by Tod Snodgrass
Show me the Money. –Jerry McGuire
Sellers of real estate often require some sort of Proof of Funds (POF) from the buyer; they want to see written evidence that they actually possess the cash he/she claims to have. For example, if a real estate investor (REIer) is borrowing from a lender, the POF may be needed to show that the investor has money available for the down payment, closing costs, due diligence fees (if any), etc. before the seller will agree to sell to the REIer. The investor’s word that they have the funds may not be good enough.
Caveat Venditor (Latin, for “let the seller beware”)
If the REIer purports to be an all-cash buyer (and thus no lender is involved), the POF takes on added importance. This is because a smart listing agent often advises the seller to keep the property on the market until the POF has been received and confirmed. Extra caution is warranted since an all-cash buyer is a person or entity who is supposed to have 100% of the needed money on hand with which they can quickly close.
FYI: It is worth noting that many REIers may actually see themselves as all-cash buyers, but in actuality they are not. For example, they may be in the process of selling another one of their properties (to raise needed cash) or borrowing against a note they own or taking out a temporary loan against their 401k, etc. Simply put, if the funds are not liquid and immediately available, then the REIer is not really an all- cash buyer. Good information to know.
Potential POF Problems
Years ago POFs were a pretty legitimate financial vehicle. Their intended purpose, back then, was to ensure that actual committed monies would be ready to fund at the appropriate time—say two months in the future. However, over the past decade or so the status of POFs has started to change in the minds of many.
For one thing, anymore, POFs are often only good for a relatively short period of time, i.e. as little as one day. It is rare these days for a standard POF commitment to last from the time it is issued all the way to the final close of escrow weeks or months later. Further, judging from the number of POF ads that can be found via a garden-variety Google search, many people now view POFs as unreliable or even as an outright fraud in some instances. A cursory online search can yield a dozen or more ads offering POFs for “$9.99” or less. The result is that a growing number of knowledgeable sellers and REIers have come to realize that most bargain-basement-priced, “instant POFs” are literally not the worth the paper they are written on.
NOTE: This isn’t to imply that ALL POFs are phony. Some are legitimate, i.e. they commit to fund the deal, and actually do so, say 4-10 weeks down the road. Advice: Check them out carefully beforehand.
POF Alternative: Conditional Letter Of Commitment (CLOC)
Most investment pros are familiar with the term Letter Of Commitment (LOC). For those who are new to the business, an LOC is a document sent by a lender to the borrower stating that the funding requestor and the property have already met all the lender’s underwriting requirements: a full application was taken, the funding request succeeded in meeting all loan requirements, and was approved. In summary, a LOC lets all parties (seller, agents, etc.) know that the deal is real and funding is imminent.
A CLOC, on the other hand, states that the funds will potentially be made available as long as certain conditions are met; it is a kind of pre-approval document and as such is a major improvement, in the opinion of many, over POFs. For instance, our firm (EMD Funding) offers CLOCs to wholesalers and rehabbers who have submitted a preliminary “Deal Work Up form” which meets our criteria.
Obviously a CLOC does not carry the same weight as a LOC, nor is it intended to. What a CLOC can provide is a higher level of comfort to the seller, especially compared to a POF, that the funds will actually be there when needed.
What We Do: Quickly provide short-term, first position, private capital funding, to real estate investors for flips, fix/flips, transactional funding, and more. Contact info: Tod Snodgrass, firstname.lastname@example.org, 310-408-7015
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Up to 100% Wholesaler & Rehabber Funding
Capital available in all 50 states and DC, with the following parameters, to Real Estate Investors (REIers) preferably via commercial loan brokers:
* $20,000-$99,000 (normal upper limit; higher amounts available for really good deals)
* 1-3 Months in most cases; sometimes longer time frames are available
* Employ our capital for quick flips with certain low balance mortgage or lien payoffs; or can
be used by investors with properties owned free & clear to clear up liens, loan, probate, lawsuits
* Slow Motion Transactional Funding capital available
* Up to 67% LTV (Loan to Value) of FMV (Fair Market Value), less 10% fixed costs = 60% net LTV
* No upfront or hidden fees. Quick funding decisions.
* No points, no interest, no monthly payments. Not a loan. Funding is a Cash-on-Cash-type investment.
* Similar to a Joint Venture: you bring the right deal, we bring up to 100% of the acquisition funds.
* N.O.O. only (Non-Owner-Occupied), investor-owned properties
* Investment must be secured by a 1st position note/deed
* Funding transactions are normally processed by our processing and title/escrow professionals
* Referral Fee: 2.5% to RE pros (LLCs, Corp., etc.) who refer those who need Flip or Gap Funding
5.0% to commercial loan brokers who both refer the lead to us and do all the investor paperwork as well
Why you and/or your clients should use us for First Position Gap Funding
– It is directed at those who cannot secure the funds they need through normal investor-
financing channels. Reasons may include: low FICO score; short amount of time involved; funded amount too small, etc.; lacks cash; title issues that need to be cleared up: lien, loan default, probate
– We make quick flips possible, that were previously not doable
– Cash-strapped investors who want to list/sell a property, but need to spend money (they don’t
have) on remedial items such as: code violations, cosmetic fix up, judgments, etc.
– Funding normally occurs in 6-8 working days, not weeks (for qualified deals)
– We do not require an appraisal, credit check or income verification
– Use our funds to get past temporary cash flow hurdles
– Pay overdue: taxes, liens, HOA fees, probate fees, etc.
– Use our funds for building permits, closing costs, materials
– Pay off a small note so property can be sold or refinanced
– Don’t tie up your personal capital, use ours
– Allows investors to leverage themselves into more deals
– Upon request, we can provide a Conditional Letter of Commitment once a “Deal Work Up” form has been submitted and approved
4 main ways that REIers use First Position Flip/Gap Funding to their advantage. Use our capital to:
1. Quickly flip a property—or fix/flip or buy/hold—if the math works out OK. The REIer just has to make sure they have already lined up exit strategy money to get EMD Funding out of the deal in a timely fashion.
2. Save an investor property, and the equity tied up in it, from imminent loss due to a looming foreclosure, overdue lien coming due very soon, court judgment, get a property out of probate, etc.
3. Help cash-poor REIers make pre-listing, fix-up improvements to a run-down property to bring it up to code or cosmetic (paint, landscaping, curb-appeal items), etc. in order to refi or sell it faster and/or garner a higher selling price.
4. Back to back escrows (double close); REIers can use our funds for their transactional funding needs
Contact info: Tod Snodgrass, email@example.com, 310-408-7015