Should you include price with LOI's (Letter of Intent)?

Question

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!

Adam Sherritt · Answer

Hey Nick,

I thought it might be low, but figured I'd run it past you guys. Thanks for the thought. I am not currently dealing directly with sellers, but rather am interested in certain buildings and am contacting the owners to see if there is any interest in selling.

Thanks Justin. I really appreciate the input regarding including some description of the mix. Definitely adds another personal touch layer.Originally posted by @Clint Hale:

Clint, this was a great help. Thank you for the tip on the closing statement, I think it's important to explain any reasons for a discrepancy in terms of an offer.

I think the overall consensus here is that including a price is the route to go. This is what I originally assumed, but felt that hearing from this great community was a good idea. This is going to be my first round of LOI's, so I am sure I will learn a lot from the results. And you better believe I'll share my lessons with those on here. Love this place!

Justin R. · Answer

@Adam Sherritt That offer price is what differentiates your letter from a carpet bomb mailing campaign.

You could play it up and further demonstrate your level of seriousness by saying something like: "This offer is based on our assumption that the property contains a mix of 1 and 2 bedroom units totaling 16 rentable units, along with our initial research of publicly available information."

If the point is to get them interested enough to talk, showing you've already spent time and effort can only help.

Good luck!

Nick B. · Answer

@Adam Sherritt, I assume you're dealing directly with a seller. In that case I would not mention offer price without seeing their financials first.

BTW, estimating expenses as being 30% of gross may be too low. At any rate, you need to come up with realistic proforma expenses if you cannot find the real one. The same property managers who gave you the rents may give you an idea of the expenses are going to be.

Clint Hale · Answer

The point of the LOI is to grab the Seller’s attention and be taken seriously. Always follow up the LOI with a phone call, email, or both to ensure they received it and encourage a response. Justin R hit the nail on the head.

A few ideas based on my buying and selling 1000's of units:

1. State how many units the property has i.e. “This is an offer for ABC Apartments located at 123 Main street, consisting of 55 units.” If the unit count is wrong, they might let you know so you can adjust your offer rather than just throwing it in the trash. Getting any response is beneficial.

2. If you are a cash buyer, mention that you are well-capitalized and have the resources and experience to conduct a quick due diligence period. A redacted proof of funds never hurts…don’t make them ask.

3. If you do not have a buyer’s agent, specifically mention this in the Brokerage Fees section. The multifamily niche (at least 100+ unit properties) is very non-cooperative.

4. In the LOI or via email/phone call, give the seller an easy reason to respond: “This LOI was put together based on assumptions using our market experience and research data. From time-to-time, our research data can be inaccurate. If our offer is wildly out of line, let’s briefly chat to make sure that our data is accurate and that we are not unknowingly overlooking anything beneficial to the property.”

Account Closed · Answer

Yes you should mention a purchase price. That is the purpose of a LOI. It spells out the financial terms of your offer without sending them a multipage contract.

Brandon Jenkins · Answer

Some great advice in this thread!

@Adam Sherritt

Was the LOI well-received?

Should you include price with LOI's (Letter of Intent)?

Should you include price with LOI's (Letter of Intent)?

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