The Letter of Intent and the Purchase Sale Agreement are significant steps towards closing your multifamily purchase.
When you find a multifamily property, you run the numbers. If the numbers show promise, it’s time to engage the seller to see if you can put the deal together. The initial non binding offer used by buyers is a Letter of Intent. If you and the Seller find agreement in principle, you will formalize the offer with a Purchase Sale Agreement.
The Letter of Intent is a non binding presentation to the seller that spells out the framework of your offer, your intent to purchase the Seller’s apartment building. This should be addressed to the selling broker, not the Seller. To see a sample Cover Letter & LOI used by Vinney, click here.
The Cover letter should summarize your intentions. It should also include any relevant experience you or your team has closing on Multifamily Properties, to give the buyer confidence you will close if they accept your offer.
The Letter of Intent is not binding, so it does not require legal review, but should contain::
Because you will be offering less than selling price offered, it is to be expected that the Seller will either reject or counter your initial Letter of Intent. After some back and forth, if you are able to reach agreement in principle with the Seller, you need to put the property under contract. This is accomplished using a Purchase Sale Agreement.
The Purchase Sale Agreement is a legal, binding agreement. The PSA includes all of the items in the LOI and spells out all the legal performance requirements for both you and the Seller. Each property is unique and requires that you have your attorney prepare and review to protect you.
Vinney advises that you communicate early and often with the Seller during the Due Diligence period to avoid any surprises. He suggest that your compose a Repair Letter as soon as you know the condition and any additional capital expenses that you were not aware of prior to your offer.
Similar communication regarding the financing should be made to keep the Seller in the loop. When you do this, the Seller is more likely to credit you additional funds to fix the problem, or accommodate the time needed to obtain financing to keep the sale on track to close.
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Prior CREPN Radio Multifamily Syndication episodes with Vinney Chopra