What is Proof of Fund Letter in Real Estate?

Being a syndicator can be difficult. You are often asked to make things happen, but you may not have the money to really make things happen. And yet it has yet to happen! What should a real estate investor do?

So when a broker tells you, “The seller will accept your offer, but only with proof of money,” you are stunned. You don’t have the funds because you’re going to collect them and presumably have everything at closing.

But sometimes it really helps to have the proof of money. It makes your offer much stronger and it increases your chances of getting under contract.

The proof of fund letter is useful for larger multi-family deals and for single-family homes. It is an important tool for getting deals under contract.

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What does “proof of funds” mean?

Proof of funds is essentially a document that verifies how much money a person has readily available.

This money must be liquid, so it does not include retirement savings, life insurance, or other assets such as real estate that you own.

Sellers may ask for proof of money bills to guarantee that you are a serious investor or to ensure that the sale does not go through because you cannot afford the fees.

What is in a proof of credit note?

The proof of funds letter is usually on the letterhead of the financial institution stating that their client has $x in the account and to contact them with any questions. It may also include a recent bank statement.

Proof of Fund Letter vs. pre-approval letter

Proof of letter of credit shows how much money you currently have. Often it is used to show that you can cover the deposit, closing costs or other inspection costs.

A pre-approval letter describes the amount a bank is willing to lend you to buy the property.

3 ways to handle requests for proof of funds if you don’t have one

But what if you don’t have any money to prove yet?

1. Push back

A request for proof of funds is a matter of trust – or rather lack thereof. If the seller was sure you could close, they wouldn’t ask you for this.

The first thing to do is push back with something like this.

“I understand you’re concerned about our ability to close as we’re raising the money. But I already have the verbal commitment from my investors for the money we need to close the deal. It’s in the escrow account when we close, but I don’t have it in a bank account right now. So I can’t give you proof of money.

“But what about this? Why don’t we get together to get to know each other better? If you don’t feel 100% comfortable moving on with us, we will part as friends. What do you say?”

If you have the guts, you could add, “If your seller insists on proof of money, we need to move on. I have four more deals to look at today.”

People do business with people they like and trust. The best way to build trust is with a face-to-face meeting with the broker and/or seller. This gives you the chance to build a rapport, tell them what you’ve done and what you want to do, and share the team members you have around you.

If you are unable to meet the broker or seller in person, you will need to do so remotely via phone call and email. If only email is possible, create a cover letter that outlines your accomplishments and how you’ll be raising money to complete the deal. Add your bio and the investor pack for this deal. Do your best to make it as comfortable as possible for the seller to move forward with you.

If the first tip fails and you still want to get into the deal, there are two more ways to potentially fulfill the seller’s request.

2. Show your investors’ intention to invest

Another option, which has no real proof of funds, is letters of intent signed by each of the investors to indicate their interest and the amount they are considering investing. I recently did this with at least a few offers, in addition to a cover letter and bio, and it pleased the seller.

The letter of intent is in no way legally binding for the investors and it costs them nothing to sign. However, it adds significant credibility to your case.

3. Receive proof of funds from one of your investors

If the second tip doesn’t satisfy this stubborn seller and you’re planning to take the deal, there’s a third option. And that is to get one of your investors to give you proof of funds.

How to get proof of funds from one of your investors?

If you can’t make the proof of funds yourself, get it from someone else. That “someone else” becomes someone who has the necessary liquidity and likes you.

Keep in mind that this person does not have to commit to investing with you. That may or may not happen. All you need now is a letter with proof of funds from them. This is usually a letter from the person’s financial institution stating that they are carrying $x. The letter does not oblige the person to use that money in any way.

In other words, it costs or obliges them to nothing.

All you need to do is find someone with the right ability and ask them to help you.

1. Create a sample deal pack

A “sample deal package” is an investor package that is representative of the type of deal you want to make. Everything is real (the photos, finances, etc.); the only difference is that you don’t actually have it under contract.

2. Contact People Who Can Help You Get Proof of Funds

Make a mind map of everyone you know. Create circles for each social group you belong to: neighbors, friends, family, colleagues, religious organizations, sports, clubs, etc. Then, in each circle, write the names of people you know. This is your immediate sphere of influence, which includes people who already know and presumably trust and like you.

Then email those contacts.

Your goal is to get a series of yeses from people. So don’t start the email with, “Will you give me a letter with proof of money, yes or no,” but instead tell them in general terms what you’re doing and ask if they’re willing to five-minute phone call to give you feedback. Describe what you’re doing and ask them to help.

Their answer should be, “Yes, how can I help?”

That’s when you tell them you’re looking for proof of funds for $x, and do they know anyone?

They could say they could. Or maybe they can refer you to someone they know well. Then follow up on any referrals and repeat the process.

Remember these points:

  • Do not discriminate. Talk to everyone you know whether you know they have the ability or not. Maybe they have it or maybe they don’t. They can at least refer you to someone who could.
  • It’s a numbers game. Realize that only a small number of people you talk to have the ability for proof of fund letter, maybe none of them. Don’t be discouraged! Just get an agreement from your contact to help you, then encourage them to refer you to someone else they know.

3. Request proof of credit note

Once you’ve found someone who may be able to write the proof of funds and is interested in helping you, schedule a face-to-face meeting with them. Make the person feel comfortable with you during that conversation by talking about your story and experience, what you’re trying to do, and the team you’ve put together to help you. Use your sample deal package to talk about what a deal might look like, answer any questions, and clear up any concerns.

Then tell them what you want them to do, which is ask their financial institution (bank, financial advisor, or brokerage) to write proof of funds.

Do you need to include proof of funds in your next offer?

The Proof of Funds Letter is a very simple yet powerful addition to your offering package.

Simple, because it costs nothing to produce and no one is obligated to use the money for the future deal. Powerful, because your offer package looks serious and sets you apart from many other buyers who make offers.

Is it easy to get? That depends on your personal network. If you already know high net worth individuals, it will take you a few phone calls. If you don’t, you will have to mobilize your sphere of influence to help you. But stick with it, and you’ll get what you desire.

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