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.
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.