BiggerPockets

Here is a sample LOI I have submitted, of course, have your name and contact info at heading and signature at bottom.

February 2, 2009
Re: Letter of Intent To Purchase
ABC Apartments
Legal Description to be provided later
Please be advised that YOUR NAME HERE, agents for Business Entity Name here, or an
LLC to be named later, are hereby interested in purchasing the above captioned property. The following are the
terms and conditions upon which we would be interested in proceeding.
1) Purchase price to be $1,000,000
2) Earnest Money Deposit to be $10,000. Additional earnest money after feasability period to be $10,000.
3) Conditions:
A. Preliminary Title Report
B. Seller's ALTA Survey of property at seller's expense
C. Buyer's Attorney
D. Inspection of Property at buyer's expense
E. Appraisal of Property at buyer's expense
F. Seller to transfer all security deposits and utility deposits to buyer at closing.
G. Upon protest of a mistake of property taxes, buyer has right of refund for past three years.
H. Property Tax statements for last two (2) years to be provided to buyer within five days of contract.
J. Seller's supply of Profit and Loss Statement and rent roll for last two (2) years within five days of contract.
K. Buyer reserves the right to receive full refund of all earnest money upon written notification of cancellation
of purchase contract within the due diligence period.
4) Feasability Period: Buyer shall have 30 days in which to perform it's due diligence including, but not limited
to, all physical inspections, both interior & exterior.
5) Closing: Buyer will close within 30 days of completion of due diligence period.
This letter/proposal is intended solely as a preliminary expression of buyer's general intentions and is to be used for
discussion purposes only. The parties agree that this letter/proposal is not intended to create any agreement or obligation
by either party. The parties intend that neither shall have any contractual obligations to the other with respect to the
matters refereed herein, unless a definite agreement has been fully executed and delivered by the parties.
This offer expires on Date Here at 5:00 PM Pacific Time.

Hope that helps.
Of course, you should consult with your attorney to include any additional and necessary contingencies and remove any that are non-applicable.

Mike,

In the commercial world, it is often necessary to offer your intent first before hammering out the details of the actual PC.
As you stated, it is not legally binding, as written in my example, but it basically opens the negotiations between both parties.

I noticed in the LOI content that you want to see the books AFTER offer is made? Wouldn't you want to see the books before you make an offer?

I have looked at commercial listings in the past and sometimes they present the financials upfront in the listing, and sometimes they present fiction.

I would always want to see the financials before I considered an offer. Folks seems reluctant to share.

Thanks
Diane

We are needing LOI's in the REO, PN, and NPN arena. This product is not on the market, and not available for people to see. When I get a request for property, I check on it availability, if the bank has it I require a LOI to put his list together. What they want, how much, BPO price, strike price or all in price, what they want to spend. The LOI must be in the file at closing. If not, the question comes, did these buyers really ask for it? When shopping the open market, I do not see a LOI being needed because all info is provided and you have a Realtor or the direct seller helping compile what you need. In the REO world, only a privileged few get the chance to see the banks records. That source is protected and restricted from public view.

Originally posted by MikeOH

have several commercial properties and have never used a LOI. Why would it be necessary? Why not just put the same info with the same contingencies in a contract? That way, at least you've got the property tied up while you're spending your time working on the due diligence

If you read my post, it says "OFTEN" necessary, not always. Either way, I agree you can simply make a binding offer via PC, but you and I will never agree upon our individual methods of getting the financial information.
Bottom line is, yes owners lie or hide or falsify docs to make their properties "look" better. Some things just can't be hidden from the experienced investor who knows how to complete the due diligence properly. Using your method of juest getting the gross income/tenant information (which can also be falsified to you), does not give you a clear picture and thus, the 50% OE ratio could be too low in some circumstances.

Originally posted by Diane

I noticed in the LOI content that you want to see the books AFTER offer is made? Wouldn't you want to see the books before you make an offer?

I have looked at commercial listings in the past and sometimes they present the financials upfront in the listing, and sometimes they present fiction.

I agree, but just as you stated yourself, sometimes they will not show it to you before. If you were the seller, would you want to give your financial data to every Tom, Dick, and Harry that asked for it or would you prefer to "qualify" the buyer first?

Originally posted by MikeOH

If the current owner was successful with the property and making a big pile of money, they certainly wouldn't be selling it to me at a huge discount.

Bingo!

"Can you explain these - PN and NPN?

and also "BPO price,strike price and all in price"?
Thanks guys very interesting.
Diane"

Sure Diane,

A PN is a Performing Note, a mortgage bought from a bank that the mortgage payer is current and paying.

A NPN is a Non Performing Note, one that is in a stage of foreclosure, but not foreclosed yet. At that point it becomes a REO, Real Estate Owned, or bank owned property.

BPO is a Brokers Price Opinion, it is exactly like it sounds. A Broker or Realtor does a market annalists on a house and gives the bank the most educated guess he/she can on the value the house is. It is not an appraisal because the Broker is not an appraiser. The banks pay around $25 to $50 for a BPO.

Strike price is a term used for a the total price of a group of NPN, PN or REO, also called a tape.

The [all in] price is also the price the buyer will pay for the tape including all fees.

Hope this clears things up.

Diane,
These terms only relate to bulk buying from a bank or FDIC... it does not have any thing to do with a Realtor and the open market. If you would like to learn more, PM me with your email. I will send a tape of NPN that has already sold. It will give you an idea of how this works.

Folks, the question in this thread is about letters of interest for purchasing apartment buildings, not NPNs. NPN discussion goes into the bulk reo forum, ONLY. Lets please get back on track about LOIs. Any further posts about NPNs in this thread will be removed.

With all due respect, skipping an LOI is just plain foolish. I am sure you can get away with it some of the time, but one of these days its going to bite you for not going through a complete process. Good luck with that.

An LOI usually opens up the discussion. It helps the negotiation process along because the seller knows you're serious. There are many factors often involved in the negotiating process, over the period of several months. yet its non binding. Why would you want to sign a binding contract before you have had access to their actual financials? I would definitely not.

An LOI can have an informal ring to it, it is not a contract, its just a statement of purpose to move forward in negotiating a purchase, with a tentative offer price. Nothing more.

Yes, its kind of silly that sellers require an LOI before they will hand over the rest of their documentation, but on the other hand they are just trying to find a way to avoid wasting their time and also they are trying to limit how much the information about their property will circulate around. Information is power.

From a seller's perspective its wise to expect an LOI before going to a certain level of compliance in terms of providing documentation, and most of them think that way. And its wise for them to expect an actual contract before stepping it up to the next level of compliance beyond that.

From the buyer's perspective, its foolish to sign a contract without a significant understanding of the property, which most of the time you will not be able to get enough information until at least signing an LOI, but often won't be able to find out completely until you have the contract done. Nonetheless, the mindset of most sellers is to cough up financials after there is an LOI.

its not a big effort to submit an LOI, so just do it.

Be advised that the seller may have LOI's in from more than one person and until someone signs a contract, there is no contract. So an LOI does little more than get you a bit more information to evaluate the deal. Until you sign a contract, you're barely started.

another point is that if you make it a practice of signing a contract before you even look at the financials, then you are simply going to have a higher rate of forfeiting your contracts during due diligence, then other people who get an LOI first and walk away without signing a contract. Eventually, word is going to get out that you are the kind of guy that signs contracts prematurely and wastes everyone's time.