Creative Financing

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

Funds Test

There are a few acceptable ways for lenders and sellers to show POF to close your Commercial Real Estate transaction:

  • Bank statements or bank verification
  • Brokerage Statements or Verification
  • Escrow Account Verification

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

“Brokerage Account Verification” Like bank accounts, brokerage accounts show acceptable means of completing a purchase transaction. Likewise, the statements or letter from the representative of the brokerage firm will comply with the requirement of accrediting adequate financial solidity. This is also a “hard” method.

“Escrow Account Verification” This is the only method that can be either hard or soft evidence of the assets needed, as the escrow agent simply needs to write a confirmation letter certifying that the borrower has funds available to complete the transaction. It becomes difficult when money is transferred to escrow pending 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. POF is required at the beginning of the deal and Transactional Financing is for closing day only. Both methods are a necessary part of an investor’s arsenal when using creative financing.

Proof of Funds for Commercial Real Estate Investors

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