Proof of Funds/Pre-approval

11 Replies

Hi Team! Thanks in advance for your feedback. My brothers and I own a few SF's and are now looking at MF's. We are activity looking at 3+ family properties. We have been deterred from certain properties because they say that POF or pre-approval is required for showing or to make an offer.

Should we get pre-approved? Also, I found it difficult to go back to our investors and sell them hypothetical opportunities. 

We are now getting close to making some offers and would also like to see a couple of properties that have those requirements upfront.

How do we get around those requirements or show proof of funds that we don't have but will obtain from our investor pool? 

Any type of guidance or feedback from the BP family would be greatly appreciated!! 

Relatively easy thing to do to get a pre-approval letter, especially if you have existing banking relationships (beyond just having a checking/savings account) of previous HELOCs, mortgages, etc. If not, I have used a downloaded screenshot of today's checking account balance as proof of funds before on cash deals. 

@Bruce Thomsen

I don’t understand. How do you plan on funding your purchases? You say you have investors. Will it be a pure cash deal? Or, lots of cash with financing?

If the former, then your Proof of Funds is a bunch of bank/brokerage statements (with A/C removed).

If the latter, you need to have get your financing in order anyway. So, get your ore-approval letter. You will need it anyway so get it. I don’t know how it works in every State, but generally when you make an offer you are representing that you have sufficient funds to close. Well, if your financing isn’t in order then you may not be representing yourself correctly.

You realize the dilemma from the seller’s side, right? Anybody can make an offer, but not everybody can actually afford to close. Hmm... think it about it this way: when it comes time for you to sell one of your properties, will you take the offer who has PoF? Or the guy who tells you to “trust them?”

Quick story about a "trust them" situation. Couple said they have great credit so we didn't need to know about their finances. They had the money and could get a mortgage no problem. I got a call next day that they filed for an extension on their taxes. A month later they were still working things out with their accountant. Glad I didn't "trust them." Remember, many people think they know what it takes to get fianacing, but really they don't...

@David David thanks for your feedback. I totally understand why and respect that. To clarify, how do confirm I have the funds if I don’t yet know what I’m buying the property for? Do I pitch hypothetical deals to my Inevstors or wait until we have an accepted offer?

Thanks!

If you are portending to be a cash buyer, the funds need to be "in hand" or similar to that when making the offer. Putting something together after the offer is really no different than a buyer trying to arrange a bank mortgage. ie, if you don't have the funds "up front", you won't be considered to be a cash buyer.

@Bruce Thomsen

Oh...  this is sounding more like you have a legal question than a financing question.  Either connect with me so we can take offline (mind you, I’m not a cpa or attorney nor have done or structured deals with outside investors) or see if this helps:

What is your business structure or operating agreement?  Are your investors “silent partners” (yeah there is a legal term for it) with no say in the operation of the partnership (assuming you have a partnership)?  Or do they have the authority to determine investment decisions and you are hired as a manager?  Bottom line:  which party(ies) is actually running this endeavor?

If you have operational control of the business venture, then they should send in their funds to capitalize you and now you have a bank statement showing your PoF

If “they” have control of the venture, I would think you would have to present to them each deal for their decision to proceed.  Interesting you statement looking at 3+ MF.  I am ASSUMING it’s national standard that 1-4 family units are considered residential which is regulated as opposed to commercial.  For sure, residential you can’t/shouldn’t legally be making offers if you can’t back it up, ie you don’t have the funds.  It’s that joke about “writing checks your body can’t cash...”

If you were doing a MUCH bigger deal, I could understand.  I believe the stalemate is broken as under due diligence your financing is determined as it is also dependent on the terms of the deal.  Again, this is for multi-million deals.  I don’t think your 3+ MF counts unless you are doing 3+ with a really big ‘plus sign.’

Let’s face it.  It’s a waste of everybody’s time and energy if you don’t have the funds/financing to do the deal.

also, did you say what sort of investing you are doing?  Is your strategy that wide open?  Honestly, then perhaps you need to get a few different loan products pre-approved

but I think I’m rambling.  It sounds like this is a business structure issue, and perhaps somewhat tied to the type of investing you are doing.

Am I making any sense?

@Bruce Thomsen

Re read your post — sorry working on a phone here..

Sorry, no good advice if they want a PoF just even to show.  Is this a fsbo? I know owners do that because they are trying to pre-qualify buyers.  Here is probably one legitimate reason to have a Realtor since we are fiduciaries.  But, while you try not to “show your hand” with how much buying power you have, ultimately you can’t control it such as when buying with cash.  So you have to show them a bank statement.  I guess in your case you show several bank statements.  Let’s face it, with cash you are almost always going to show overwhelming sufficient capital when doing investment deals.   cash buyers can “always bid higher.”  Financed buyers tend to hide their top approval amount to hide their true buying power...


I think I’m rambling again.  Sorry it’s late for me

@Bruce Thomsen , I think you need to clarify what you are doing. In your original post you were talking about you and your brother venturing into buying multi-family property. Then you start saying you don't know what you are buying and that you are pitching deals to a pool of investors not just you and your brother. 

Are you trying to wholesale? or are you actually looking to buy and hold multi-family properties? How are you going to organize your deal?

A seller in general wants to know that you have the ability to follow through on what you are offering. If you cannot provide that kind of information (POF/preapproval), then offer them a large nonrefundable deposit. That makes it worthwhile to take a chance on you versus someone else who has their ducks more in a row.

If I were a seller in this situation I would want to see POF along with some document from these investors indicating they intend to finance you and your brothers in this deal. I wouldn't be interested in having someone not qualified looking at the property, most likely disturbing tenants.