Specialist · Denver, CO · Member since 2021 · 56 posts · 12 votes
BP Nation! Looking for you to come through again!
I was given an off market deal in the Houston, TX MSA. Based off of underwriting, the deal pencils. What are the implications of sending in an LOI and going under contract on the properties? What are the right reasons to back out, and what are bad reasons to back out?
Thank you for you help and I am looking forward to the answers!
@Cole Baker the implications of sending in a Letter of Intent (LOI) and going under contract on a property depend on the specific terms of the contract and the local laws governing the property.
Generally, when an LOI is accepted and depending on the language of the LOI, the parties are not yet legally bound. The LOI builds the framework for the PSA (Purchase and Sales Agreement). Once you are under contract you are legally bound to perform (Close).
If a buyer fails to fulfill their obligations, they may be subject to legal action. Similarly, if a seller fails to fulfill their obligations, the buyer may be entitled to compensation. It is important to read through the contract carefully and understand all of the terms and conditions before signing.
In a PSA there is usually a DD (Due Diligence) period where you have access to the property to review the asset, financials, perform inspections, etc. The wording of the PSA is important as it can allow during DD to terminate the PSA.
I was given an off market deal in the Houston, TX MSA. Based off of underwriting, the deal pencils. What are the implications of sending in an LOI and going under contract on the properties? What are the right reasons to back out, and what are bad reasons to back out?
Thank you for you help and I am looking forward to the answers!
Multi family means different things to different people. How many units are you talking about? 4 or 164? or somewhere in between?
@Cole Baker the implications of sending in a Letter of Intent (LOI) and going under contract on a property depend on the specific terms of the contract and the local laws governing the property.
Generally, when an LOI is accepted and depending on the language of the LOI, the parties are not yet legally bound. The LOI builds the framework for the PSA (Purchase and Sales Agreement). Once you are under contract you are legally bound to perform (Close).
If a buyer fails to fulfill their obligations, they may be subject to legal action. Similarly, if a seller fails to fulfill their obligations, the buyer may be entitled to compensation. It is important to read through the contract carefully and understand all of the terms and conditions before signing.
In a PSA there is usually a DD (Due Diligence) period where you have access to the property to review the asset, financials, perform inspections, etc. The wording of the PSA is important as it can allow during DD to terminate the PSA.
Start with the LOI for all the top line metrics of the offer (price, closing timeline, deposit amount, due diligence timelines) and if those are accepted get an attorney to start working on the PSA (purchase and sale agreement).
A good attorney will be able to walk you through the escrow process and keep you on track to close and keep tabs on key dates and upcoming deadlines.
The financial implications right away will be the deposit (1% of purchase price typically) and legal fees. Some lawyers might be ok with being paid out at close, some might want their money quicker than that especially if you're new to the game.
Beyond that initial cost there will be inspection costs for any inspections you order either on your own or as required by the lender. Generally I've seen when the dust settles closing costs (not including down payment) to be roughly 7% of the purchase price. So if you're buying a $1M property with 25% down, I'd plan on coming up with (or having investors come up with) $320k (25% down payment + 7% closing costs). Just a rough estimate!
I was given an off market deal in the Houston, TX MSA. Based off of underwriting, the deal pencils. What are the implications of sending in an LOI and going under contract on the properties? What are the right reasons to back out, and what are bad reasons to back out?
Thank you for you help and I am looking forward to the answers!
Multi family means different things to different people. How many units are you talking about? 4 or 164? or somewhere in between?
Great question, the property is a 127 Unit property.
Do you have the down payment, loan and insurance money ready to go,,,
Meaning are you ABLE to close, or is that the reason you will need to back out--lack of one or all of these???
Thank you for the info Scott! I have none of that prepared. I am simply beginning my journey on multifamily and asking questions where I can to learn more.
I was given an off market deal in the Houston, TX MSA. Based off of underwriting, the deal pencils. What are the implications of sending in an LOI and going under contract on the properties? What are the right reasons to back out, and what are bad reasons to back out?
Thank you for you help and I am looking forward to the answers!
Multi family means different things to different people. How many units are you talking about? 4 or 164? or somewhere in between?
Great question, the property is a 127 Unit property.
It's common for units of that size to involve syndications. The set up fees for syndications run between $10,000 and $15,000 plus you need to have someone who has a net worth equal to the loan amount sign.
I know of the 127 unit. Was sent it to me last month. It's a swapnil deal and they wanted too much for it (at least, IMO). It's near a ~400 unit I'm buying that has higher rents and is less per door.
As far as what's at risk: From the LOI? Nothing. Maybe some reputational risk if you don't preform From the contract? Typically you're risking some amount of option fee during your feasibility period, then your earnest money after. As far as how much option fee, how long of a feasibility period, and how much earnest money -- that'll be negotiated in the contract.
I don't want to give away the property or broker here but is the company selling it to you have the initials "RRG" ? Are they still looking for ~$15m+?
I know of the 127 unit. Was sent it to me last month. It's a swapnil deal and they wanted too much for it (at least, IMO). It's near a ~400 unit I'm buying that has higher rents and is less per door.
As far as what's at risk: From the LOI? Nothing. Maybe some reputational risk if you don't preform From the contract? Typically you're risking some amount of option fee during your feasibility period, then your earnest money after. As far as how much option fee, how long of a feasibility period, and how much earnest money -- that'll be negotiated in the contract.
I don't want to give away the property or broker here but is the company selling it to you have the initials "RRG" ? Are they still looking for ~$15m+?
Different 127 Unit? The owner initials are NC.
Thank you for the insight, Cody! We can take this offline if you want! Would be excited to talk.
I was given an off market deal in the Houston, TX MSA. Based off of underwriting, the deal pencils. What are the implications of sending in an LOI and going under contract on the properties? What are the right reasons to back out, and what are bad reasons to back out?
Thank you for you help and I am looking forward to the answers!
Multi family means different things to different people. How many units are you talking about? 4 or 164? or somewhere in between?
Great question, the property is a 127 Unit property.
It's common for units of that size to involve syndications. The set up fees for syndications run between $10,000 and $15,000 plus you need to have someone who has a net worth equal to the loan amount sign.
Or, you can just pay cash.
That makes sense, I have been reaching out for guarantors to partner with in general.