Letter of Intent & Proof of Funds

11 Replies

Does anyone have an example of the LOI and POF?

Does the POF have the exact amount the Investor is willing to pay for?

Our position is: My partner and I have looked at the #'s the #'s add up to around the asking price.  However, due to the area, we would consider asking for less.  It is a large 300+ property with no cash flow    

The property is currently in a revitalization area but we don't know the extent of the plans for that particular area.     Also, the property is near a cemetery (just wanted to throw that in as an FYI).   

Any examples or advice would be greatly appreciated. 

Hi Alisha,

I never show a proof of funds.  It usually means the broker does not feel that you are experienced, and can't close.  Jumping into a 300+ property that does not cash flow is a big project to bite off for a new investor.

@Alisha Decoteau there may be a sample on the File Place here on BP.  

Re: proof funds, I would talk to your lender to see if they can provide you with something.  I wouldn't say how much you're willing to pay but that you have the financial wherewithal to close based on your offer.

Have you talked to any lenders about this deal?  With no cash flow, it may be tough to get financed.

I would do some research and talk to local planning about what's going on in the area so you know for sure.

Re: cemetery - not ideal but not necessarily a deal killer.  Would you live at this apartment complex?

Hope this helps!

@Jeff Greenberg   Interesting,  now I know.   It will be a huge project but my partner has more experience than i do.  

Thank you 

@Brendan Kelly Hey Brendan, unless I overlooked a POF I didn't see any. However, what you stated makes so much sense.

We haven't talked to the lender as of yet.     

More due diligence about the area will definitely be done.    

The area doesn't look bad from the pictures/ google earth.   However,  I would have to see the actual area, see the community to determine if its an area I will live in.

Best,

Alisha D 

Alisha, you can obtain a POF from your personal banker at the bank where the funds are held. If you don't want it to list the exact amount, then bring the offer for the banker to reference in the POF. Then, they can state that you have enough funds available in account(s) held at XYZ Bank to cover the offer dated XX/XX/2017 for the property located at 123 Easy Street. Make sure it is on your banker's letterhead. This should suffice for a POF. BTW, if you don't have a personal banker at the place where you bank, GET ONE. They don't cost you anything, and they can be very helpful in facilitating all kinds of things from notarizing documents, setting up loans, and providing POF letters when needed.

@Alisha Decoteau ditto to what @Jeff Greenberg said on POF. In all the deals we've issued an LOI on, we've never been asked for POF. Only time I ever hear POF is for some "off-market deal" that some whole seller is trying to pitch that usually leads to nowhere.

Also, I would suggest speaking to a lender VERY early on in the process. You can get bit hard if you don't have a solid lender you can trust.

Additionally, is your deal in ATL? I am very familiar with that market and my group owns two properties there. What do you mean by no cash flow? What's the cause? Out of the almost 75+ deals we've looked at in that market this year the majority of them cash flow.

Good luck! 

Originally posted by @Jeff Greenberg :

Hi Alisha,

I never show a proof of funds.  It usually means the broker does not feel that you are experienced, and can't close.  Jumping into a 300+ property that does not cash flow is a big project to bite off for a new investor.

Depending on where you are, POFs may be a common practice. In AZ, if you don't show POF with an offer, or upon request, your offer may be pushed aside. Sellers don't want to get to the closing table to discover that the Buyer is short on funds.

I don't know what it's like in ATL, but I wouldn't be offended to be asked for a POF. It's just the Seller looking out for themselves....and the agent looking out for their Seller.

@Alisha Decoteau , if the goal is to do a syndication to purchase the property, explain that to the broker/seller. At the roughly $20MM+ price point for a 300+ unit, they will understand.

However, you may want to show them the experience of the key principals of the syndication, so that they are confident in your ability to close.

BTW, 300+ units is a pretty big complex. Do you have a budget from a property management company? Has your lender verified your underwriting?

Without these steps I would not put a LOI together for the property.

Also curious about your investment thesis on a property that does not cash-flow.

PM me, happy to share a purchase LOI

@Alisha Decoteau typically at that level brokers/sellers don't ask for POF. They look at track record of sponsors, team in place, etc. Also, you'll need a lender that can underwrite deals and give prelim terms ahead of submitting and LOI.

If there's no cash flow they may be asking for a POF because only Top Tier Opportunistic Teams can take down that big of a problem and solve it.

Good luck. Sounds like you'll need it! :)

@Cara Lonsdale   thank you. I like the idea of not listing the exact amount. 

@Abel Sng you were absolutely right on this.   It was an off the market deal and it didn't go anywhere.    I found a ton that has cash flow and i wouldn't even look twice at something that doesnt cash flow again right now.

My business partner and I decided to pass on it 

  

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