Proof of funds for commercial real estate investors

Creative Finance

When a commercial real estate investor is looking to purchase income-producing property using any number of innovative financing methods, one of the most important keys to their success is their ability to provide adequate and verifiable Proof of Funds – POF – to both the seller and the lender. A money check can enhance the investors’ credibility with the seller as well as satisfy lenders’ requirements to know that the borrower has the necessary funds to complete their transactions.

Evidence of money

There are several acceptable ways for lenders and sellers to show the POF for closing your commercial real estate transaction:

  • Bank statements or bank check
  • Brokerage or checking account statements
  • Escrow verification

Bank Check This is the most widely accepted and widely used method of confirming that investors can complete the proposed transaction. This money must be placed in a bank account and confirmed by statements or a letter from the banker. This is a “hard” (versus soft) method of verification, because the money is deposited into an account in the buyer’s name to serve as proof that the buyer can complete the transaction.

“Verifying Brokerage Account” Similar to bank accounts, brokerage accounts show acceptable means of completing a purchase transaction. Likewise, statements or a letter from a brokerage firm representative will satisfy the requirement to demonstrate sufficient financial strength. This is also a “hard” method.

“Verifying Escrow Account” This is the only method that can be hard or soft evidence of the necessary assets as the escrow agent simply needs to write a confirmation letter certifying that the borrower has financial resources available to complete the transaction. It gets tricky when the money is transferred to collateral pending closing.

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Finally, there are companies whose sole purpose is to provide commercial real estate investors with proof of financial ability to complete their transactions. Many of them offer “proof of funds” and transaction financing. POF is necessary at the beginning of the transaction and financing transactions for the closing day only. Both methods are a necessary part of an investor’s arsenal when using creative financing.

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