Newbie Questions about Proof of Funds

18 Replies

When a wholesaler puts a property under funds, do they have to have proof of funds? How can they if they don't know who from their buyer's list (if anyone) will purchase the property. (If I had the funds, I'd just buy the property myself.) Do REO/foreclosures require POF? If so, am I then precluded from putting these properties under contract while I offer it to my buyer's list? I appreciate everyone's help.

How would you intend to purchase a property without POF?

My understanding was that the wholesaler would put the property under contract in “[his name] and/or assigns” and then shop the property to his buyer’s list. As I said, if I had the funds myself, I would just buy and flip the property myself and not wholesale it.

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@Richard Clark - Well wholesalers require POF so you don't waste their time. How many investors waste wholesalers and real estate agents time putting in low ball offers and shopping around... too many. What you can do is provide a letter of commitment from a hard money lender showing them that you or your buyer has funding available to close. The hard money lenders will require POF far lower than the wholesaler, e.g. sometimes as low as 10% down of the purchase + repairs. This is something that your buyers list should be able to provide. If they are serious about closing, they will go through the work of getting you this documentation.

You should not be putting offers in on properties that you have no ability to close on yourself, period.  That is a quick way to get a bad reputation when things go sideways.  Put in the time to develop relationships with hard money lenders and private lenders who can serve as your failsafe for closing on a property if your end buyer does not perform.  If an established hard money lender won't loan on the project, you shouldn't buy it because it is likely not a good deal.

@Richard Clark You're wasting your time trying to wholesale REO's or other mls properties….

1) these properties have already been exposed to the retail market

2) they are smart enough to require a Legit POF in Your name.

@Richard Clark

To make what everyone's saying a little clearer, wholesalers tend to operate in areas where proof of funds is not a requirement, like dealing directly with a homeowner who's not being represented by either a real estate broker or attorney. These sellers either are not sophisticated enough to require proof of funds, or have properties difficult to sell conventionally and are willing to forgo POF in hopes of making a deal.

Originally posted by @Richard Clark :

When a wholesaler puts a property under funds, do they have to have proof of funds? How can they if they don't know who from their buyer's list (if anyone) will purchase the property. (If I had the funds, I'd just buy the property myself.) Do REO/foreclosures require POF? If so, am I then precluded from putting these properties under contract while I offer it to my buyer's list? I appreciate everyone's help.

 What you're describing is brokering real estate. Brokering real estate without a license is illegal in most all 50 states.

Originally posted by @Don Konipol :

@Richard Clark

To make what everyone's saying a little clearer, wholesalers tend to operate in areas where proof of funds is not a requirement, like dealing directly with a homeowner who's not being represented by either a real estate broker or attorney. These sellers either are not sophisticated enough to require proof of funds, or have properties difficult to sell conventionally and are willing to forgo POF in hopes of making a deal.

 Essentially what he's saying is they are targeting folks who don't know enough about what's going on to know what's going on.

Originally posted by @Matthew Irish-Jones :

@James Wise agree but have you ever seen anyone get caught or face fines for this?

I would prefer the state actually enforce this to keep people from illegally brokering RE but I have never seen it enforced by any municipalities.

In Illinois IDFPR will go after an unlicensed wholesaler if someone files a complaint. It takes a while but they certainly do investigate and follow up. And if the conduct is egregious or continues, I've seen fines of $5k-25k. The enforcement reports are published on their website monthly.

Originally posted by @Matthew Irish-Jones :

@James Wise agree but have you ever seen anyone get caught or face fines for this?

I would prefer the state actually enforce this to keep people from illegally brokering RE but I have never seen it enforced by any municipalities.

 Yes. Ive seen fines close to $1M for this stuff.

@James Wise There are many states that allow wholesaling. If it's done properly, it is NOT illegal. Most states still allow contracts to be assigned and it's not considered brokering. Illinois probably has the "toughest" law. They allow 1 deal per year and after that, you can be heavily fined. There is almost no way around it. 

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Richard,

One of the first things I tell newbie wholesaler when I mentor them is this: "You don't have a business if you don't have buyers. Period. Way too many wholesalers go out and find properties, put them under contract and then "assume" they'll find a buyer. That's like buying a store with empty shelves and having a grand opening! The problem is, that probably 95% of wholesalers don't have a clue what they're doing. They listen to people on FB or these so called guru's and think they're going to be rich overnight. Ain't happening. Wholesaling is one of the most difficult business' you can start. The amount of information you need to know to wholesale "properly," is mind boggling. I'll leave it at that.

If you find a property worth wholesaling, you should already have a buyer lined up. It should meet all of their criteria. You can either put the contract in his name and you can write up a fee agreement, so that you get paid, or you can assign the contract to him. Once you do that, he is responsible for following the terms in the contract. If you assign the contract to him, you write up a fee agreement so that you get paid. You send the fee agreement to the title company, so that they have a copy and that guarantees you'll get paid. However, be careful how you write up the agreement. You don't want to violate state law and word it so that it sounds like you're brokering the deal. That can cause you a lot of heartache and trouble! Best of luck. 

Wait... everyone... stop for a sec.

There is NO need for proof of funds, if you are honest with the seller and tell them you have no intention to buy their house. Proof of funds, you need to SHOW whomever you CAN do as you promise and buy their house. If you make it absolutely clear that you are going to wholesale it, there is no need for proof of funds.

Then there is this whole argument whether it is legal to wholesale or not, and I am not going there.

Wholesale the right way and no one would have a need to ask for proof of funds.

Originally posted by @Scott Swanson :

Richard,

One of the first things I tell newbie wholesaler when I mentor them is this: "You don't have a business if you don't have buyers. Period. Way too many wholesalers go out and find properties, put them under contract and then "assume" they'll find a buyer. That's like buying a store with empty shelves and having a grand opening! The problem is, that probably 95% of wholesalers don't have a clue what they're doing. They listen to people on FB or these so called guru's and think they're going to be rich overnight. Ain't happening. Wholesaling is one of the most difficult business' you can start. The amount of information you need to know to wholesale "properly," is mind boggling. I'll leave it at that.

If you find a property worth wholesaling, you should already have a buyer lined up. It should meet all of their criteria. You can either put the contract in his name and you can write up a fee agreement, so that you get paid, or you can assign the contract to him. Once you do that, he is responsible for following the terms in the contract. If you assign the contract to him, you write up a fee agreement so that you get paid. You send the fee agreement to the title company, so that they have a copy and that guarantees you'll get paid. However, be careful how you write up the agreement. You don't want to violate state law and word it so that it sounds like you're brokering the deal. That can cause you a lot of heartache and trouble! Best of luck. 

 I have to disagree with you here.

You can ABSOLUTELY put a deal under contract even if you don't have a buyer.

You don't need a buyers list when, you are honest with the seller and explain your plans to wholesale the house... AND

You ONLY sign a contract when it is a home run deal. You won't have any issues getting the contract sold if the deal is a no brainer. You should be mentoring your students how to get the contract signed for the right amount. As long as you can do that you will ALWAYS get a buyer in hours. Not even days, and you get MULTIPLE buyers.

When it comes to wholesaling (or anything in REI) it is ALL about lead generation. You need motivated seller leads and as long as they are motivated you sign contracts regardless of having a buyers list.

Example.

We bought this green house for 10 dollars:

The ARV now is about $350K

If I wholesale this property for $50K I will get buyers ALL DAY LONG!

See how it is not about buyers lists? It is about getting the deals for the right price. EVERY single buyer needs good deals, and no one is going to pass up an amazing deal NO MATTER WHAT.

The trick is not a buyers list. The trick is motivated sellers.

And this is why I crap on ALL the wholesaling gurus out there. You do NOT need mentorship on wholesaling. Wholesaling is literally getting a property  under contract and assigning said contract.

What ALL wholesalers need help with is LEAD GENERATION, Not "wholesaling". And this is the reason SO many of you fail at wholesaling, You listen to ridiculous advise on how to wholesaling instead you need to figure out motivated seller lead generation.

DMM, Cold calling, Driving for dollars, Lists, bandit signs... if you are doing this... chances are you will never make it.

Seriously...

how EASY would wholesaling be for you if this was your inbox:

- when all your leads are 100% free

when all your leads are 100% motivated

when all your leads are 100% hands-off.

Don't you agree it would be child's play to make millions?

Well that is how we do it!

Jerryll,

I stand by my statement 100%. No buyers...no business. You have a limited amount of time to sell a property, once you sign a contract. Here's what you said: "You don't need a buyers list when, you are honest with the seller and explain your plans to wholesale the house." So what if the seller objects to your terms? What if the seller says I need to sell within 30 days? I could go on and on. You either don't get the contract signed and go back to square one or you get it signed. Of course you should be honest with the seller. But that doesn't mean that they won't ask for a hefty deposit and give you a limited amount of time to sell it. If that's the case, the wholesaler has to come up with the money. The what if they don't find a buyer? They just lost their money!

Does a "killer" deal, make it easier to sell a property? Yes. Does a "killer" deal mean that if you don't have buyers, you'll still sell it? No. Typically, you get 30 to 45 days on a contract. If you don't have a buyer waiting in the wings, the clock starts ticking immediately. It's difficult enough to get a deal closed within 30 days, when you already have a buyer, let alone NOT having a buyer. So if you don't have one, you have to "go fish" for one. That takes time. An inspection has to be done, title has to be run, the buyer might want to go look at the property, the buyer might need to get his contractor into the house etc. You're asking for major trouble, trying to find a buyer after you sign a contract! I've seen more wholesalers lose deals, simply because they didn't have a buyer. I'm talking about good deals, not some garbage deal. You're putting the cart way before the horse and you're setting yourself up for disaster! Why would anyone with common sense, risk all of that? If they have a buyers list, the house gets sold right away, the buyer can put down the deposit and it can close quickly. It doesn't make any sense to take such risks, especially when there's absolutely no reason to.

BTW, I discuss with my students, in length, what constitutes a good deal. They know what a good deal is and what a bad deal is. They know how to run the numbers. Would you buy and sign a contract for a new car, before you had the money? Of course not! Why? Because it's a risk and it's simply bad business. What makes real estate any different? 

When you tell a wholesaler that if they have a killer deal they'll find a buyer, IMO, you're setting them up for disaster. What if they don't find a buyer? Then what happens? EVERYONE involved in the transaction just got screwed. That's what happens. The house isn't sold, the homeowners are ticked off, the wholesaler worked his butt off trying to find a buyer and didn't make a dime for his efforts. As a result, he gets screwed as well. There might also be earnest money involved that the wholesaler loses too. I know, I know, if he "sets" up the deal properly, that won't happen. Do you now understand what I'm trying get new wholesalers to understand? Why in the world would you risk losing thousands of dollars and working your butt off for absolutely nothing? It just doesn't make sense! Yes, you might find a great deal and be able to sell it on social media or wherever. If that happens, you lucked out. If you think you that will happen on every "great" deal every time, without having a buyers list, you're in for a very rude awakening. 

I will always stand by: no buyers...no business. When you go to into business, you're suppose to do your best to eliminate risk or manage it the best way possible. if you have no buyers, you're not managing or eliminating risk. You're actually increasing your risk and why in the world would you do that? It just doesn't make any sense. Obviously you're more than welcome to run your business the way you see fit. But to try and convince new wholesalers they don't need a buyers list first, is just plain wrong. 

Originally posted by @Scott Swanson :

Jerryll,

I stand by my statement 100%. No buyers...no business. You have a limited amount of time to sell a property, once you sign a contract. Here's what you said: "You don't need a buyers list when, you are honest with the seller and explain your plans to wholesale the house." So what if the seller objects to your terms? What if the seller says I need to sell within 30 days? I could go on and on. You either don't get the contract signed and go back to square one or you get it signed. Of course you should be honest with the seller. But that doesn't mean that they won't ask for a hefty deposit and give you a limited amount of time to sell it. If that's the case, the wholesaler has to come up with the money. The what if they don't find a buyer? They just lost their money!

Does a "killer" deal, make it easier to sell a property? Yes. Does a "killer" deal mean that if you don't have buyers, you'll still sell it? No. Typically, you get 30 to 45 days on a contract. If you don't have a buyer waiting in the wings, the clock starts ticking immediately. It's difficult enough to get a deal closed within 30 days, when you already have a buyer, let alone NOT having a buyer. So if you don't have one, you have to "go fish" for one. That takes time. An inspection has to be done, title has to be run, the buyer might want to go look at the property, the buyer might need to get his contractor into the house etc. You're asking for major trouble, trying to find a buyer after you sign a contract! I've seen more wholesalers lose deals, simply because they didn't have a buyer. I'm talking about good deals, not some garbage deal. You're putting the cart way before the horse and you're setting yourself up for disaster! Why would anyone with common sense, risk all of that? If they have a buyers list, the house gets sold right away, the buyer can put down the deposit and it can close quickly. It doesn't make any sense to take such risks, especially when there's absolutely no reason to.

BTW, I discuss with my students, in length, what constitutes a good deal. They know what a good deal is and what a bad deal is. They know how to run the numbers. Would you buy and sign a contract for a new car, before you had the money? Of course not! Why? Because it's a risk and it's simply bad business. What makes real estate any different? 

When you tell a wholesaler that if they have a killer deal they'll find a buyer, IMO, you're setting them up for disaster. What if they don't find a buyer? Then what happens? EVERYONE involved in the transaction just got screwed. That's what happens. The house isn't sold, the homeowners are ticked off, the wholesaler worked his butt off trying to find a buyer and didn't make a dime for his efforts. As a result, he gets screwed as well. There might also be earnest money involved that the wholesaler loses too. I know, I know, if he "sets" up the deal properly, that won't happen. Do you now understand what I'm trying get new wholesalers to understand? Why in the world would you risk losing thousands of dollars and working your butt off for absolutely nothing? It just doesn't make sense! Yes, you might find a great deal and be able to sell it on social media or wherever. If that happens, you lucked out. If you think you that will happen on every "great" deal every time, without having a buyers list, you're in for a very rude awakening. 

I will always stand by: no buyers...no business. When you go to into business, you're suppose to do your best to eliminate risk or manage it the best way possible. if you have no buyers, you're not managing or eliminating risk. You're actually increasing your risk and why in the world would you do that? It just doesn't make any sense. Obviously you're more than welcome to run your business the way you see fit. But to try and convince new wholesalers they don't need a buyers list first, is just plain wrong. 

 Again you have a few flaws in your response mate.

First of all I NEVER said that "No buyers...no business" is wrong. This is obvious (unless you are in the research sector driving on government funding ...).. but back to this. I never said that that statement is wrong.

What I SAID was wrong, is what you said: "you need to have a buyer lined up BEFORE you sign a contract". Biiiiiiiiig difference right? You DO see that yes? So no.. you do NOT need a buyer lined up to wholesale. Any big player wholesaler can tell you that you're wrong. People that wholesale 30 deals a month are not going to secure a buyer BEFORE they sign a contract.. come now.

Second mistake you are making is this:

I said...


See that HUGE CAPITALIZED "AND" there?

The "and" means you need BOTH statements to be true, not ANY of the statements.

See, what you do not understand that this is not a matter of opinion. Your statement is wrong, period. This is not a matter of opinion, and here is how I will prove this to you. THE SECOND, I find a scenario where your claim does not hold, your claim is proven wrong, right? In mathematics it is called "Proof Theory" It is a WHOLE field of mathematics one can get into... and yes I went into it.

What can I say I am a Nerd. BTW, when you see life through numbers and equations (and colors.. for those with synesthesia) you can clearly see truth through the noise. BIG Shout out to any of you with Synesthesia. Yes we are superior beings! Relish in your superiority my brothers and sisters!!

Let me give you an example:

Q: Does Bigfoot exist?

A: No

Challenger: Have you ever seen a Bigfoot? No? Then how can you say it doesn't exist? Not because YOU didn't see on means it doesn't exist.

Now consider this:

To disprove your claim that a big foot doesn't exist, ALL I have to do is show ONE bigfoot and you are wrong..

I just need to show you ONE case scenario where your claim doesn't hold and your entire claim is wrong.

So in other words, your statement being:

is factually and mathematically wrong, no matter what you say think or what your opinion is, because PLENTY of people, me included wholesale deals successfully without having a specific buyer lined up already. It is more work, more time more effort doing it your way (honestly), although your way has obvious benefits as well. Just not sure the benefits outweigh the drawbacks. I am not saying it is BAD to have a buyer lined up... I am saying it is not needed, IF you only sign amazing deals that ANY buyer would be crazy to pass up!

When your deals is iffy, do you need to make sure the deal goes through and then yes you better have a buyer lined up. But if your deal is a homerun deal... and although you tell your students that... I tell my students to ONLY sign a contract when the deal is a homerun deal. That way you always sell your contracts within hours and you go to the next one and next one... 

See.. when you have lead generation mastered (like I told you what the key to wholesaling was) you will CONTINUOUSLY get home run deals on your plate.

Do you see how this way is simply better than your way? But by all means keep telling your students what ever you like, I don't really care either way man, not being a douche.. I mean it.. I really don't care. I am just giving you the opportunity to better yourself and your craft but ultimately it is up to you to decide to grow from someone else's advice.

So whether you 100% stand by your statement is your right and/but irrelevant. If you do not admit you are wrong you are just ignorant because I have MATHEMATICALY proven you to be wrong.

The one thing I HATE the most here of BP, is the egos surrounding the investors that think it is a mortal sin to be wrong. There is NOTHING bad or offensive to be proven wrong. To be proven wrong simply means you have an opportunity to become better because before you were proven wrong you were ignorant (as in unaware) of how and why you did some thing .. or even WORSE teach your poor innocent students that look up to you (and probably pay you) to lead the way, something completely wrong. And your way is again... mathematically wrong. Period.

Either way... monkey has spoken

I appreciate all of the commentary and advice to my question(s). And I didn't intend to start a debate, although it was somewhat enlightening. What I think I have discovered, so far, is 1) in Georgia, it is perfectly legal to wholesale without a license; 2) for many if not most properties it is best to have buyers lined up in advance; although for an exceptional deal, it may not be necessary (incidentally, I do have a short buyers list already and plan to expand it; and 3) those buyers and/or a hard money lender can provide POF if needed, although in a FSBO with no listing agent POF may not be necessary. I will keep researching, studying, and learning, and will tread lightly. Thanks again for all the responses.