LOI from Private Money for Proof of funds?

Question

I am in the midst of orchestrating utilizing capital from partners and/or private money with notes to submit cash offers for properties. Do I have them create a letter of intent with a defined figure representing the money they are bringing to the table when I submit and offer? How does the bank usually respond to cash offers amongst partners or private money. Do they just need proof of funds from the lender account regardless of who is on the bid contract? I know its a sensitive issue to submit bank accounts and would like to get it sorted in advance.... Thanks!

Jeff Bridges · Answer

Very good strategy and I will make sure I create my bids accordingly. In my fuzzy logic, I was losing sight of the difference between partners with cash to contribute and investors with financing to contribute from a bid standpoint. Things get confusing when you are not using conventional lenders or your own bank account, but I'm believing it's totally worth the increased opportunities private money brings.Thanks all!

J Scott · Answer

If you're getting a private loan, the offer should be done as a financed offer, not a cash offer.  The reason being, there's not 100% guarantee that the funds will be available to you (unlike if the funds were in your account).

Now, you may think there's a 100% chance of getting the funds, what happens if the lender dies prior to closing and his family refused to agree to fund your deal?  What if he finds a better deal to fund?  What if he just screws you over for no good reason?

While you may think these things are unlikely (and they may be), it's not 100% guaranteed that you'll ultimately have access to this money, and therefore it's not a "cash offer."  Instead, you should indicate it's a financed offer, and if you'd like to include information about your relationship with the lender, you can certainly do that as well.

Phil Z. · Answer

- The investor can get a simple letter from the bank stating they have $XXX.XX available to them.

- Then you can have a seperate letter from the investor stating that they will be financing you as the buyer.

Jeff Bridges · Answer

I guess I was mixing terminology; my mistake. I plan on entering a partnership where both my partner and I provide the cash for the offer. In this scenario, we both provide POF no problem. But there may be family members etc that contribute to my partner's funds. I guess the answer is that they would need to fund his account prior to a bid so he could show POF in his own account.

If instead of a partnership, I sought a private money note from a business colleague who is non accredited lender, do I then help them create an LOI and POF? I would have the note written/ filed by an attorney etc., but just looking to see how people proceed when they aren't using professional lenders. Thanks!

Jon Holdman · Answer

Private or hard money is a financed offer. Not cash.  A cash offer means you can provide a bank statement with the same name as on the offer.

Jeff S. · Answer

Your lender should be able to provide you with a letter indicating you are approved for $xxx toward the purchase of real estate.  It doesn’t have to be property specific.  To confirm they have the funds, your lender will also include a bank statement with the account number blurred out.  These are generally accepted until the end of the month, when new bank statements are issued.

It doesn’t matter if your POF is from Transworld Amalgamated Hard Money Lenders, Inc. or your Aunt Agnes.  No one will take your offer seriously without a proof of funds.

Your name or your entity name goes on your offer; not your lender.

This is not a sensitive issue.  You simply have to ask your lender for a POF.

Jeff Bridges · Answer

How do investors handle cash transactions that are funded from private money? How do they provide POF if the source of the cash funds will not be from one of the bidders on the contract ?

Wayne Brooks · Answer

Generally, they want bank statements, not letters, in the name of the actual purchaser/purchasing entity that is on the contract.