Should I use an LOI or an Option agreement

7 Replies

I'm looking to wholesale 2 - 6 unit Chicago properties. The owner wants to sell them together. Both properties are C class, vacant and need full rehabs inside about $15-20k per door; kitchen, bath some wall replaced, replace some stolen copper pipes plumbing etc. We decided that we were not going to rehab these buildings but would like to wholesale them to an investor. I would like to know if I should use a LOI or an Option agreement to get control?


Thanks
Karl S.

Karl,

Which one do you feel more positive control utilizing? Use that one, w/ an exit strategy!

Thanks Russell. I do intend to get the property under control.  

Originally posted by @Karl Smith :

I'm looking to wholesale 2 - 6 unit Chicago properties. The owner wants to sell them together. Both properties are C class, vacant and need full rehabs inside about $15-20k per door; kitchen, bath some wall replaced, replace some stolen copper pipes plumbing etc. We decided that we were not going to rehab these buildings but would like to wholesale them to an investor. I would like to know if I should use a LOI or an Option agreement to get control?


Thanks
Karl S.

The LOI is simply an understanding between the parties, it can be structured to have teeth but that beyond the scope of this question.

An option when executed properly invokes an equitable interest in the property and depending on how it's written can force a sale should the seller later have a change of heart, file bankruptcy, or die. 

If you do use an option and you're not familiar with all of its components, and I mean expertly familiar, then I would recommend you get your real estate attorney to draft the option since you'll be assigning it to others: and speaking of assignment, you might also get the attorney to include an assignment agreement that fully releases you from any financial obligations relating to the assignment, but also and potential litigious liability. All three parties should sign off on the assignment.

Originally posted by @Karl Smith :

I'm looking to wholesale 2 - 6 unit Chicago properties. We decided that we were not going to rehab these buildings but would like to wholesale them to an investor. I would like to know if I should use a LOI or an Option agreement to get control?  

Control means you have the right to purchase a property or assign a right to purchase a property. This means the seller can't sell the property to anyone else because of your rights to purchase. An LOI doesn't give you that right. An option agreement, may or may not give you that right depending on the language & if there's been some kind of consideration given to the seller for that right.

LOI - as in Letter of Intent? I use those to make offers. Broad stroke concepts before a formal PSA or Option is executed. Is there a different LOI definition I am missing? Thanks!

I appreciate the input. It appears that using the option is going to better serve me needs.

Thanks

Karl - If you get this deal under contract please send us the details.

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