LOI's - What do you guys put in them?
Investor · Las Vegas, NV · Member since 2009 · 8 posts · 1 vote
Hi - I, too am transitioning from SFH to apartment buildings, and would like to see what kinds of LOI's are out there.
What language, due diligence exits, and other concerns are you using in your offers? Actual examples are certainly appreciated - It might help clear up confusion for a bunch of us...
I'm new here, and I apologize if this has been a previous topic.
Thanks!!
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.
If you can use your own two page contract on 100 unit aprtament buildings in OH, more power to you. All I was stating is that, in most cases, these deals require a tad more than one or two pages.
Will,
Yours is detailed - I was just wondering if anyone has anything to add, or another way... please take no offense for wanting others' input...
For people interested - I'm looking at props of 100+ units. If you've done these, please add your input if you like.
Thanks again everyone!!
No offense taken Roger, I asked for others to add if they had anything - it was sincere.
There are many other things to have in an actual PSA, but I don't include them all in an LOI. If you have a ton of contingenices included in your LOI, it can scare away the seller. You want to keep it simple but have enough in there so that they know you are serious and that you are experienced enough to not get taken advantage of.
There are many tricks that sellers of large complexes and even small ones, use to cheat you as the buyer. As soon as I can get around to it, I will make a blog post about them and how to protect yourself from these scams.
Guys,
I think the use of an LOI is more regional custom than anything else. I sold CRE in NYC where P&S agreements are over 100 pages of itty-bitty print. The LOI is ALWAYS used to hammer out the business points like price, deposit, due diligence period, etc. so you don't pay an attorney $400 a hour to mediate things that you should be able to do yourself.
Roger, your broker should have LOI templates for you to use, and should be helping you with the preparation. If they do not have experience with this level of property acquisition, I would be suspect.
Finally, I would add language about the information you ask for such as "due diligence items shall include, but not be limited to (insert the stuff you want to see). This way, if you miss asking for something you don't need to obsess and can easily ask for it later.
Also, I think you need longer than 30 days to close since the speed of the lenders today is going at a snail's pace. I doubt you could even get a committment letter in 30 days today, let alone close and get the money on the wire.
Hey John, was wondering if you could pass that information of NPN on to me as well. I am also interested in learning about some of these notes and the opportunities that might be available in acquisition.
Cheers!
I've yet to meet a seller who hasn't responded to a realistic LOI. If the property is worth $1mil and your LOI offers $100k, don't expect to hear anything back right away (or ever). My LOI's are simple. First page is letterhead and has one paragraph stating the address and price you'd like to offer. That's it. Nothing else. No commentary about how much you like it or how much work it needs. Second page is a copy of my financial statement and a copy of the letter of credit i keep with my local lender.
I do recommend that buyers get good representation from a good agent, broker, or attorney. They can send the LOI on their own, but if they get a bite they should turn it over to someone who can negotiate a contract that protects their interests.
I added the letter of intent I used to use at the end of my response here. I say “used to use†because I believe LOI’s are a waste of time for both the buyer and seller. I’ve found anything that can be negotiated in an LOI can be negotiated in the contract all at once, rather than in series. Nothing says “tire kicker†better than an LOI. In my view, a contract is the best way to show you are a serious buyer. Nor do I think an LOI is the appropriate method to request information.
The numbers to do a proper, though preliminary, cash flow analysis should be provided when the deal is either presented to you or soon thereafter; either from the seller, the broker, or from your knowledge of typical rents and expenses in the area. Though I’ve been refused numbers, I’ve never considered these sellers serious, but those fishing for offers to establish demand. Generating a bad reputation and wasting other’s time cuts both ways and I have no patience with anyone who won’t provide me with the numbers I need to make an informed decision quickly (most often they’re junk, but that’s another story).
My process lately is to do kind of a hybrid. I will submit a contract to a seller but amend it with many terms from my LOI. I make sure that most items below, are either covered in the contract face or the amendment to the contract. Chief among these are the Conditions (item 6) â€" obviously an overly broad due diligence request that enables me to wiggle out if the “real†numbers or facts point in that direction. If not, and everything adds up, I’m happy to buy. The contract allows me to do this; the LOI does not.
So there, my first post.
LETTER OF INTENT
Date: xx July 20xx
RE: 123 Main Street, Anytown, USA 12345 (the “Propertyâ€)
The following sets out the basic terms upon which we are prepared to purchase the Property. The terms are not comprehensive and we expect that additional terms, including reasonable warranties and representations will be incorporated into a formal agreement (the “Contractâ€) to be negotiated. The basic terms are:
1. Buyer: “my name†and/or assigns
2. Seller: “sellers nameâ€
3. Property: 123 Main Street, Anytown, USA 12345 (the “Propertyâ€), to be delivered free and clear of all liens, charges, and encumbrances at closing. Legal description to be provided.
4. Purchase Price: $x,xxx,xxx
5. Deposit: Upon execution of the Contract, the Buyer will deposit with the escrow company, the amount of $xx,xxx which will be invested in an interest bearing trust account and will be fully refundable if the conditions below are not satisfied or waived in writing by the Buyer. Otherwise, the Deposit and interest will be applied to the Purchase Price at Closing.
6. Conditions : The obligation of the Buyer to purchase the Property will be subject to satisfaction or written waiver by the Buyer of the following conditions within 60 days after execution and delivery of the Contract:
• Approval of books and records, rental agreements, service contracts, or any other information requested by Buyer;
• Completion of satisfactory physical inspection of the Property, to be paid for by Buyer;
• Completion of satisfactory due diligence searches and examinations;
• Satisfactory review of title to the Property;
• Satisfactory financing arranged for the purchase of the Property.
7. Approval of Contracts: Buyer to have final approval of all contracts initiated during escrow period. Tenant qualification standards will continue to abide by current criteria. Seller will submit to buyer all approved application, leases, and any other contracts executed during escrow period. Seller will be required to submit originals of these documents to the buyer prior to closing
8. Title: Evidence of Title is to be in the form of an owners ALTA (American Land Title Association) policy through Chicago Title or other national title company.
9. Closing: The Closing will occur not later than 60 days following execution of the Contract. Buyer has the right to extend the date of closing for one 30 day period by depositing an additional $xx,xxx in the trust account of the escrow to be applied to purchase price.
10. Costs: The Buyer and the Seller will each bear their own personal expenses in connection with this Letter of Intent and the purchase and sale of the Property. Transaction expenses, such as for title and escrow, shall be borne according to regional custom.
11. Purchase and Sale Contract: Upon acceptance of this Letter of Intent the Buyer will prepare a draft of the formal Contract for the Seller’s review.
12. Not a Binding Contract: This Letter of Intent does not create a binding contract and will not be enforceable. Only the definitive Contract, executed by the Seller and the Buyer, will be enforceable.
13. Commissions: Buyer and Seller agents will equally split $xx,xxx paid by the seller.
Acceptance: If you are agreeable to the foregoing terms, please sign and return a copy of this Letter of Intent by no later than by 5:00 p.m. PDT xx July 20xx.
Signed by Buyer
Signed by Seller
The bank I'm dealing with has provided us their standard LOI form. Although with a few variations, the LOI samples provided in this forum cover most everything. good luck