Making an Offer with Private Lender Financing - South Florida - Palm Beach

[James G.]

I have several private lenders ready to provide capital for my flipping business. My question is regarding submitting an offer to purchase a listed on the MLS. Most sellers want either a proof of funds (cash in my account) or a preapproval/prequalification letter. As has been mentioned in several other posts, when using a private lender, they should give you a preapproval letter; however, one BP member indicated these letters aren't worth the paper on which they are written. Additionally, my private lenders are individuals that would not have any formal preapproval letter. Furthermore, my lenders are new to this process and I want to make it as easy as possible for them.

One post indicates using a personal LOC or POF for the offer, then closing with the private lender's capital. In this case, neither of these options is viable.

In listening to the BP Podcast, it sounds like a lot of investors use private lenders. So, I am curious of how BP members have successfully submitted offers using private lender capital? i.e. have you been successful with including a preapproval letter from a private lender, do you get the funding prior to making offers (a blind investment loan), etc.?

I have read through most of the private lending posts, but haven’t seen an detailed explanation for a successful offer process. Thank you!

[Jeff S.]

This is not hard at all @James G.. POF letters are not at all formal. They are generally valueless because they are not a commitment and do not obligate the lender to follow through. On the other hand, if a proof of funds letter is all that stands between you and an accepted offer, then it serves an important purpose.

You'd think agents and banks would know better but I think they require them to cover their butts with their bosses or clients ("Hey, the buyer seemed qualified and showed us he had access to the money. How was I supposed to know it would fall through?").

All you need for a POF is a letter from your lender, and it could be your mom, made out to you or your entity that says you are approved for $xxx in funding for your next flip, or for 123 Main St., or for your next real estate purchase, or whatever. Your private lender should include a recent redacted bank statement showing these funds are available. Large lenders will instead use a letter from a CPA or their bank certifying these funds.

Here's the verbiage we use when asked (which is rare):

Dear James,

This is to confirm that we will provide up to $1.98 toward funding of your next rehab project. Our proof-of-funds for this transaction is attached.

Please understand that this is not a loan commitment. These funds will be available after a review and approval of the property, acceptance of a fully executed purchase agreement, and an acceptable preliminary title report.

Please feel free to call me with any questions at 123-456-7890.

Regards,

Grandma

Goofy as this seems, it's all agents & banks seem to want.

In no case are you obligated to use this lender. Plus, the money on the statement could be gone tomorrow. That's the fallacy with a POF letter. If it helps you get the deal however, and you've assured yourself of adequate funds from at least somewhere, then a POF serves a purpose.

[Also, for what it's worth, contrary to BP dogma virtually no experienced rehabber we work with makes financed offers, yet they all borrow the money. They speak to the agents first, make non-contingent cash offers, and call escrow to break the news that there will be a trust deed (or two) with the deal. Everyone knows the game. You're not there yet.]