Proof of Funds Letter for Flips?

Question

Hey all,

I'm currently looking at a potential flip in my hometown of Batavia, NY and have come to an agreed upon price. The seller is asking for POF with the written offer. My plan was to use private funding or HML but I'm open to a JV with a partner that can finance the project.

My question is, if i don't have the property under contract how do i go about showing the deal to a potential partner that i don't know and trust? Couldn't they just cut me out at that point?

If i go the HML route, is it as simple as giving them the address and numbers and they provide me with a POF letter?

I have a residential construction background but this is my first time securing financing for a flip. Any advice/ insight/ tips would be greatly appreciated!

Thanks!

Josh McCarthy

Mackenzie Grate · Answer

Get the hard money prequal. That will tell you either way whether or not the numbers really work. If they won't lend on it, it's too risky. And I agree with @Jaron Walling. If you can get the hard money lender to agree, then you should go for it on your own. It's a huge learning curve and better to learn with your money than other people's who trust you. Relationships are key and you don't want to make a huge mistake with someone else's money your first go around if you can avoid it (not that I think you will). Also, unless someone else is bringing some sort of skill or experience to this project, if you can get the money elsewhere, and why not do all the work and get all the equity?

If it were me, I'd get the hard money loan myself, and take on the project. I don't think you need anyone else for this deal if the numbers are good. Get the prequal and get it under contract. :)

Good luck!

Joshua McCarthy · Answer

Thank you so much!

This is the first I've heard of a prequal for a HML so i'll look into it right away. I agree that even if HML fees are high they cant possibly be higher than splitting the profit 50/50. I feel like I've been sitting on my hands since i ran into this so i appreciate the guidance!

Joshua McCarthy · Answer

Thanks for the reply!

It sounds like you're saying get the deal under contract, market the deal, and the money will find me. I agree with that.

I also agree that i'd be better off doing the deal on my own. The numbers check out, so you're saying i should go the HML/ private lender route. How do i get POF to submit the offer? It could be as easy as submitting the numbers to a HML and they provide me with POF but i haven't gone this route yet so i don't know what i don't know.

Thanks again!

Josh

Jaron Walling · Answer

@Joshua McCarthy This is exactly why REI is about relationships. If you developed/created/secured a relationship with the seller they should recognize it, or you should bail now. HML's are not interested in owning property. They're just really expensive banks interested in the deal and making a return which is usually 8-12% depending on experience.

If this is your first off market deal I'd tackle this on your own. You don't need a partner you just need some cash. If the DEAL supports it the money will find you. If not stop wasting the sellers time, your time, and find a better opportunity. If you share some of the deal numbers that could be great. Maybe you'll find private financing in Bigger Pockets :-)