Do I need to create a business to get POF from hard money lender?

Question

I'm only starting my education in wholesaling, and I've learned about the common problem of missing POF that wholesalers encounter before closing a deal. When I make my first deal, I want to be as prepared and honest as possible, so having a POF is essential; however, looking at different sources, it seems that purchasing a POF from hard money lenders requires you to have a business (I do not.) Will I have to create one before I make my first deal to be fully prepared? I'd appreciate any thoughts on this and thank you so much!

Wayne Brooks · Answer

@Alexander Popusoi A letter from a HML is Not a POF….a POF is a bank statement showing You have the Cash in the bank somewhere. A Cash offer doesn’t involve a lender. If you’re concerned about having a POF, this means you are thinking about MLS properties, which is Not where you look for “wholesale” properties. Making money by “being a wholesaler” is a delusion for the vast majority of people without prior experience in the real estate field.

Chris Seveney · Answer

@Wayne Brooks^^^^^^this right hereTo tack on to this - one reason wholesalers fail miserably is they have zero real estate experienceIn order to wholesale you need to know property values, construction costs and cost of borrowingI see people try and virtually wholesale where they have never seen the inside of a property. How is their repair estimate accurate or even their ARV if they don’t know the area.

Salvatore Lentini · Answer

@Alexander Popusoi -1) You don't need POF to wholesale (I got my real estate career wholesaling. It's not easy but it is definitely a low barrier way to break into the field. You need to spend time and money on marketing. The less money you have to spend the more time you need to put in to make up the difference2) Hard money lenders will require you to have an LLC. Their loans are commercial and if they need to claw their money back it's much easier to do against an LLC than a person.3) Private money lenders do not require an LLC. The difference between hard money lenders and private money lenders is, the first is usually a company and the second is usually just an individual. The line is gray in terms of what that mean to you. Generally hard money lenders have an established process, criteria, rate and terms (because they are companies that do this regularly) and many of them are very similar. They also all charge points. Private money lenders are all over the map. I've gotten private money anywhere from 5.5% to 15%. Many of them do not charge points or if they do it is minimal (1/2 - 1.0 as opposed to 3).Based on your question, it sounds like you have much more to learn. Feel free to message me with any specific questions. I started where you are 8+ years ago and now I'm closing in on 200 rentals :)

Steven Goldman · Answer

Alex you need enough money to put down a down payment. Most of our wholesalers are wholesaling because they do not have enough funds to flip. So, that is absolutely untrue. Wholesaling is a matter of finding a homeowner who wants to sell and developing a relationship with them so they trust you. In this business when you have a relationship for closing deals you will find business whether you are a agent, lender, broker or wholesaler. Good luck.

Allie Pfannenstiel · Answer

@Alexander PopusoiMy best recommendation is to partner with someone who has the money and experience. If you have a deal you come across feel free to shoot it past me and if I like it then I have everything you need to get the deal done including great hard money lenders, $$ to put down for the earnest deposit, and cash buyers who close.

Mike Klarman · Answer

Most HMLs require you to close in an LLC, some don't. I've worked on a few private money loans and they didn't care and left it up to the borrower. So if they require you to close in an LLC they may require you to "tell" them the name of the LLC they are closing in. It's ok to create after the POF letter. I've had that happen several times. If you know what you wanna call your LLC that's enough for now. At some point in the next 30-40 days you will need to produce the Articles Of Organization, EIN letter from the IRS, and an Operating Agreement (which can be made on the fly, any lender worth a damn should have a template for the operating agreement because most do not have because it's a sole member LLC so what's the point? It's just procedure.

Steven Goldman · Answer

Alex you need enough money to put down a down payment. Most of our wholesalers are wholesaling because they do not have enough funds to flip. So, that is absolutely untrue. Wholesaling is a matter of finding a homeowner who wants to sell and developing a relationship with them so they trust you. In this business when you have a relationship for closing deals you will find business whether you are a agent, lender, broker or wholesaler. Good luck.

Dustin P. · Answer

None of the hard money lenders I've worked with require an LLC so this is probably market specific

Chad McMahan · Answer

PoF (proof of funds) has nothing to do with buying or owning a business. It's a bank statement or bank letter, etc, showing you have enough cash (funds) to get it done and make a few payments after COE.

Daniel Paloscio · Answer

@Alexander Popusoi We offer loan approvals free on our website to both individuals and companies (no LLC needed). They are under the “Proof of Funds” tab. You are also 100% guaranteed funding on them as long as you are wholesaling a deal and doing a same day simultaneous closing.