Michael Blank teaches us how to approach showing proof of funds when you are in the process of purchasing a deal and what to do if you have no funds to start with.
Uncover a few ways to handle when you’re asked to show proof of funds, including showing letters of intent from other investors.
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Michael: Hi there and welcome to the REI Classroom. My name is Michael Blank and I’ll be your instructor today. Today, we’re going to talk about how to handle proof of funds when you don’t have any.
Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.
Michael: So I write a lot about raising money from others specifically to purchase apartment buildings, but what I’m going to talk about here applies to really any kind of real estate that you want to raise money for. And here’s a problem, when you’re a newbie and/or you don’t have cash, let’s say it’s the combination of the two, how do you get into the game? And specifically, how do you address the proof of funds problem? And it comes up both with flipping houses or the apartment buildings.
And obviously, the challenge is that when you just starting out, you may not have the approval funds and it can be a real challenge because before you’re invited to submit a contract, the listing broker might say, “Yeah, that’s fine. The number’s fine but submit a proof of funds with the offer.” And you’re like, “Ah, now what do I do?” You’re stuck, okay? So here’s the truth, the underlying issue, the reason that the listing brokers require proof of funds is to filter out the riff-raff, frankly. And they do it normally because they don’t think you can actually buy the property because they sense that you’re a newbie and don’t have any money.
So this is why they do it. Sometimes, they do it only because that’s the way they do it. They have their own system and they do it in this way and one of the things is always to get a proof of funds or maybe the seller requires it. But most of the time, they do it when they sense that they have someone on the other end who’s a newbie, which isn’t so bad. Everybody takes a newbie’s money, but worse they don’t have the money that actually close on it. And knowing that helps because I’m going to give you kind of four tips on how to what to do about this.
Well, the first thing that kind of comes hand-in-hand is to act credible. So act credible. So when you open your mouth, don’t sound like a newbie, okay? Get on some education, attend a seminar, learn the lingo and at least sound good. Sound like you know what you doing. That’s number one. And when you put an offer together, add an offer package. Don’t just submit a letter of intent or contract, add a credibility package around that. It’s a cover letter, it’s a bio, not just about you but about your team, maybe you have an advisory board, maybe you have an attorney, maybe you have a property manager around it. So it looks more credible and, to be proactive, you might want to add a proof of funds. And I’ll talk about that in a second.
So the first step is to appear credible right from the beginning from that first phone call and your actions after that. Now, tip number two, essentially, is the push back, push back on the broker. Now, if you’re raising money, which is what I teach people to do, you don’t have the million dollars in the bank because you going to raise the money.
You don’t have it and so you need to persuade the listing agent that that what’s you doing, you’re syndicating the deal, you don’t have the money and you just need to push back and say, “Look, it just can’t be done. I don’t ever do it this way and should we stop talking?” And let the real estate agent decide. If that’s a showstopper for them, they might go, “Well, fine, let’s go ahead and move forward anyway.” And that’s probably what they’ll do and that will work about, I’d say, half the time, at least.
Now, tip number three is to actually do something about it. And you can do this proactively. And there are two things you can do about proof of funds. Number one is let’s say you’re raising money, you have some verbal commitments, let’s say you have $200,000 from seven investors. Have them sign a letter of intent to invest with you. And it’s a meaningless piece of paper that says, “Hey, Michael’s a good guy. I got $25,000 to invest in him for the right deal. Have a nice day.” And that’s really all it says, but when you have like five or six or seven of these tacked onto an offer package, the broker can see that you’re actually raising money and there are some signatures, some names and amounts. So that really helps a lot.
And tip number four is to get a proof of funds from someone else. Now, this does not have to be an investor, it simply has to be someone with the proof of funds with the money or the stocks in hand. And this person, there’s no commitment on this from this person to actually invest with you. And I’ve got a couple of people like that. They have some money, but they’re so conservative, they would not invest in apartment buildings. And it doesn’t matter what I tell them, but they have some money and basically what you do is you ask them for their financial institutions to write a letter that says, “Sam’s got $300,000 under management with us. Call me with any questions.”
And it doesn’t cost them anything. It’s a favor to you. It doesn’t cost them anything. Their banker or their financial adviser will write it for them and it’s an easy thing to do. And you can tack that at the end of your offer package as well. So there you have it. There are four tips for what to do when you’re faced with the proof of funds and, hopefully, that will get you into your first contract. All right. Great, thanks very much and I’ll catch you on the next episode.
Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchise system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level, or whether you have no experience at all but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.
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