Obviously the best way to do this is to just have your own cash, BUT, if you did, I’m sure you’d probably be doing some other aspect of RE investing with that cash!
Since you won’t be buying the property if your end user investor doesn’t end up closing, you really have 2 options. In either option you just have to get enough earnest money from your end user investor to cover any loss you might have if the deal falls apart.
Option 1: Since you’re dealing with banks, cash doesn’t mean anything to them (especially big banks). They just want to know that you’ll close when you say you will. So, if you’re able to get qualified by a lender (any lender on any non-owner occupied loan), than that works the same way the POF letter works. You just make sure to write in you contract that the loan approval deadline is the same as the end of your inspection deadline, and write the rest of the offer with no contingencies so that it acts like a cash offer. Just required that the end user investor purchase with cash.(that may not be an option in your state, but it is here in CO)
Option 2:
Find someone that you know (with enough money to cover the purchase price) to be a private money lender. Use their money as a way to prove funds. Note - this person doesn’t actually have to lend you the money, they just need to have a way to prove that they have the money needed in some form (most banks will accept other forms than cash such as retirement funds and home equity lines of credit, etc.).
The bank will most likely require a POF letter from the PML if they see them as a legitimate source of funds. In order for them to accept them as a legitimate funding source, and still consider this a cash transaction, you have to create an official letter as if it were drafted by the PML. This letter needs to state a few particular things:
- the PML is using their personal money to finance investor RE projects in order to make a profit from the interest.
- the PML “has reviewed your portfolio and investment strategy for this particular property” and will be lending the money with NO LENDING CONDITIONS.
- your name as the RE investor
- the property address
- an expiration date for this “Authorization Form” (from the PML)
- have a place for an authorized signature for the PML to sign.
There are several other things I use in my letters, too. I use the actual name of the PML, but I don’t say that they do this for a living… I just make it look so official that it looks like they lend money like this all the time.
Also, you should tell the listing agent that you are using a PML, and that you can get a POF letter if the bank requires it. Sometimes the bank will never ask for it, and you don’t have to prove that anybody has any money.
In the header of the letter that I created, I put (in bold letters) “Offer Authorization” to make it look as if I had been given permission to make an offer on this property with this PML’s cash.
Lastly, if the person that agrees to do this as the PML says that they will absolutely never give you money, that would probably be considered loan fraud (since they are suppose to be your lender). You should just say that IF you ever need to actually borrow the money, you would give them a VERY favorable interest rate. Keep in mind, that you will never have to borrow their money, though… if you’re doing it right!
whew…that was long enough huh? :smile
Hope that helps.