In real estate investing & wholesaling, having an up-to-date & legit proof of funds letter is a necessity! If you do not have this, then you are investing like an amateur! Every single wholesale and fix & flip deal I’ve ever completed have all had a Proof of Funds attached along with my offer. Having a Proof of Funds on each & every offer will significantly improve your chances of getting & closing the real estate deal! In this article, we’ll go over what exactly is a proof of funds letter for real estate, why you need it, and how to get it!
A Proof of Funds Letter (POF) is a letter, bank statement, PDF, screenshot, or other document showing that a person or company has the financial ability to close a real estate transaction. Essentially, it’s your “PROOF” that you can close the real estate deal.
I want you to think of the Proof of Funds like “the Golden Ticket,” because the proof of funds is an important document you will submit with every single offer to wholesale or buy a home, especially on the MLS! The Proof of Funds Letter essentially says that you have the correct amount of funds to submit an offer, and you have the financial ability to close the deal.
When you submit a Proof of Funds Letter along with an offer, the proof is in the pudding when dealing with a seller or real estate agent because you’ve provided this legitimate document showing you have access to real funds to buy the property. See, where the Golden Ticket got Charlie through the door & into the Chocolate Factory; this Golden Ticket [Proof of Funds] gets you into the door on each and every real estate investment deal! This is why we call it “the Golden Ticket.”
A Proof of Funds (POF) is typically required for each and every piece of real estate you’d like to purchase. For example, if you are a wholesaler sending 20 offers a week on potential deals, then you’d need a Proof of Funds for each of those offers given that all the properties are different addresses.
The Proof of Funds is required to buy real estate so that deals close with a higher percentage because the buyer has proven they have (or have access to) the funds to close the deal. See, real estate agents and sellers do not like working with jokers & amateurs who do not have the financial ability to close a deal. This is a big waste of time for everyone. I mean think about it for a second, would you accept offers from people who do not have any money to buy the home? Of course, you wouldn’t because they have no money!
Yes, be sure to include a proof of funds on each and every cash offer you send. A majority of new wholesalers do not know that they need a POF and this leads to a significant amount of their cash offers being rejected. To be taken seriously, you need a legitimate proof of funds for the cash offers you submit to buy real estate.
Here’s what the typical, amateur wholesaler does (DON'T DO THIS):
The average wholesaler never gets a proof of funds or even knows what a POF is! And then, once a real estate agent asks for the proof of funds, this wholesaler goes radio silent because they do not know how to get one! This can lead to a fading of all rapport built up until that point between the wholesaler & real estate agent. A lot of the hard work an amateur wholesaler puts in goes wasted because of this exact scenario. So, this is what the typical, average wholesaler does. Don’t be this person!
Here’s what the Pro Wholesaler does (DO THIS):
As Pro Wholesalers, we secure our Proof of Funds before submitting any offers & contracts. By being a Pro, we are always prepared when a real estate agent or motivated seller asks for our proof of funds. See, this is what being a Pro Wholesaler is about, and this is why & how you can positively stick out from the rest of the amateur wholesalers out there because YOU have the supporting documentation YOU need before an agent/seller even ever has to ask for it!
By being a Pro, you’re prepared and on top of all the information that’s needed. You never want a realtor to have to ask you for information and say, "Hey, you need to send this, that, and that." As a Pro, we want to give them everything they need upfront to be professional, courteous, trustworthy, and to stand out from the rest of the pack.
A Proof of Funds Letter should say these things:
This means if "XYZ Lending Company" is authorizing you to use the funds, then their name should be on the Proof of Funds.
This means if there is $1,000,000 in the account, then it should say that amount money on the Proof of Funds Letter. Or, it should have the specific amount needed for the exact property you'd like to use the funds for. For example, if you want to buy a property for $350,000, then the letter may have the exact amount stating "$350,000." Either amount displayed is appropriate as long as it is at the exact offer price or above for the particular property you’re pursuing.
The Proof of Funds should have your, or your company's, name on the letter. If the letter does not have either name on it then whoever needs the proof of funds as validation may question it. You may have to provide additional documentation showing you have authorized use of said funds if the original proof of funds letter does not have any of your operating names on it.
This is important because no one wants an outdated Proof of Funds Letter. For example, a Proof of Funds from 2018 won't help you if the year is 2020. That's a drastic example, but even a Proof of Funds that is more than 30 days old will need to be updated. Be sure that the Proof of Funds has the date of when the funds were in the account and that the date is from the last 30 days.
This is important in the case a seller or real estate agent needs to contact the person in charge of the funds to 1) validate the funds are real and 2) to validate that you have authorized use of the funds.
When wholesaling houses & real estate, a Proof of Funds (POF) is needed with every offer. One way to get a Proof of Funds is from one of your Cash Buyers. A Cash Buyer is the real estate investor that is in the business of buying wholesale homes from you to renovate & sell at a profit.
You’re probably wondering, “How Do I Get A Proof of Funds From A Cash Home Buyer Investor?” First, you need to find cash buyers & develop a relationship with them before asking to utilize their Proof of Funds for submitting offers. The Proof of Funds is a powerful financial document and will not be given to just anybody. However, if you have a great working relationship with your cash buyer than you will have a higher likelihood of getting the Proof of Funds from them.
Let’s assume you’ve developed a strong, working relationship with your cash buyer because you’ve followed the steps in my previous article. Here’s an example of cash buyer script when asking a cash buyer for a Proof of Funds:
"Hi, Todd. I want to send offers that I intend on wholesaling to you. I'd like to send the potential wholesale properties to you first so that we can continue building a great long-term relationship. Can I use your proof of funds so that I can send offers? And just for extreme clarity, if I can't get a yes or no from you in 24 hours, then I will send it to other buyers on my list. As I'm sure you understand, we have to act quickly on these deals."
Let's go into the explanation of why we're saying this script. Remember that a Cash Buyer WANTS wholesale real estate deals. This is HOW a Cash Buyer makes their living by buying, fixing, & flipping the homes you wholesale to them.
Another way to increase the likelihood of getting a Proof of Funds from a Cash Buyer is to give them the first right of refusal on any wholesale deals you get under contract using their proof of funds. A “first right of refusal” essentially means the cash buyer gets first dibs at the property you’re wholesaling. They’re the first cash buyer you send the deal to, and if they want the property at the same price as the other investors, then the property will go to them since they are letting you utilize their proof of funds. Make sense?
I recommend offering this strategy to the cash buyers who are serious investors and want to do many more deals. We’re not looking for tire kickers, solely professional cash buyers that want to do multiple real estate deals per month.
So, let me go ahead and show you a screenshot of a proof of funds example from a cash buyer below. As mentioned, a proof of funds can be a screenshot, bank statement from Wells Fargo, Chase, Bank of America, etc. So, this particular financing partner has sent me a screenshot of his bank account from Wells Fargo.
(I've blacked out certain items for privacy reasons). As you can see here, there's $1.2 million dollars in this account. To be exact, this proof of funds example allows me to submit offers for property at the price of $1,260,609.26 and below that number. Pretty cool, huh?
It was really a simple conversation for getting this POF because I utilized the cash buyer script I posted above.
Next is an image of the same proof of funds, but this time I pointed out a couple significant features I want you to be aware of. Take a look:
From the image, the ending collected balance is November 6, 2014. This means this proof of funds will be good for 30 days from that date, which means until December 6th. Remember, agents want to see proof of funds that are up-to-date and from within the last 30 days. So, at the end of the 30 days, on 12/6, December 6th, I would then need to ask for another proof of funds. A new Proof of Funds would just be a new, fresh screenshot of the same bank account with the new date listed of when the screenshot was taken.
So, that is how you get a proof of funds from a cash buyer and exactly what it looks like! Many amateur wholesalers & real estate investors don't know what this is & don't know how to get one! Keep reading along so you don’t fall into the amateur bucket!
Now having an exclusive cash buyer with first right of refusal is not always ideal. However, this is a great way to obtain a proof of funds if you're just starting out and need a proof of funds quickly!
So, what’s another way to get a proof of funds letter?
Hard Money Lenders are in the business of lending out capital on real estate investing deals, especially to investors who need capital for fixing & flipping homes. Because of this, hard money lenders are a great source for a proof of funds letter.
Hard money lenders are typically companies, or individuals, that lend money based on the investment potential of the property you are buying, and typically not your credit score. Hard money Loans usually cost more than an average mortgage from a bank because they’re a quicker & more immediate than a bank loan.
So, how do you find hard money lenders for a proof of funds? Well, first and foremost, attend your local REIA (Real Estate Investing Association) meetings, and meetup.com real estate events. You can also use my Google Ninja Trick by typing in "hard money lender" and your city name into google.
Here’s an example of my Google Ninja Trick: I went ahead and searched "Hard money lender San Diego" and below is what you see from the results on google:
As you can see here, there are four hard money lenders that you can then reach out to, call, and work with. So, it's not hard to find a hard money lender! So, if you thought that was tough to do, then let’s crush that limiting belief right now!
Once you’ve found the Hard Money Lenders, now you need to let them know you are a wholesaler & renovator, and that you’d like to use their company as a lending source for capital in the future.
Here’s a script example of what you can say to hard money lenders to get a proof of funds letter:
"Is it alright if I use a proof of funds from your company to submit offers on deals? I currently have another money source, but they delay in getting me an up-to-date proof of funds from time to time, and I'm looking for a more reliable money partner."
What you want to do when asking a hard money lender for a proof of funds is be authentic. If you plan on following the evolutionary stages of a real estate investor, from becoming a wholesaler, to fix and flipper, to a buy and holder, then this is simple because the hard money lender knows you plan on fixing and flipping property eventually.
Let the hard money lender know you want them to be your reliable money partner when you wholesale & fix and flip houses. So, even though you're not fixing and flipping right now, we're leading them up to that. Plus, you're being authentic by letting them know that you wholesale, and that you plan on being a fix and flipper. This is important because hard money lenders don't just want to give wholesalers proof of funds all the time because then they wouldn't get any business from that.
Remember, a hard money lender is in the business of lending out capital for real estate investment deals. Give them a reason for doing business with you & for them to give you their proof of funds!
If you plan on progressing as a real estate investor, up the evolutionary stages, you will most likely use hard money to buy a fix & flip deal. Let’s think about this for a second… who do you think you’ll go to if you need capital to now fix & flip a house after you’ve gotten a few wholesales under your belt? You’ll probably go to this hard money lender because they helped you out when you needed a little help. At this point, you would’ve developed a working relationship with them, and people work with who they trust & who they like! So, start building these hard money lender relationships now so you can get a proof of funds & a reliable capital source in the future to buy real estate investment deals!
Let's show you an example of what a proof of funds letter from a hard money lender looks like below. This is an account statement from a hard money lender (I just whited out some of the company names on here for privacy reasons):
Let's look at the most important things on this proof of fund letter (image below):
The ending date on this Proof of Funds is on September 31st. That means we have the ability to send offers from September 31st to October 31st because it's within the 30-day time period. Remember, you always need an up-to-date proof of funds from the last 30 days. Be aware of this because you will need to ask this hard money lender for a fresh proof of funds every 30 days. Don’t be the amateur who gets one proof of funds and thinks it will work forever because that’s not the case!
Now, the total funds available for this proof of funds is a little bit over one million dollars, $1,002,500 to be exact. This gives you the ability to send offers up to that price and any offers below that amount. This is a solid proof of funds given the amount of money we have to work with here.
So, I want you guys to see this hard money lender proof of funds letter examples & the example from the cash buyer so you understand what you're working with and what to look for! So, a proof of funds, a.k.a the golden ticket is really just one phone conversation or one meeting away!
Are you a real estate investor who has a seller or realtor asking for proof of funds? Don’t worry! This is completely normal, and you just need to follow the steps in this article to get a proof of funds letter from a cash buyer or hard money lender! Once you get a legitimate proof of funds, then you can show it to the realtor or seller for each & every offer. Let's get into how to show the proof of funds correctly...
The best & easiest way to show a proof of funds to a real estate agent is to send it via email along with your offer terms for the deal, or along with the written contract for the deal. Save the Proof of Funds Letter as an image or PDF document and attach it to the email you’re sending. This will suffice for the realtor. Keep in mind that this is standard practice for the real estate agent, so they may (or may not) make you aware that they’ve received the Proof of Funds. It never hurts to follow up and ask if they have received the proof of funds via email.
All in all, the best proof of funds letter is a real one! Not a fake one that’s been forged or edited illegally. Be careful, there are some new investors who forge this important financial document – this is fraud, so DO NOT FORGE ANY DOCUMENTS!
Be a professional when it comes to the Proof of Funds by securing a real one from a legitimate source, like a Cash Buyer or Hard Money Lender. Be sure to send the Proof of Funds with each and every real estate offer you’re sending so the seller or agent does not have to ask for it.
Don’t shoot yourself in the foot, get a proof of funds and do everything the legitimate way! With this expert knowledge, now you can start building your reputation as a real estate wholesaler & investor and have many more deals coming to you!
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