When a commercial real estate investor seeks to purchase an income-generating property using a number of creative financing methods, one of the most important keys to their success is that their ability to provide adequate and verifiable proof of funds – POF – both to the seller and the lender. Funds verification can enhance investors’ credibility with the seller and satisfy lenders’ requirement to know that the borrower has the funds to complete the transaction.
proof of funds
There are several acceptable ways for lenders and sellers to show POF to complete your commercial real estate transaction:
- Bank statements or bank verification
- Brokerage or verification account statements
- Escrow Account Verification
“Bank Verification” This is the most acceptable and widely used method of confirming that investors can enter into the proposed deal. As such, the money must be placed in a bank account and confirmed by statements or a letter from the banker. This is a “hard” (as opposed to soft) method of verification, as the money is deposited into an account in the buyer’s name to prove that the buyer can complete the transaction.
“Brokerage Account Verification” Similar to bank accounts, brokerage accounts show acceptable ways to complete a purchase transaction. Similarly, statements or letter from the brokerage representative will satisfy the requirement to prove sufficient financial strength. It is also a “hard” method.
“Escrow Account Verification” This is the only method that may or may not be physical proof of the necessary assets, as the escrow agent just needs to write a confirmation letter that the borrower has the necessary funds to complete the transaction. This becomes difficult when the money is moved into an escrow pending closing.
Finally, there are companies whose sole purpose is to provide proof of the financial capacity of commercial real estate investors to complete their transactions. Many of them provide “proof of funds” and transactional financing. POF is required at the start of the transaction and transactional financing is for the day of closing only. Both of these methods are an integral part of an investor’s arsenal when using creative financing.