Making an Offer on Apartment

[Nghi Le]

I am completely new to the world of apartments, but came across an off-market out-of-state deal that was worth exploring. I'd like to lock it down as soon as I can, but the problem is that we don't have the entity structure set up yet (between my partners and I). I was advised by a local investor to use an attorney in that state to write up the offer, and also potentially create the entity (in that state). Finding and screening that attorney may take some time, so I'm considering just creating the LLC in my own state (I can easily do that online now and worry about the partnership structure in the operating agreement later) and then submitting an offer using my own local attorney or asking the seller's broker to write up the offer for me (and I'd review the terms).

Or maybe just make the offer in my own name with a clause in the contract that I may close in the name of an LLC in which I would be one of the owners, kind of like an assignment clause?

What's your take on this?

[Andrew Cushman]

@Nghi Le, don't waste time (or money) with an attorney to write an offer. In the apartment world, your offer consists of a Letter Of Intent, or LOI. This is exactly what it sounds like: a professional letter outlining the terms under which you intend to purchase the property. Such terms would include price, due diligence period, time to close, possible finance contingency, etc. The LOI is non-binding (and it should say that). Once the LOI is executed by both parties, then you hire an attorney to write the PSA (Purchase and Sale Agreement) and incorporate the terms of the LOI into it. When you're at that point, it is best to get a referral for an attorney for the state the property is in.

Regarding entity creation, there's generally no need to incur the time or expense until you are confident the deal is going to close, or if you will use the entity for something else as well (such as your overarching management entity). Times vary, but in most states an LLC can be setup rather quickly, in some cases one day. We usually set up the purchasing entity several weeks after we've gone under contract, once we know due diligence hasn't turned up anything crazy, we've determined the new name for the property, etc. Just make sure the PSA is assignable. That has worked great for us for about 1,600 units.

Good luck, and congrats on finding an interesting deal!

Andrew