Private Money and Proof of Funds

[Account Closed]

Dear BiggerPockets community,

Presently I've been financing flips/rehabs through a secured line of credit.

The current lending agreement allows me to borrow up to around $325,000 and my bank will allow me to use this money to finance the purchase/rehab of 2x houses at a time.

One of the advantages of having this arrangement with my bank is that I can quickly get POF letters. This has been extremely important because the competition for REOs has been fierce, and because it generally takes many offers to get one accepted.

It's worked out quite well, but I'd like to begin exploring private money (read: friends/family) in order to scale my business.

I have a couple concerns, however.

I'm concerned that a line of credit from a private money lender wouldn't be considered a "cash offer". 

I'm assuming that the seller (bank) wouldn't accept a POF letter from a private money lender himself/herself?

If not, will banks accept POF letters from a private money lender's bank IF I'm offering cash for the property? If so, I'm concerned about timing. If I have to ask my private money lender for a POF letter from his/her bank it's probably going to take a day or two at least. My private money lender isn't a professional lender, so I don't want to "harass" him for a POF letter everyday (since it takes 8-10 offers to get one accepted).

I've also considered negotiating a more traditional business loan. This way I can just use my current arrangement with my bank to obtain POF letters quickly. The problem here, however, is that I'll have to start paying interest before I have a deal lined up-- which isn't the biggest problem in the world, but I'd like to avoid it if possible.

Anyone have any thoughts?

Thanks,
Patrick 

[Judah Hoover]

@Account Closed

I would recommend you not make two offers but make one offer with both lines of credit. 

Pro Tip: Since the bank POF letter will be "stronger" than the private ones you can get... as you raise private funds use them first. Try NEVER to close with bank funds. Keep the LOC open just to get offers accepted, the seller wont care where the funds come from on the day of settlement.

Something MIGHT come up and you will have to use the bank LOC to close, but pay it off quickly with private funds to free up the line and make strong offers once again... Make sense? Was this helpful? Please "vote" if yes.