One of the first steps needed to start investing in real estate is acquiring a proof of funds letter. By contacting a hard money lender and receiving a proof of funds letter, you can show property sellers that you have real capital backing up your bid on their property. Since these real estate deals tend to move quickly and people don’t like having their time wasted, its important to have proof of funds when bidding on a property to stand out from other bids that lack substantial proof that the deal will go through. We’ll break down what exactly a proof of funds letter is, how investors can acquire one, and what your next steps are once you’ve received it.
Why do I need a proof of funds letter?
Many real estate investors think they can bid on a property and THEN find a hard money lender to help them move forward with their project. Unfortunately, this is a quick way to lose out on projects and put yourself behind the competition. A proof of funds letter gives you credibility and helps you stand out amongst a fast-moving real estate market. Think of your proof of funds letter as leverage: if you and another real estate investor approach a deal, but only one of you can show proof that you have the capital to purchase the property, then that person will likely acquire the deal. Being able to show that you’re a serious investor with the buying power needed to move forward, you put yourself into contention for acquiring highly desirable properties. This becomes increasingly important based on the competitiveness of the property- if multiple people want to place bids and are trying to offer above asking price, being able to show your financial backing matches the other offers will keep you in the running for potentially purchasing a property that could have been lost by lacking a proof of funds letter.
How do I acquire a proof of funds letter?
It’s easy to acquire a proof of funds letter, with hard money lenders usually requiring a little bit of information and a small one-time fee. The information requested by the lender is straightforward and helps to show them that you’re trying to utilize the proof of funds towards a real estate investment. They’ll ask about the property address, including the city and state, as well as the expected purchase price for the property. It helps to include your exit strategy and overall investment plan so the lender can understand It shouldn’t take long for your proof of funds letter to be delivered- typically within a day of the request. Longer than that and you might consider using a different hard money lender, since you want to work with someone that moves quickly instead of dragging their feet on the first step of the process. Once you receive the proof of funds letter, your real estate investment journey can really begin!
I received my proof of funds, what’s next?
Now comes the most competitive part of real estate investing- bidding on a property. Many investors do this through short sales, or sheriff sales, where several foreclosed properties are presented to bidders. This offers distressed properties at a discount, which is the perfect target for fix and flip investors that want to acquire property with minimal capital and maximize the potential profitability of the deal. Investors can also use the proof of funds for other fix and flip opportunities, such as placing a bid off-market or directly asking property owners if they’re interested in selling and using the POF letter to show them that it’s a serious offer. Once you have your project secured, reach back out to the lender that issued your proof of funds and discuss next steps to begin your real estate investing loan. Reputable lenders will credit your proof of funds fee back to you when you close a hard money loan with them, essentially making the cost nonexistent and meaning you got to leverage their capital for free!
Final Thoughts
Asset Based Lending offers proof of funds letters for prospective borrowers as well as unlimited access to repeat borrowers working on their next investment. The initial proof of funds letter comes with a $250 processing fee; however, this cost is completely refunded to borrowers that move forward with ABL’s real estate loans. We also offer unlimited access to the proof of funds beyond the one-time fee, so if you don’t acquire your first or second bid, you can continue using our POF letter as you search for your perfect project. As a trusted hard money lender, we guarantee our proof of funds letter will be a sufficient tool for real estate investors that need to show seller’s that they have the required funding to purchase their property. If you’re looking to receive a proof of funds letter or want to discuss your next real estate investment project, then contact us today.