Proof of Funds for Commercial Real Estate Investors

Creative Financing

When a Commercial Real Estate Investor is looking to purchase income producing property utilizing any number of creative financing methods, one of the most important keys to their success is that their ability to provide adequate, verifiable proof of funds – P.O.F.- to both the seller and the lender. The verification of funds can enhance the investors credibility with the seller as well as satisfy the lenders requirement to know that the borrower has necessary funds to complete their transaction.

Proof of Funds

There are a few ways acceptable to lenders and sellers to show P.O.F. to close your Commercial Real Estate transaction:

  • Bank Statements or Bank Verification
  • Brokerage Account Statements or Verification
  • Escrow Account Verification

“Bank Verification” This is the most acceptable and widely used method to confirm the investors can complete the proposed deal. As such money must be put into a bank account and confirmed by statements or letter from the banker.¬† This is a “hard” (versus soft) method of verification, because money are deposited in an account in the buyers name to serve as proof the buyer can complete the transaction.

“Brokerage Account Verification” Similar to bank accounts, brokerage accounts show acceptable means to complete a purchase transaction. Likewise, statements or letter from the brokerage house representative will meet the requirement to prove adequate financial strength. This is also a “hard”¬† method.

“Escrow Account Verification” This is the one method that can be hard or soft evidence of necessary assets as the escrow agent simply needs to write a letter of confirmation attesting that the borrower has finances available to complete the transaction. It becomes hard when money is transferred¬† into an escrow waiting for the closing.

Companies

Finally, there are companies whose sole purpose is to provide evidence of the financial ability of Commercial Real Estate Investors to complete their transactions. Many of them provide “Proof of Funds” and Transactional Financing. P.O.F. is necessary at the beginning of the deal and Transactional Financing is for the day of closing only. Both of these methods are a necessary part of an investors arsenal when utilizing creative financing.

A Systems Approach to Commercial Property Due Diligence (An Investors Guide)

Systems

A Systems approach to thorough Due Diligence will provide all the information you require to make an informed choice and most importantly, provide peace of mind. Commercial Property Risk comes in four distinct areas. Each of these risks must be specifically identified and mitigated against. We include all the activities associated with closing the purchase, even those outside the process of Market, Financial, Tenant and Physical Due Diligence. No single person can be expected to complete all the information search by themselves. No one can remember to perform a thorough discovery process, there is just too much information to cover. Due Diligence demands that a proven system be used, to get the results you require. Doctors invest the same way they approach any presenting set of risk symptoms: break down a symptom (risk), and search the smallest components and follow a proven system of (due diligence) discovery.

A system checklist provides a step by step information search you will require for both apartment and Healthcare or Medical Office Building (MOB) commercial properties. A checklist will organize your actions and make sure you complete your search. Do not do begin your search without a complete list!

The Letter of Intent can give the Seller time to gather the information you need. The Seller may also resist your request for certain documents or delay making them available. When you put a request for information in your Letter of Intent (LOI), you can negotiate your information requirements up front. The sooner you start, the sooner you will have the information and begin to implement a systems discovery approach.