show me the money" in the form of a bank statement or letter from your bank - It's literally to stop wholesalers who don't actually have the cash from trying to throw around cash offers just to get a contract they can then assign to a real buyer. 

If you have the cash, proof of funds is easy: Screenshot a bank balance or provide a recent bank statement.

If you have a legitimate hard money lender who has underwritten the deal and confirmed you have the down payment and cash to close, they should be able to provide you a letter stating exactly that.

If you have neither, then you have no business making an offer in bad faith and trying to tie up the seller's property.

Also (and this is crucial and a common rookie mistake) - Don't send a "cash" offer to the title company and then neglect to tell them about your hard money lender. Title will need to prepare/receive a mortgage, promissory note, and other documents to be signed and recorded at closing if you are using hard money. You can't drop this on them two days before closing.

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  • Account Closed
    Investor · Columbus, OH · Member since 2017 · 861 posts · 1k+ votes
    6y

    Cash offer usually means no financing. 

    Proof of funds is basically HARD proof that you are sitting on a specific amount of funds right now that you can access. I usually just send a screenshot of a bank accounts, but I have seen others get their bank to write an official dated letter saying they have at least X available to withdraw immediately.

    I would not consider the letter you attached as a proof of funds, nor a contract offer, its more like a letter of intent?  If you are trying to buy a bank owned property you just send them the contract they want you to sign and proof of funds, or if you have financing, the commitment from the financier, who may also have to provide their own verifiable proof of funds. 

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    6y

    @Jonathan Lane

    You can offer cash and the finance, however, you won't have a financing contingency so be prepared to actually close cash if needed. If you don't have the cash and don't have a preapproval or commitment from a private money or hard money lender but you are making cash offers, that's an issue because you either can't close or your going to lose your EMD and waste a lot of time. For proof of funds I just screenshot my bank account. It shows my name and the balance, proving that I have the funds.

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  • Jonathan Lane
    OP
    Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes
    6y

    @Lee Ripma to understand or for clarity- I can offer cash BUT make sure I have the preapproval of the hard money lender prior to the "cash" offer? Could you clear up what you by offering the cash and the finance?

    0Reply
  • Jonathan Lane
    OP
    Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes
    6y

    @Account Closed that is the clarity I am trying to get because the research that I have done said you can offer cash with a hard money loan because it is not a traditional loan from a bank. It is still financing- yes but it's not the traditional way of waiting on the funds from my understanding. 

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    6y

    @Jonathan Lane

    So there is how you write the offer and how you actually close. You can write your offer as cash and then finance, you just won’t have a financing contingency. You should probably read up a bit on the topic!

    Podcast Guest on Show #373
    1Reply
  • Jonathan Lane
    OP
    Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes
    6y

    @Lee Ripma do you have any good articles or blogs that you can direct me to to give more information on the topic? 

    0Reply
  • Brian Bagdasarian
    Investor · ME · Member since 2020 · 40 posts · 32 votes
    6y

    @Jonathan Lane what part isn't clear?

    0Reply
  • Brian Bagdasarian
    Investor · ME · Member since 2020 · 40 posts · 32 votes
    6y

    To be clear - what your realtor told you is incorrect. A cash offer is simply an offer that has no financing contingency. This means, as other stated, that if, for some reason, you cannot get a loan or other funds to close, that it wouldn't allow you to exit the contract. That also means that if you had to break contract because of it, you would be in breach, and would forfeit your earnest money.

    We, as an example, have letters from both our banker and one of our HML (that we use depending on deal size) that states that we do in fact have immediate access to "x" dollars. We've never had an issue this way.

    2Reply
  • David Kuhlke
    Rental Property Investor · Portland, OR · Member since 2018 · 73 posts · 24 votes
    6y

    @Brian Bagdasarian

    Hi Brian, thanks for the insight. Just to make sure I'm understanding correctly, I can say "cash" on my offer even if the cash is coming from an LLC that I own? I will be financing through this LLC so there will be a lien on the title at the time of signing, but can I treat this as a "cash" offer? I have proof of funds

    Thanks,

    0Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    6y

    @David Kuhlke - This is going to depend on what the contract you are using states in the Cash versus Financing section. 

    Here in Florida, our most common contract states:

    "Buyer will pay cash for the purchase of the Property at Closing. There is no financing contingency to Buyer's
    obligation to close. If Buyer obtains a loan for any part of the Purchase Price of the Property, Buyer acknowledges
    that any terms and conditions imposed by Buyer's lender(s) or by CFPB Requirements shall not affect or extend
    the Buyer's obligation to close or otherwise affect any terms or conditions of this Contract."

    So in this case, clearly we can check the "Cash" box, but still use hard money, a HELOC, or whatever. The key is there is no financing contingency, and if the buyer does not perform, they lose their deposit.

    But, obviously, anybody can check that box and sign an offer. If you don't actually have the cash (or access to it), then you'd be tying up the seller's property for no good reason and wasting their time and money. That's why a savvy seller or realtor is going to say "show me the money" in the form of a bank statement or letter from your bank - It's literally to stop wholesalers who don't actually have the cash from trying to throw around cash offers just to get a contract they can then assign to a real buyer. 

    If you have the cash, proof of funds is easy: Screenshot a bank balance or provide a recent bank statement.

    If you have a legitimate hard money lender who has underwritten the deal and confirmed you have the down payment and cash to close, they should be able to provide you a letter stating exactly that.

    If you have neither, then you have no business making an offer in bad faith and trying to tie up the seller's property.

    Also (and this is crucial and a common rookie mistake) - Don't send a "cash" offer to the title company and then neglect to tell them about your hard money lender. Title will need to prepare/receive a mortgage, promissory note, and other documents to be signed and recorded at closing if you are using hard money. You can't drop this on them two days before closing.

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  • Brian Bagdasarian
    Investor · ME · Member since 2020 · 40 posts · 32 votes
    6y

    @David Kuhlke lets assume the following scenario:

    • - You have two companies (you own/control both)
      • - Company A: This is the purchasing LLC that will hold title to the property
      • - Company B: This is the lending LLC that will hold the mortgage, and fund the purchase of the property

    You, on behalf of company A will sign the P&S, indicating that you are making an offer with no financing contingency. You instruct the banker for company B to write a letter, on bank letterhead, confirming a DOLLAR AMOUNT of funds available (it doesn't have to be everything, just enough to comfortably cover the deal), and deliver it, along with the offer, to the listing agent or seller.

    As soon as the deal is agreed to, contact your title company and explain that company B will be holding the note, and that you in fact control both (if this is the case). Provide them whatever terms, etc the note will be held to. From there is pretty straight forward. At closing the deal will be funded, the mortgage will be subsequently recorded in 1st position, and you'e off and running. 

    DM me if you have any questions.
     

    1Reply
  • Jonathan Lane
    OP
    Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes
    6y

    @Brian Bagdasarian that's is what I thought. My goal was to not have the finance contingency and during my inspection period (5-10 days) make sure to get the hard proof of funds. I would be communicating with my HML prior to the purchase to make sure we are all on the same track and once the offer was accepted let my HML know and get the hard proof of funds. Which, I thought made since and possibly until my realtor stated that I could not offer or state that I am doing all cash offer if I am using a third party.

    0Reply
  • Jonathan Lane
    OP
    Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes
    6y

    @Jeff Copeland to make sure I am clear- you can offer and cash offer BUT you better make sure you have the funding to close the deal: I.e: HML, PML, or the actual cash? So, prior to all of that... communicate with your realtor you want to offer a "cash"offer and get a pre-approval of The funds being used from whatever source you are getting the funds from? my main goal is to take out the financial contingency?

    0Reply
  • Brian Bagdasarian
    Investor · ME · Member since 2020 · 40 posts · 32 votes
    6y

    @Jonathan Lane you'll need the POF at time of offer.

    1Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    6y
    Originally posted by @Jonathan Lane:

    @Jeff Copeland to make sure I am clear- you can offer and cash offer BUT you better make sure you have the funding to close the deal: I.e: HML, PML, or the actual cash? So, prior to all of that... communicate with your realtor you want to offer a "cash"offer and get a pre-approval of The funds being used from whatever source you are getting the funds from? my main goal is to take out the financial contingency?

    @Jonathan Lane - I have no ideas what your goals are. But for most buyers, the goal is to make your offer better than the other offers on the table, so you actually get the deal you are after.

    Look at it this way - Assume for the moment you are the seller, and you receive four offers:

    1. Offer 1 is from a wholesaler offering $100k "cash", closing in 10 days, but they did not provide any proof of funds, so you have no idea whether or not the buyer actually has a dime to their name. 

    2. Offer 2 is from an investor offering $100k, using hard money, closing in 10 days. She called it a cash offer, but included a letter from her hard money or private lender (same thing, really) stating the lender is good to go with the deal, the lender has plenty of liquid cash, the buyer has his 20% down payment and cash for closing costs, and there is no financing contingency.

    3. Offer 3 is for $100k, cash, closing in 10 days. Included with the offer is a bank statement showing the buyer has $127k in liquid cash sitting in a checking account at a local bank.  

    4. Offer 4 is for $102k, closing in 40 days. It is a financed offer with a conventional mortgage, and includes a 30-day financing contingency. 

    None of the offers have any other contingencies, and the earnest money deposits are all the same ($2500). So, for the sake of this argument, we are just looking at cash versus financing. 

    Assuming there could be no further negotiations and these were all "highest and best", which offer would you choose?

    Most experienced real estate investors would choose Offer #3 in a heartbeat (In fact, I'd argue that most sellers would accept #3 even if it were a lower offer price than the others!). There is literally no risk to the seller; Nothing to go wrong... You sign the offer and you either close in 10 days, or keep the buyer's deposit and start again.

    Admittedly, Offer #2 is a close second. But there is still a lot more risk baked in - a lot more moving pieces, a third party is involved, a lot more chances for things to go wrong compared to #3. 

    Offer #1 is most likely a total waste of time. And offer #4 is a distant last place: The buyer could walk on day 29 if they are unable to secure financing with no consequences. This is typical of retail transactions with conventional financing, and that's why CASH IS KING when it comes to investment properties on the scale we are talking about.

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  • Jonathan Lane
    OP
    Rental Property Investor · Tacoma, WA · Member since 2020 · 46 posts · 7 votes
    6y

    @Jeff Copeland I want to thank you for putting it in those terms or those scenario. That helped me understand the circumstances better. I know cash is "king", but for me I would be the option #2. So what I gathered from that is you can say on you offer that it is a "cash" offer with using a hard money lender BUT the most important piece is having that pre-approval letter stating or showing that I have the funds accessible for the purchase. Is this correct??? 

    0Reply
  • David Kuhlke
    Rental Property Investor · Portland, OR · Member since 2018 · 73 posts · 24 votes
    6y

    @Brian Bagdasarian

    Thanks for the insight. This is really helpful. In my case, I will be making a personal offer from myself, but the financing will come from my LLC. So, according to your advice, I will make an all cash offer, no financing contingency, then when the deal is accepted, work with the title company to make my LLC the first position mortgage on the property.

    0Reply
  • David Kuhlke
    Rental Property Investor · Portland, OR · Member since 2018 · 73 posts · 24 votes
    6y

    @Jeff Copeland

    Thanks Jeff, super helpful advice.

    1Reply
  • Julie Smith
    Member since 2019 · 11 posts · 3 votes
    5y

    Interesting thread.  Im currently looking at purchasing my first house in cash.  I have $150,000 in my personal account, and my mom has $25,000 in her personal bank account.  I am wanting to make an all cash offer of $170,000 on a property next week.  I have bought several properties before using conventional financing and usually a transfer of $25,000 would have to season in my account for 2 months.

    Is this requirement still in effect for cash offer buying.  Would my mom be able to wire me $25,000 today so I can get a proof of funds letter tomorrow and buy that house in cash?

    0Reply
  • Kevin Lugo
    Reading, PA · Member since 2022 · 10 posts · 2 votes
    2y
    Quote from @Jeff Copeland:
    Originally posted by @Jonathan Lane:

    @Jeff Copeland to make sure I am clear- you can offer and cash offer BUT you better make sure you have the funding to close the deal: I.e: HML, PML, or the actual cash? So, prior to all of that... communicate with your realtor you want to offer a "cash"offer and get a pre-approval of The funds being used from whatever source you are getting the funds from? my main goal is to take out the financial contingency?

    @Jonathan Lane - I have no ideas what your goals are. But for most buyers, the goal is to make your offer better than the other offers on the table, so you actually get the deal you are after.

    Look at it this way - Assume for the moment you are the seller, and you receive four offers:

    1. Offer 1 is from a wholesaler offering $100k "cash", closing in 10 days, but they did not provide any proof of funds, so you have no idea whether or not the buyer actually has a dime to their name. 

    2. Offer 2 is from an investor offering $100k, using hard money, closing in 10 days. She called it a cash offer, but included a letter from her hard money or private lender (same thing, really) stating the lender is good to go with the deal, the lender has plenty of liquid cash, the buyer has his 20% down payment and cash for closing costs, and there is no financing contingency.

    3. Offer 3 is for $100k, cash, closing in 10 days. Included with the offer is a bank statement showing the buyer has $127k in liquid cash sitting in a checking account at a local bank.  

    4. Offer 4 is for $102k, closing in 40 days. It is a financed offer with a conventional mortgage, and includes a 30-day financing contingency. 

    None of the offers have any other contingencies, and the earnest money deposits are all the same ($2500). So, for the sake of this argument, we are just looking at cash versus financing. 

    Assuming there could be no further negotiations and these were all "highest and best", which offer would you choose?

    Most experienced real estate investors would choose Offer #3 in a heartbeat (In fact, I'd argue that most sellers would accept #3 even if it were a lower offer price than the others!). There is literally no risk to the seller; Nothing to go wrong... You sign the offer and you either close in 10 days, or keep the buyer's deposit and start again.

    Admittedly, Offer #2 is a close second. But there is still a lot more risk baked in - a lot more moving pieces, a third party is involved, a lot more chances for things to go wrong compared to #3. 

    Offer #1 is most likely a total waste of time. And offer #4 is a distant last place: The buyer could walk on day 29 if they are unable to secure financing with no consequences. This is typical of retail transactions with conventional financing, and that's why CASH IS KING when it comes to investment properties on the scale we are talking about.


     Newbie on my first off-market deal, figuring it out as I go. I know cash is king, but thanks for laying this out so clearly! And thanks to everyone else describing the ins and outs of what a 'cash' offer is.

    I am putting a "cash" offer in today with the possibility of getting a HML/PML loan before closing. I have the purchase price tied up in another investment though and had not even thought about POF. When my realtor asked, I was thrown off. But I am providing POF that is a combination of screenshots/statements from several bank/investment accounts including my Roth IRA. I may look a bit disorganized, but financially capable of closing :)


    Ironically, my the liquid cash I'd normally have is tied up in my first deal where I am acting as the PML. If it comes back in time, great. If not, I turn around and get my own PML.

    0Reply
  • Patricia Thompson
    Member since 2024 · 3 posts · 0 votes
    2y
    Quote from @Lee Ripma:

    @Jonathan Lane

    So there is how you write the offer and how you actually close. You can write your offer as cash and then finance, you just won’t have a financing contingency. You should probably read up a bit on the topic!


    0Reply
  • Patricia Thompson
    Member since 2024 · 3 posts · 0 votes
    2y

    Jon Hi 

    There is so much material available educating on how to properly conduct this process . The wholesale real estate process is under a great deal of fire and states banning the process entirely currently. Why undertake this without any knowledge or training and jeopardize the livelihood of so many. There are videos, bigger pockets provides a lot of info to study and read before contributing to the reason we should be banned. Sincerely 

    0Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    2y

    @Jonathan Lane your letter would not even be presented to my seller as we call them "love letters" and do not forward anything discussing family members or potential personal, not financial, reasons to choose yours over another offer. We've accepted proof of funds from an LLC even if purchasing in your own name if you provide proof of funds in the LLC and that you're the one with the right to use it. I've used proof of hard money loan for cash deals, but only with a LARGE earnest money deposit that you will forfeit if you don't close, so my seller is comfortable taking the risk if your hard money lender doesn't come through.

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