We multifamily syndicators have it tough: We’re asked to make stuff happen without having all the resources ourselves (simple things, like money or experience!).
So when a broker tells us, “The seller will entertain your offer but only with proof of funds,” we’re stumped because we don’t HAVE the funds because we’re going to raise it and presumably have it all at closing.
So what do we do?
The first step is to push back on the broker and explain that you’ll be syndicating the deal. In my article “3 Ways to Handle Requests for Proof of Funds When You Don’t Have Any,” I talk about how to do this in practical terms.
But sometimes it REALLY helps to have the proof of funds. It just makes your offer so much stronger, and it increases your chances of getting under contract.
In that same article, I do talk about how to get the proof of funds from one of your investors, but I wanted to go a little deeper and show you step-by-step how you can do it.
(By the way, I did what I’m about to describe a little while ago because I needed it for a larger deal I was going after. So I know it works, and I know you can do it too.)
The Proof of Funds Letter is useful for larger multifamily deals as well as single family house deals. It’s a key tool to getting deals under contract, so listen up!
How to Get a Proof of Funds Letter for Your Next Deal
If you can’t produce the proof of funds yourself, you’ll have to get it from someone else. That “someone else” is going to be someone who has the necessary liquidity and likes you.
Note that I didn’t say that the person needs to commit to investing with you. That may or may not happen. All that you need right now is a Proof of Funds Letter from the person. This is typically a letter from the person’s financial institution that says they have X dollars with them. The letter does not obligate the person to use that money in any way.
In other words, it doesn’t cost them or obligate them to anything.
The only thing YOU need to do is find someone with the right net worth and ask them to help you.
The process for finding this person is going to be very similar to the process of finding potential investors that I’ve written about before (see “How to Find Investors To Fund Your Real Estate Deals“). Here’s how.
Step #1: Create a Sample Deal Package
A “Sample Deal Package” is an investor package representative of the kind of deal you want to do. Everything is real (the photos, financials, etc.); the only difference is that you don’t actually have it under contract.
But that’s not the point. The point is to have something you can use to talk with others about helping you with your real estate investing goals. But if you don’t have a track record or a deal under contract, you have nothing to talk about.
The Sample Deal Package changes that. In my article “Psst … The # 1 Secret to Raising Money to Invest in Apartment Buildings,” I talk about more about the Sample Deal Package.
Step #2: Reach Out to People Who Can Help You Get a Proof of Funds Letter
Create a mind-map of everyone you know. Create circles for every social group you’re part of: neighbors, friends, family, co-workers, church/temple, sports, clubs, etc. Then in each circle, write down the names of people you know. This is your immediate sphere of influence, which contains people who already know you and presumably trust and like you.
Then email those contacts.
Your goal is to get a series of YES’s from people. So don’t start out the email with, “Will you give me a Proof of Funds Letter, yes or no,” but instead tell them in general terms what you’re doing and ask if they would be willing to do a 5-minute phone call with you to give you some feedback.
In that phone call, you want to describe what you’re doing and ask them if they would be willing to help.
Their answer should be, “Yes, how can I help?”
That’s when you tell them that you’re looking for a Proof of Funds Letter for $xxx,xxx, and do they know anyone?
That might say that they could do it. Or perhaps they can refer you to someone they know well.
Then follow-up with any referrals you get and repeat the process.
Remember these points:
- Don’t Discriminate! Talk to everyone you know, whether you know they have the net worth or not. They might have it or they might not. They may be able to at least refer you to someone who might.
- It’s a Number’s Game! Realize that only a small number of people you talk to will have the net worth for the Proof of Funds Letter, maybe not any of them. Don’t be discouraged! Just get an agreement for your contact to help you, and then encourage him or her to refer you to someone else they know.
Step #3: Request a Proof of Funds Letter
Once you’ve found someone who might be able to do the Proof of Funds Letter and is interested in helping you, schedule an in-person meeting with them. In that meeting, make the person comfortable with you by talking about your story and experience, about what you’re trying to do, and about the team you’ve built to help you. Use your Sample Deal Package to talk about what a deal could look like, answer any questions, and address any objections.
Then tell them what you’d like them to do, which is to ask their financial institution (bank, financial advisor, or brokerage) to write them a Proof of Funds Letter.
That letter is usually on the institution’s letterhead and simply states that their client has $xxx,xxx with their institution and to contact them for any questions.
The Proof of Funds Letter is a very SIMPLE but POWERFUL addition to the Offer Package.
Simple, because it costs nothing to produce and doesn’t obligate anyone to use the funds for the prospective deal.
Powerful, because it makes your offer package look serious and sets you apart from many other buyers making offers.
Is it easy to get? That depends on your personal network. If you already know high net worth individuals, it’ll take you a couple of calls. If you don’t, you’re going to have to mobilize your sphere of influence to help you. But stick with it, and you shall have what you desire.
Talk to me. What else have you done to address this “Proof of Funds” challenge? (Like hard-money Proof of Funds letters perhaps?) What’s worked for you?