A Letter of Intent (LOI) is a common way of expressing your intentions to purchase a property without having to write a formal and binding legal contract. The letter of intent is presented to a salesperson in the preliminary stages of a project. The intentions of a buyer are explained clearly and simply so that the seller knows exactly how the buyer wants to buy the property and under what conditions. Basically, a letter of intent is to open a dialogue and create a framework for that dialogue between buyers and sellers.
Definition of a letter of intent
“A letter of intent is basically a written statement that expresses the sender’s intention, should certain circumstances arise, to take or renounce some action, such as entering into a future agreement with the recipient or, more generally, leading to carry out the commercial activities mentioned in the letter of Intent “.
I often file an LOI right after finding a building, quickly analyzing the operating numbers, and recognizing that a deal can be created. This whole process can take as little as 30 minutes. I want the seller to acknowledge that I have a serious interest in the building and not just a “tire kicker.” The sooner you know that you have a possible viable sale of your property, the sooner you will stop receiving calls and inquiries from others. In other words, your attention will be focused on the dialogue with me.
The letter of intent in the bidding process
This letter of intent is not a traditional letter. You don’t write it down and you forget it. It is a living document that needs to be updated and added periodically throughout the bidding process. In the bid and buy process, the letter of intent tells the property seller that you are interested not only in submitting a purchase proposal, but also in receiving all updates and modifications to the LOI. The LOI is an agreement to be agreed in the future. Once the investor and the seller have agreed through the LOI, a formal purchase contract will be drawn up.
If the letter of intent is accepted, the due diligence period will begin. It will continue until the time agreed by both parties in which, at the end of the term, a binding contract is constructed. The terms may change during this time if certain aspects of a property are discovered, not previously disclosed. For example, there may be soil contamination where the buyer will not want to buy the property and will safely opt for the non-binding contract. Or perhaps the property is in much worse condition than originally thought, causing the buyer to negotiate a lower purchase price.
If not binding, is the letter of intent a worthless document?
A letter of intent is not an offer or a contract. It does not commit you or the seller to the project. In other words, it cannot be enforced. Often times in the LOI there are times, at the bottom or in the body, a paragraph that indicates and reinforces the non-binding nature of the LOI.
This should be a basic understanding of the nature of the LOI. This language is
Usually only a new application is inserted to allow everyone who reads that it is not a binding document, nor an agreement to reach an agreement in the future, unless it is specifically written.
The specifics of due diligence, cash flow, and buyer needs, how those terms will be carried out with sellers. In most of the initial presentations, what is addressed is the adaptation of the financial needs of the seller. As a result, the focus is more on the seller than the buyer’s needs.
For this reason, the dialogue breaks down and the proposed purchase falls by the wayside.
When buyer and seller needs are addressed in advance, it helps secure a move to hire. s are detailed in the format. Buyers are often disappointed when their deals die at the LOI stage, with emotion on the side, understanding the nature of the LOI is just a tool to open the dialogue to see if an acceptable deal can be created. This allows the buyer to focus on the next viable deal. Therefore, in this sense, the LOI is a very valuable document.
Write the letter of intent
Use a formal letterhead and do not handwrite the letter of intent. A letter of intent should have five basic elements in its content:
1. The name of the seller or the seller’s agent
2. The name of the buyer
3. The address and description of the property
4. The details of your offer, including:
To. Purchase price
me. Due diligence conditions
5. Time frame.
The LOI body would address the following elements;
Conditions: We must detail the price of the offer, the specific conditions and contingencies of the financing, the initial payment, where and what type of financing will be obtained.
Conditions: We will often use this part of the LOI to request documentation about the property’s performance, such as finances or other items that can assist us in our due diligence.
Due Diligence Time – Specific time frame for consummation, typically between 90 and 120 days, or a date called “dead drop” by which the deal must be complete and the Buyer must have completed their due diligence, financing in place and ready to close trust.
Closing Date – The specific date by which you can complete all due diligence and arrange financing and any other clauses or provisions. When a formal contract will be drawn up if the LOI is approved if chosen, a clause that makes the LOI non-binding. Please indicate to the seller that you are interested in being kept informed of any modifications related to this property, i.e. the LOI document itself, essentially an invitation to respond.
Conclusion: Your signature and a place for the seller’s signature: Close the letter formally with “sincerely” or a similar polite expression. Sign your name and title. Be sure to provide correct and complete contact and reference information for future correspondence. Remember to consult your attorney, tax advisor, and other attorneys for more information before entering into the formal contract.