There are many different types of documents related to real estate transactions, and one of them that comes up all the time is the LOI, which is probably why you’re here. So, if you stick around for just a couple more minutes, I’m going to demystify the Letter of Intent, better known as the LOI.

But first, how’s it going? This is Billy Keels, once again, with KeePon Cashflow. I’m back to share different tips and strategies that will help you make more money. They’re also going to give you more control over your free time and ultimately help you to live with less stress.

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Now, I want to get back to this whole thing about demystifying the LOI. I really just want to answer three questions: What is it? Why would you use it? And how do you put a letter of intent together?

First of all, an LOI is a document that declares an early commitment from one person to another, which they’ve put into writing. Whether it’s between individuals or businesses, it means you’re serious about purchasing something.

Remember, we’re going to keep everything in the context of real estate. So, when I want to show a seller that I’m serious about buying their multifamily property, I have a few options, one of them would be to send out a purchase agreement. I can also send them an LOI, which spells out the major terms and conditions of what I’m willing to do in order to get the property under contract.

The major terms in an LOI include the amount of time it’s going to take me to close on the property and the purchase price I’m willing to pay. It even sometimes includes the price of the security deposit and whether I’d be able to get that money back. Is it refundable or nonrefundable? A lot of that information will go into your strategy to demonstrate how serious you are about ultimately getting the property under contract, which means you’re actually in control here.
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However, even though a letter of intent shows how serious you are as a purchaser, it is also nonbinding. This is because an LOI is not the same thing as a purchase agreement, which is a legal contract.

Since we’re on the subject, I have to say that if you have any questions about this, you’ll want to check with your legal professional. They’re the person who knows the context of your business best, and they’ll be able to give you the best advice.

So, then, why would you use a nonbinding document? A letter of intent helps you negotiate with the seller. It allows you to clarify key points of discussion, such as the purchase price and how you will be paying for the property. Will you be paying for it all in cash? Will you be paying for it using leverage? Will you be using a bank, and if so, will you be using equity to bring the property under contract? Though this is not a legal document, it does protect the parties involved in the purchase so you can be absolutely clear about the final agreement.

The last question I want to answer is who should be putting this together for you? Ultimately, I would always recommend that you have your legal team draw up the letter of intent. I know some people who, since they are constantly making similar types of offers all the time, they use this as a template and fill in the details about each specific purchase themselves. This is not necessarily the best way to do it because every single offer should be unique to the purchase of the property or the problems you want to solve.

In the end, it’s up to you, but my recommendation is to always use your legal team so you don’t need to worry about any mistakes you might make.

So, there you have it! That was a little bit about the definition of a letter of intent, why you would use an LOI, and who should be putting it together for you. As always, I’m curious to know your feedback. How many times have you used an LOI? How frequently do you use it? If it’s something brand new, leave a comment about whether or not this post was helpful. I’d love to hear from you and continue this conversation.

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For those of you who have been here for a while, you know that I work in a big multinational company during the day. At the same time, over the last five and a half years, I’ve also been building my own company. I’ve found a way to work in a big company and build my own dream so I can live the lifestyle I really want.

If you’re interested in the same thing, I’ve made it simple for you. I put together an eBook, and for those of you who are super serious, you can even go into a course. All you need to do is click HERE. I’d love to hear from you!

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Thanks again. This is Billy Keels with KeePon Cashflow, and that’s my two cents for today. As always, hasta la próxima!

You can also check out my latest podcasts and collaborations here keeponcashflow.com/podcasts/