In this guide, I would like to give you an idea of when to use a Letter of Intent (LOI) to purchase property. Next, we will look at how to write a LOI step-by-step.
Laws vary from state to say and do vary from time to time. This information should not be construed as legal advice. When you engage in any type of real estate or legal trade, you should seek qualified legal and real estate advice from a professional.
There – we got that out of the way!
OK. I am especially going to address this when considering purchasing a apartment building or commercial property.
The standard contract used when purchasing property is known as a buy Offer, or a Purchase and Sale Agreement. You probably used this to purchase your own home or condo.
It is a formal proposal, usually drafted by your real estate agent or broker along with you. If the Seller agrees to each of the terms and conditions in the contract, then they will simply sign the document. It then becomes a legally-binding contract between Buyer and Seller.
It’s a great tool to use to start discussions, and usually is followed with a formal Purchase and Sale Agreement.
Why utilize a Letter of Intent?
A Letter of Intent is a fantastic tool to use so as to gauge the viability of purchasing a property given the price and terms you’re seeking.
A lot of times, I’ll use a Letter of Intent once I am trying to buy an investment property for much less than the Seller is listing the property. I might also use a LOI if I’m unfamiliar with the property and the area. I prefer to use a LOI in these instances to start the negotiating process while I do a little due diligence work throughout the process.
- On top of the letter, write today’s date.
- Contain the Seller or Broker info at the top of the letter.
- Explain that you are presenting this as a Letter of Intent to purchase the property.
- Explain who you are – if you are buying via an LLC, investment category, etc..
- Describe the property you are purchasing – the property name and address.
- Include the price you would agree to purchase the property.
- Define the due diligence period – it may be anywhere from 30 to 90 days, maybe even longer in a intricate project.
- Identify how you’d like to finance the job – Seller financing, loan assumption, bank financing, etc..
- Describe what you’d like to review through the due diligence period – financial information, leases, lease roll, etc..
- Include the earnest money you would be prepared to put down during due diligence.
- Identify a Final Date goal – it may be within 30 or 45 days of completion of the Due Diligence Period. This will vary based on the project.
- Finish the letter saying if these conditions are okay, to let you know and you’ll follow up with a proper Purchase Agreement to move forward on the buy.
- Sign the letter.
There you have it – the essential components to include in a LOI. Nothing overly complicated – and if it is too complex you will likely scare off a severe Seller!
The Letter of Intent is really only a very simple business letter outlining the price, terms, and conditions that you would like to get when purchasing the property. These are the basics, and everything will vary from project to project.
Again, a LOI is a great tool in your toolbox to start discussions when purchasing real estate. Keep these steps in mind when you are seeking to produce your next Letter of Intent to purchase property.