What is a Proof of Funds in Real Estate?

Proof of Funds in Real Estate – Why is it Needed to Buy a Property?

In real estate investing, it is unusual for a seller of a property to request a buyer to show that he has the money to actually purchase his property, but it does occasionally happen.  This document shown as confirmation is often referred to as a proof of funds (“POF”).  It is usually a bank statement, money market statement or other document that shows the buyer has cash available at a specific time of the month.  If it’s that simple, then what’s so special about it?

Proof of Funds in Real Estate
Proof of Funds in Real Estate Investing

Many investors try to do wholesale deals by contracting with a seller.  The investor then finds a buyer before actually closing with the original seller.  This practice is called wholesaling.  It is not illegal despite what some Realtors® and ironically even some closing agents think.  To make this transaction complete the end-buyer needs to have cash to purchase the property.  They could also have a hard money lender ready to loan the funds to close.  An experienced investor will ask his end-buyer for a POF or a loan commitment from a hard money lender.

Realtors® working for sellers as their listing agents only make a commission if the property sells and closes.  Investors can be a headache for listing agents.  They are not serious buyers unless they can make a profit on the wholesale transaction. The agent only cares about the buyer closing.  They are not really concerned if the buyer can make a profit.

In the mind of a listing agent and some lenders’ representatives involved in short sales and REOs, a POF from a buyer means he has the ability to close with cash.  These cash buyers are greatly preferred to buyers who need a conventional or even a hard money loan.  If a buyer doesn’t close then everyone in the transaction is a loser.  This is the reason some experienced listing agents request a POF from a buyer.

Some investors have gone to the extent of manufacturing a POF from their existing bank statement by using a pdf editor.  However this practice eventually catches up to them.  It can come with disastrous results.  The preferred way, if the investor has limited or no money, is to contact a professional lender who will supply a POF as part of their funding process.  When the investor finds a buyer and goes to close, he can use transactional funding for the purchase from the original seller.  The investor’s buyer will use his own money or borrowed funds to close on the same day.  The investor will walk away with his profit and not having had to put any money in the transaction.

Some hard money lenders and transactional funders provide POF’s to their prospective borrowers.  Some also charge or have a potential borrower sign up and pay on a monthly basis.  Whether the POF is free or has a cost, an investor’s ability to have a seller sign his contract is greatly enhanced by having a POF.

In a few rare cases a seller will ask that the POF be in the actual name of the buyer.  This can be a problem but can be addressed in a couple of ways.  The simplest answer is to go on to the next deal but that means no wholesale profit.  The investor may be able to get the POF provider to transfer the funds to the investor’s account but this is only likely if the investor is very familiar to the funding source.  The other option is to have the investor add the POF provider to the contract with the seller.

In summary, having a proof of funds in real estate for making offers greatly enhances your ability to get sellers to accept your offer over other investors.

To your limitless success,

Dave Dinkel

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About Dave Dinkel 27 Articles
Dave Dinkel graduated from the University of Florida in 1968 with a BS in Chemical Engineering. He initially worked for a petrochemical research and development company in Illinois. Later he entered the financial arena as a stock and commodity broker with Merrill Lynch.While a stock broker he became a Certified Financial Planner and later started his own brokerage firms and stayed in the financial services industry for 22 years before retiring to pursue his love of real estate investing. After retirement, and because of his interest in business start-ups, he worked with a small company for a few years while driving their sales from under $12,000,000 to over $150,000,000 annually before going back to full-time real estate investing.Dave Dinkel has been a national platform speaker, contributor to local real estate clubs, mentor and consultant to numerous real estate investors and all the while running his own real estate business. Mr. Dinkel received the following degrees or designations: BSChE, FINOP, CFP, MSRP, RSP, RR, ROP, SROP, MGA, GA, Certified Estate Planner, Licensed Mortgage Broker, and Licensed Insurance Agent. He is often referred to as the “Teacher of Teachers” and his Mentoring continues to produce Students who go on to be national real estate "Gurus". .He has been a real estate investor since 1975 and recently received the first-ever Lifetime Achievement Award for Contribution to the Real Estate Investing Community. While being active in real estate investing for over 40 years, he and his wife Nancy have been married for over 52 years. He is most well known for the development of his Mentoring Program that has been called, "The Best Mentoring Program in the Country" which he continues today.In addition to his Mentoring Program, he started a full-service transactional funding Program so that new investors had the ability to do deals with no money of their own. He challenged the funding industry by making borrowing money very simple with his "One Point Funding Program" which has revolutionized the transactional funding industry and made millions of dollars available to investors who otherwise could not have afforded it. Currently his transactional funding is only available in Florida.Get more information about his real estate investing mentor program at http://www.DaveDinkel.com