We are in a competitive market today. When you are preparing an offer on a deal that you want to buy, you need to do your best to be easy to work with, aggressive and able to close. This means handing over a Letter of Intent that is strong and has the best chance of winning. Doing the homework ahead of the LOI is important and this info applies whether your deal is $100,000 or $10,000,000.
Ultimately, you are looking to write the LOI the way the seller and broker wants to see it, complete with the price and terms that will get the deal done. But before you get into that, you need to prepare for writing up the offer. Here are the three things you need to do before you actually write the LOI:
1) You Need to Ask Questions
When you call the selling broker and introduce yourself, tell them about your background, team and what market you are buying in. From there, you want to express your interest in the property and ask questions about it.
– How much are is the seller looking for?
– What due diligence period is the seller looking for?
– How much earnest money is the seller looking for?
– What is the most important thing to the seller, besides price?
– How would the seller like the LOI written?
Maybe the broker that is selling the deal is also the one that sold it to the current owner. Ask the broker, “How was the offer written previously?”, “What did it sell for last time?”, “Why are they selling today?”.
You see, when you get to the point of preparing the LOI, you can write it the way they want to see it, and you have a better chance of winning the deal. Because you wrote it the way they want it, they will agree with your price, due diligence and down payment. You want to give the seller what they want.
2) What Price and Terms are Acceptable to the Seller
During this conversation, you want to go into a deeper dive with the broker around what they believe the deal will be worth to the market. This info is typically backed with data that supports the price. On larger deals, the broker will forward a ‘Broker’s Opinion of Value’, also called a BOV. This is prepared by the selling broker after they inspect the property and pull the recent listings and sales nearby. Make sure to pull your own data to make sure their opinion isn’t skewed. It is very easy to do as certain properties in better condition will get a higher price.
After you get an idea of what they are looking for in terms, continue to ask questions.
– Who is the decision maker?
– What’s their story?
– What price will this sell at?
They may tell you that “this deal will sell for over $5MM”. Keep that number in mind and wait it out a bit. You don’t want to offer too much too early. Often times, brokers will inflate the prices and they will get a bunch of lower offers. If your analysis can support a $5MM price, send it over and call the broker to verify receipt. Ask them how your deals stacks up. Ask them how many other players there are and how many offers they have. The point is, go in strong with your best and final bid so you can lock the deal down.
3) You Need to Express Confidence to the Broker
As you go after a deal, you need to know that you want to have it in the first place. Do you want to handle that property for the next 5 to 10 years? Are you sure you want to be in that location? Are you sure you want to take on the repairs and maintenance of that property? Are you sure the area will improve the way you think it will? These are all things you need to ask yourself.
With this out of the way, you then need to express confidence to the selling agent that you are the one that can close the deal. They need to have confidence in your ability to deliver. You want to express that you are super easy to work with. You want to pull them in and get the property under contract. You need to get control of the deal. But first, you need to get an LOI together.
Once you get through these three things, you can put your Letter of Intent (LOI) together. If you want any chance at winning, you need to be aggressive with your offer. This includes putting together the shortest due diligence you can do, going in at your highest and best price, and removing all the contingencies before you go to finance. Again, you want to be easy to work with. Do not include crazy stipulations or other types of unconventional clauses unless they asked for them and it’s what THEY want. I suggest using a broker that specializes in writing up multifamily deals. They will tell you how to write the deal up. Your broker may have even worked with the seller’s broker in the past and they know how they like to see the offer written.
Anyway, how are you putting deals together? What sort of questions do you ask? Let me know in the comments.
If you liked this, go ahead and give it a thumbs up. Also, check out the Bulletproof Cashflow podcast on iTunes or Stitcher, and subscribe to our YouTube channel. We are working on getting new content out all the time to help you build your success in the world of multifamily.