Question: Proof of Funds for Cash Offer
Denver, CO · Member since 2017 · 7 posts · 2 votes
Hi BP-ers!
I'm a rather new real estate investor in the Denver area and listened to the recent podcast where Paul Thompson (episode 283). This episode got me pumped up to start implementing Paul's "farming" method. As I've been skimming different MLS sites and emailing listing agents, I'm being asked for offers to be submitted "in writing with proof of funds." I do specify in my email that I'm offering an all cash price and can close in around 30 days. But obviously I currently have the funds since I'll be using a combination of hard money and private money for the deals. What are they really asking for when they ask for proof of funds on an all cash offer?
Thanks!
Matt
FYI... if you've ever written a check........... it had your account number on it.
1. I don’t see your point about it being a house cleaner vs a ‘possible’ home purchase transaction. People are opportunist. It seems like common sense... the fewer people who see your account numbers the less likely it can be stolen. Can a homeowner, realtor, escrow officer, not be dishonest or have their laptops stolen with the info saved on it? I can find a dozen ways it could end up in the wrong hands even if everyone involved in the transaction are honest upstanding citizens.
2. there’s no way to avoid sharing info when you get to that point in the transaction. My only point was that anytime you can avoid sharing account numbers it’s probably safest if you do. I have had transactions go to sh*t after sending proof of funds. Also, When you submit proof of funds with an offer you’re sending it to the realtor.
Every transaction I’ve done I’ve wired the money directly to an escrow account. Redacting it eliminates the realtor / seller from ever having it in the first place.
You just told me a million ways how it'd still go wrong... was this in support or against of the redaction, because it sounds like it's not worth it since so many ways it could go wrong.
And yes, I get people are opportunistic.... if I'm asking for proof of funds isn't it reasonable I have a way to verify that? Not like anyone has ever falsified proof of funds or pay stubs... Years back you could deposit a small check (1 dollar 10 dollars etc) and key in higher value (10k)and it'd show up briefly. The bank would catch it and fix it... but it was an easy to way to fake proof of funds....
I just double checked my Wells Fargo account, literally pulled my last month statement and it fully lists every account number I have in my PMA accounts. Nothing is redacted. I love the idea of it being redacted and if they are redacted for your statements then we’re saying the same exact thing in different ways.
I am not a mass flipper and haven’t purchased 100s of units. I focus on LARGE transactions, typically 1m+ with finanancing. They all deal with an escrow account. It would be very UNUSUAL for anyone besides the escrow officer to see this information. I would consider this a BUSINESS TRANSACTION.
Perhaps this isn’t the case all the time. Just my experience.
Account Summary..... the first page when you log into your wells page.
Escrow is because of financing and the type of transaction....
If your tenants wanted to deposit rent to your account, they'd need your account number to do so and they could go to the bank and deposit away. If you were paying for something say precious metals... often do a EFT to the company... some people do wires when buying a vehicle/etc vs showing up with cash. Plenty of transactions occur involving account numbers.
I'd wager that if you had the funds yourself and waived all contingencies... you could directly wire the money either to the bank to pay off loan or to the owner... skipping the escrow.
Hard money and private money loans are NOT an all cash offer. It is fraud to send an offer as all cash when it is loans.
They want your bank statement to show the cash.
An all cash offer is usually combined with a short 7-day close.
If I'm the seller and you give me an all cash offer with 30 days I wonder
Thanks for the feedback so far, everyone! I see now I need to clarify a bit. I was always under the impression that it's best to have a property under contract before approaching private investors and/or hard money lenders. With that in mind, I do not have money in my bank account, but am confident I can raise the money through private investors and hard money lenders as a last resort. How can I approach it then if I don't actually have the money in my bank account or have a relationship with a hard money lender yet?
This thread seems to have gotten a little off track but I'll try to answer your question Matt. It sounds like you're putting in offers on listed properties. If so, that typically won't work as you won't be able to get passed the "gate keeper" (the listing agent) with your "cash offers" when you don't actually have proof of funds. And rightfully so. The listing agent needs to be sure they're not tying up their client's property with an offer from someone who can't prove they can actually close on the deal. Whether you can or can't, the fact of the matter is if you're writing an all cash offer and don't actually have the cash so in their eyes you can't prove that you have the ability to close.
So you can either get a pre-approval letter from a lender and then submit that along with a financed offers on listed properties, OR.....write offers on OFF MARKET properties that don't have agents involved and then go take those accepted contracts to your private investors and/or hard money lenders and try to get them funded.
@Matt Inama don't get side tracked about the account numbers here. Cash offer is different than financing. Cash offers are literally you have cash in the bank and you want to swap it for a property. It is standard to ask for proof of funds for a cash offer.
I would suggest that you continue to grow your network of lenders while also finding out if you are "Bankable". Ask specific information about their lending criteria so that you don't waste your time or theirs. Also helps to avoid having your credit pulled ahead of time.
Having an understanding of what capital to use and the cost of that capital while you are getting into your niche will allow for you to be prepared when the deal presents.
To understand lending a but more, I suggest clicking on the Product Sheet @ https://www.11capitalfinance.com/
I suggest this specific one because it is lengthy and helps people understand the different types of lending products and their criteria. Lending criteria that is matched with your niche and how much you have out of pocket lets you focus on where you want to be.
Good luck!
Hard money and private money loans are NOT an all cash offer. It is fraud to send an offer as all cash when it is loans.
They want your bank statement to show the cash.
An all cash offer is usually combined with a short 7-day close.
I see this all the time in Denver. HM is NOT cash. It's a loan. Get prequalled with a HM lender and come correct.
I suggest you get things in writing from the private money and hard money lenders.
At one point years ago, I was looking for a primary residence. I received a pre-qualification from a lender. My wife and I spent weeks looking at properties. When we found one, we went back to the lender to move forward. I had a high paying job but half of my pay was based on patient billings, aka commission. Since I was at the job under two years the commission could not be counted as income.
It turned out we couldn’t borrow the money even though we had great credit and income. Learn from my mistake and get the money confirmed before you spend time looking for anything to buy.
As for the private money, it will be a good exercise to write down your agreement before you find the deal. Perhaps using percentages would work well. If you don’t get the details worked out and you find a deal that’s going to make 100k in 100 days the rate and fees may be a lot higher. Maybe the private lender has expectations that can’t be met with your investments or maybe they will fund the entire deal at a great rate. Get it in writing and you’ll know.
Once you have the commitments for funding you can write offers without an appraisal contingency or inspection contingency but it is a financed offer. The agent presenting the offer should know by reading your approval that it’s going to be an easy loan and the deal will close.
As others have suggested, I also recommend you get an agent for MLS properties. Get a full-time experienced agent that you can deal with directly. Not a fresh "team member" of the biggest name in town and not a part-time gutter guy/soccer parent that will give you a deal on the commission. Good agents aren't giving money away and you'd be much better off having an experienced professional in your corner. They will save you more than the small commission break you could negotiate from a newbie. However, if you don't have the money lined up first, no one is going to take you seriously.
You can’t say; I think, I plan, I want to. You must be able to say, I have $xxx of funding lined up when I find a deal that meets this criteria...
Thank you all for your advice and guidance! I’ve learned a good deal from you all.
Listen, I just had to chime in here on the redacting issue. I don't think I can get on with my day until I've had my say. To all those in favor of redacting, are you insane? Do you really think that the 3 seconds it took you to swipe over your account number with a black magic marker is the highest and best use of your time? If you added up all those 3 seconds it could be a minute a month! And what are you getting out of it, some kind of slight comfort level on the security of your money? Is it worth it?
I'm going to contact Brandon Turner about doing a webinar on the pros and cons of redacting before the idea spreads to more users of this site like a virus.
As far as the OP, I am not going to waste any time answering your question because I feel it has already been covered by some of the more insensitive members on here who are skirting the real dilemma. Please do the world a favor and just hold off on your real estate investing until we can get this redacting craziness sorted out.
@Peter Antipatis and @Matt P., I'll be on the look out for that new webinar on redacting! ;)
Here is what you are signalling: this is not a cash offer, and they won't accept. Why you ask? because it is a lie and they can see it. If you were a cash buyer you provide your bank statement with the account numbers blanked out and close in 4 or five days not thirty. Who told you this strategy was good?
how would you handle it if you HAVE the cash to pay for the deal in your account, but you don't want to offer it all up for the deal? I want to come in below asking price but don't want to expose how much cash I have in my account. Open for suggestions...