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.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
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.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
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.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
I never use a letter of intent. They're not legally binding, so what's the point? If I want to buy a property, then I submit a written offer, or more often, sign a contract with the seller right there on the spot. I'm not wasting any time playing games. If we're doing a deal - let's do it. If not, I move on.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
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.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
Will,
I 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.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
Diane,
I no longer even ask to see the books. In fact, about the only paperwork I want to see from the owner is the tenant information (lease, application, etc). Most landords (yes, even on commercial properties) don't have accurate records and even if they do, the records only reflect what they've done with the property, not what I'm going to do with it. 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. Therefore, the data from a failed owner is really of no value to me.
I know my market and therefore I'll use my own knowledge to come up with the numbers.
Having said all that, I do agree with you. If I was going to make an offer based on someone else's financials, I certainly would want to see the financials before I made the offer. I guess that's why they're using a LOI, so that they can make an offer that isn't binding.
Real Estate Investor · Mission Viejo, Cape Coral, CA · Member since 2008 · 218 posts · 24 votes
17y
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.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
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.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
Will, I'm not against a person using a LOI if they want to. Moreover, I think your reply to the original poster's question was good and contained a good sample LOI. My only point was that it's just as easy to sign a binding contract so that the property is tied up during due diligence.
I don't think I was clear in my original post. I get the lease and tenant applications from the owner for the purpose of determining who's in the property (drug dealers, scumbags with previous evictions, etc) and so that I can see how long is left on their lease. Of course, I need to consider the current rent for the duration of the existing leases, but I determine all the numbers (including gross income) based on my numbers, not what the current owner is getting. I buy a lot of my properties from failed landlords and obviously they weren't operating the property correctly in most cases.
Real Estate Investor · Mission Viejo, Cape Coral, CA · Member since 2008 · 218 posts · 24 votes
17y
"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.
Contractor · Philadelphia, PA · Member since 2008 · 183 posts · 17 votes
17y
Thanks John,
I will have to chew on the definitions a bit more to get them logged into the coconut.
But the jist is, if I wanted to purchase a mixed use or commercial property, especially one held by a bank, I would need a realtor who was familiar with these points to walk me through it, get me the finanical data, since I am not qualified to do it myself yet. Also I would need a lawyer or a realtor who can write up the LOI.
It sounds too like you guys might be talking about bulk commercial REO purchases = the topic of "tape".
This is intriguing to me. I have only been doing SFH's and the idea that you can buy a group of non performing properties and make them into something sounds very interesting.
Real Estate Investor · Mission Viejo, Cape Coral, CA · Member since 2008 · 218 posts · 24 votes
17y
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.
Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes
17y
I would add the corollary on "Performing Notes" that they aren't necessarily a borrower that has been performing since origination. They very well could be (and in my experience, usually are) a borrower that has slipped in the past, and become current again through either a loan modification or BK.
This is an important thing to look into while considering your value of a particular note.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
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.
Real Estate Investor · Seattle, WA · Member since 2008 · 34 posts · 6 votes
17y
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.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Great point and post Steve. I agree.
Can you just sign a purchase contract and complete your due diligence? Of course. Will EVERY seller go direct to a PC before a LOI? No.
Start your negotiations with an LOI.
Real Estate Investor · Seattle, WA · Member since 2008 · 34 posts · 6 votes
17y
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.
Developer · Frederick, MD · Member since 2009 · 17 posts · 5 votes
17y
I don't think one should make a universal statement about using/not using LOI's. On smaller deals dealing with unsophisticated sellers (note, by unsophisticated, I don't mean stupid), it is probably better just to go right to a simple contract. However, if you're dealing with a larger outfit who wants to use a 60 page contract, an LOI is the way to go.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Jack,
Your post is valid and I agree, however, we were talking about commercial units not small residnetial. Of course you go right to a PSA on a residential unit. Buyers and sellers of these types of investemnts don't know an LOI from a BMW.
I agree, almost NOTHING is universal in RE investing. What works for some, does not for others.
Back to the thread topic, what do you put in a LOI for commercial offerings . . .
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
There is NOTHING about real estate that is complicated enough to warrant a 60 page contract. What could possibly be so complicated? They have a property - you want to buy it. Certainly nothing a one or two page contract can't handle. We aren't talking about buying the Empire State Building! Geesh!
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Mike,
I think you took the statement too literally but I could be wrong. It did happen one time before! :lol:
At any rate, commercial contarcts are more than one or two pages so that is also not a valid statement. There is more to a contract than just the offer price, names of parties, and terms.
Investor · Las Vegas, NV · Member since 2009 · 8 posts · 1 vote
17y
Wow! Thanks everyone... I never had any notification that this post was being replied to so often. Sorry for my disappearing act!
I'm hoping we can once again get back to the original point: Does anyone else have an LOI for apartment buildings that they'd be willing to share? I think the debate of whether they're useful (or not) is great for another posting...
nationwidepi's reply is great. I'm looking to get a few additional ideas on verbiage, structure, and other critical needs - ones that are found only by experience.
I'm finding a few properties that I want to make some offers on, but want to see if there's anything missing in my LOI before I do.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
Have you ever actually done one? I have done a several and all of them were one or two page contracts (of course, they were MY contracts). What do you put in your contracts that makes them so lengthy?