How do I obtain P.O.F.

Question

I'm looking to raise funds through friends and relatives in order to purchase my first commercial multifamily deal. Im ready to go on the hunt. However, I got discouraged when I reached out to a lender that I'm thinking about getting the mortgage through to talk about my plans. He asked that I show a bank statement, from my account, showing $400,000 or 20% of the purchase price of the property. He suggested thay since Im raising the funds from others, have them give it to me now and place in the account. My initial plan was to use the P.O.F. to get access to the property, use my own money as EM, and then bring the money together during the due diligence period. My question is this, have anyone ever done this in this fashion? If so, how did you obtain the P.O.F without showing 20% in your account? Also, I have a personal property with $300k and rental with $200 equity. Is it any way to use it to obtain P.O.F? Thanks!

Sam Yin · Answer

@Todd Dexheimer I will have to second this. I'm not in that double digit realm yet, but for the commercial properties that I have invested in, 5M and below, all I have been asked for is the Net Worth and Liquidity. In fact, on the last one, the liquidity was significantly less and the DP. But I told the Broker I would add an additional 200K from my buddies before we close to make the difference. They did not require a seasoning period.Not sure if that's across the board, but that has been my experience.

Todd Dexheimer · Answer

Sounds like it's time for a new lender. We have a $32mm deal that we are working on and don't have 20% down in the bank. Our lender will require that we (anyone signing on the loan) have a combined net worth of about $25mm (the loan amount) and $2.5 mm in liquidity. What if you don't have that amount? Then bring in someone that does. We call that person a Key Principal (KP) and they sign on the non-recourse loan docs for you. You don't need it all sitting in one account and don't need it seasoned.

Ola Dantis · Answer

"He suggested that since I'm raising the funds from others, have them give it to me now and place in the account."He said this? Then first and foremost, you might need a new loan broker, for sure! More importantly, the big question, for you, is can I actually raise the capital needed from family and friends to close this deal in 60 days or less?The reason I bring this is up is many people will tell you "sure, sure I will invest with you when you find a property" and then when you do find the deal, some people just poof disappear from the face of the planet 🤔(first-hand experience here lol). Now, if you have, say, 10 investors who have verbally committed $100k then I say pull the trigger and put the EMD down. Remember, there is no loan if the equity isn't lined up!

Alonzo Abron · Answer

@Ola Dantis Thanks! Make sense. I'd hate to be left without the equity after working hard to find a deal. I may just wait until I have enough equity myself just incase they do back out, IL be able to still move forward.

Alonzo Abron · Answer

@ Bill Brandt. Thanks for your reply! I have one more question. How long would it take to season their money in my account? Thanks for your good advice. IL definitely look into the threads. You don't have to worry about me doing anything unethical. The plan is to learn, do, and educate the right way. Thanks again!

Alonzo Abron · Answer

@Todd Dexheimer Thanks! I spoke with them more in depth. Come to find out, they have their own collateral which they use to obtains funds and then they lend it out @ a low interest rate. They don't ask for liquidity or networth. They want you to have 20% of what your trying to borrow and they ask for equity position in your deal.

David M. · Answer

@Alonzo AbronI think it depends on the scale/size of the deal, the type of deal you are putting together, and if you have one or two investors with assets. I'd be happy to chat if you like. Maybe I can help you figure out how to put something together. message me if you are interested.

Bill B. · Answer

@Alonzo AbronNP. You have to ask your lender. Usually 60 days in residential, I don’t know commercial lending. (2-3 bank statements?) they should have written standards and be able to answer that question instantly. Good luck.

Alonzo Abron · Answer

@David M. Yes that makes sense. I appreciate it! I just wonder how do investors get properties under contract before they even pitch to investors (assuming they don't have P.O.F.)

David M. · Answer

@Alonzo AbronWell, since you are investing with non-spousal partners and buying a commercial property (as a broker I like to think you know what you are saying), then you might was as well form a legal entity such as a LLC. Collect the funds and put them into the LLC's bank account... That's one way to solve the problem.Its commercial so DTI shouldn't be that big of a deal. If you wanted to raise funds from your residential property, one MIGHT consider making the refi of those properties part of the "overall" financing strategy... It would be a more complex "pkg of loans" (not a portfolio loan).Make some sense? Good luck.