A letter of intent (LOI) is the initial offer to the seller of a commercial property that you want to buy. The commercial real estate letter of intent should tell the broker and/or seller that you’re a serious buyer who is ready to close at the price and the terms you have spelled out, provided that you can work out the details of a contract. Your letter of intent should get the ball rolling. Show The main purpose of a letter of intent is that it’s a simple, time efficient way to get the basic points of a deal down. Besides, a one or two page document is easier to get a seller to agree to right away so that you can go on to making the deal. The disadvantage is that you don’t have the property under contract until the formal agreement is fully executed, thus make sure that you get the formal contract out quickly. The easiest way to explain a LOI is to give you an example of a standard one as shown below, however please note the following as it relates to the LOI: The opening clause lets them know that you are a serious buyer. I always suggest that you put in and/or his Assignee so that you can assign it to a company or LLC that you might want to set up or in case you have a problem trying to close this deal, you can either partner up with another party or assign the Contract and probably make some money on the assignment. There are many ways to make money in real estate and assigning contracts is one of them. Under Property Description, do as thorough a job describing the property as you can. Your due diligence period should be the amount of time you anticipate that it will take you to do your inspections. Make sure that your period doesn’t start until the seller has given you all of the required information and that it is acceptable only in your discretion. You will also want to waive these rights or accept the information in writing only. Your deposit delivery and closing timing are negotiable, but should be reasonable. The loan contingency usually will prompt a discussion with the seller wherein they will want to know if you have a good source for a loan or if you have received loans in the past, etc. You should be ready to convince the seller that you are experienced at getting loans or that you have a broker that is experienced. Closing costs are a negotiated item typically based upon what is normal in your particular market. You can ask an escrow officer or a real estate broker in your area about this. One of the most important clauses in the letter of intent is the clause spelling out that the letter is not a contract and not legally binding until a contract is fully executed. As I say throughout my blogs, if I may be of assistance with your real estate questions please contact me, I truly want to help. My way of giving back is to give away my knowledge. Thank you for reviewing this blog. SAMPLE LETTER OF INTENT
What should be included in LOI?A letter of intent (LOI) typically includes: Deal structure which defines if the acquisition is a stock or asset purchase and a summary of the deal terms. Total enterprise value (TEV) Consideration which describes the amount of cash at closing, stock, seller notes, earn-outs, rollover equity.
What is an LOI template?A letter of intent (LOI) is a document written in business letter format that declares your intent to do a specific thing. It's usually, but not always, nonbinding, and it states a preliminary commitment by one party to do business with another party.
How do you make a LOI?Follow these steps when writing an LOI:. Write the introduction. ... . Describe the transaction and timeframes. ... . List contingencies. ... . Go through due diligence. ... . Include covenants and other binding agreements. ... . State that the agreement is nonbinding. ... . Include a closing date.. What is a LOI used for?A letter of intent (LOI) is a document outlining the general plans of an agreement between two or more parties before a legal agreement is finalized. A letter of intent is not a contract and cannot be legally enforced; however, it signifies a serious commitment from one involved party to another.
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