What to include in a Letter of Intent

Question

Here's what I'm putting together for an apartment LOI, not sure what or if I should save stuff for the purchase contract:

A) Purchase Price (high offer, almost asking price since there's already another offer on the table from Monday, realtor let the seller know I'm putting in my offer this week)
B) Seller Pays closing costs
C) Cash put in an escrow for repairs and operating
D) Contingent upon inspection and financing
E) Contingent upon partner review and approval
F) Management is to be let go day of closing.
G) 60 days until closing
H) Allow for a day for contractors to come and bid on projects before closing.
I) Allow for a day to advertise rentals and show prospective tenants rooms before closing.
J) Able to see all units vacant or not.
K) Allow interviewing of available, current tenants.

This is a big apartment complex purchase so I think these are rather justified. I'm just not sure what to put in an initial LOI and what can wait till the contract.

Anthony Dooley · Answer

@Jonathan Johnson I would make it brief and to the point with your intentions. They don't need all of the details. That would be on the PSA. If you sent it to me with a contingency of partner approval, I would assume that you are trying to wholesale it. Grant Cardone tells a story of sending his intent via video to the seller. The letter doesn't have to be perfect. It's like asking them out on a date.

Michael Le · Answer

I don't agree with taking the contingencies out. The LOI is not binding but it is where you start negotiations. If you have something that is important to how you run your business then you want to have it in there and not surprise the seller later down the process. You don't want the first time the seller hears about your financing contingencies is when your lawyer sends back the seller's initial PSA. The seller might have chosen you because you did not have a contingency and now you're basically retrading if you add it in during the PSA phase.

Kim Meredith Hampton · Answer

@Jonathan Johnson here is a template

[Short introduction paragraph – indicate you are submitting this letter with the intent to do a specific action (purchase, partner, acquire, license, etc.). Indicate that the intent is based on the following conditions.]

[Define the specifics about the item behind the intent listing all pertinent variations of the item or supporting material. Provide indication or your intent with respects to the liabilities.]

[Considerations – Propose what you are willing to provide as compensation or other as consideration for the specifics listed above. Be sure to define amounts, timing.]

[Provide conditions for the transaction. This may include conditions on due diligence, limitations on further seeking other interested parties or confidentiality.]

[Indicate that this letter is not an official offer and that all details would need to be negotiated and executed through a formal Purchase (or other) Agreement.]

[Indicate your expected timing for the transaction to take place assuming you were selected.] Sincerely (or Respectfully Yours), (Sign here for letters sent by mail or fax) {My Full Name}

Stanley Parsley · Answer

people who sell like fast closings

time is of the essence

make sure you have an approval letter telling the seller you have the finances to pull off the deal

once you have a letter to show that places the ball in your court

take a couple people with you on the walk through if you are looking at multiple units with a detailed plan of what to look for that may need repairs this will free up your time so you can smooze the seller and get on the ground with the seller

make a list of knowns

new carpet, new paint, drywall repairs, doors cabinet hardware ect... allow so much per unit

enjoy

Brian Adams · Answer

@Jonathan Johnson you will need to tailor each LOI to the seller.

I am buying a 550+ unit deal and my LOI was very detailed as the seller was very experienced. The LOI points were negotiated upfront that helped frame and shape the PSA and we got to an executed contract faster.

I bought a 209 unit deal from a "mom & pop" operator so my LOI was high level stuff as I didn't want to overwhelm the seller with to much detail.

Joseph Gozlan · Answer

@Jonathan Johnson it feels a bit too much. you want to make sure your LOI includes critical timelines (financial period, due diligence, closing), purchase price, earnest money and when any of it goes hard, brokers commissions, and some bio about you and your experience if you feel it will help you get an advantage over the competition. If you are a cash buyer, shorter closing period and/or POF really help tip the scales your way.

As @Anthony Dooley mentioned above, the details come out in the PSA.

What to include in a Letter of Intent

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