Should you include price with LOI's (Letter of Intent)?
Hey guys,
I am about to send out a Letter of Intent to a few buildings in the area and was wondering if you could give me some advice.
I created the following Letter of Interest (LOI) to send to roughly 10 buildings we have identified as opportunities in the North San Diego region. The buildings are in the 8 to 32 unit range and are candidates for forced appreciation.
I came to estimated property value using VALUE=NOI/CAP.
NOI was estimated by calling the prop. manager and just asking how many units were in the complex, what the mix of units was, and how much each would rent to a new tenant for. As for expenses, since I don't have real numbers I just used 30% of Gross Income.
CAP was determined by talking with a contact who works as a multifamily broker here in San Diego and was told a safe number for beginning cost analysis would be 3.97%
Now to my question, my partner and I have different thoughts as to the first letter to send to the ownership. He thinks we should send out a "this is who we are and would you be interested in selling? If so please contact us to discuss further."
My thought, and I have attached the letter I have created, is to send them a "this is who we are and we are interested in buying your property for $________.) I believe this grabs their attention with a real number, even though it may not be the right number. Thats where negotiations start!
I don't really like my partners approach for a few reasons. One being that it shows no "skin in-the-game" or initiative. To send a plain "are you interested?" letter takes almost no effort and a seller inherently knows this. It also makes them feel like one in a million. There is nothing to make the seller think that they are being paid attention to. Its a one size fits all letter. A letter that has a somewhat realistic number shows that you at least know something about the property and have done preliminary research.
Thanks guys!