the-abcs-of-real-estate-investing-ken LifeFeeling

Now it is time to convince the seller
to sell the property to you.
When you feel good about the numbers and arrive at the decision to buy, you have
reached a real milestone. In this phase of the process, the goal is to “tie up the property.”
What I mean by that is you want to get the property off the market by beginning the process
of generating the letter of intent or in some cases executing a purchase and sale contract. As
soon as the purchase and sale agreement is signed, the property is no longer available to any
other competitive bidders. The quicker you can tie up the property the better chance you
have of closing the deal at your price. That’s why I try to complete the steps in the last
chapter within forty-eight hours of receiving all the necessary information. It’s taken me
years to get the process that streamlined, but I’ve also won several deals thanks to our speed.
Regardless of whether it takes you two days or two weeks, once you make the decision
to buy, there is a standard protocol for buying investment property: Remember, the goal is
to tie up the property, and during that time, you negotiate the terms of the sale and, equally
as important, review the property and its operations in its finest detail. By the time you are
done, you may find your offer was too high and needs adjustment. Or you may find it was
right on the money. If it is too low, let your own personal ethics be your guide.
Let’s get to the protocol. This is typical of larger deals and characteristic of how
purchases happen in many states. But every state is different so consult your team members
your attorney, real estate agent, broker on this one. Regardless of the vehicle, the deal points
that you must work through during this protocol are the same. Don’t worry so much about
the vehicle whether it’s a letter of intent or a standard purchase and sale agreement from the
National Association of Realtors be more aware of the deal points within it.
Letter of Intent
Once you’ve established the valuation using the five steps in the last chapter, you are
ready to draft the letter of intent or a purchase and sale agreement. I prefer to use a standard
letter of intent to map out the deal points between myself and the seller before moving to a
formal purchase and sale contract. Letters of intent save me a lot of money in attorney fees
because attorneys are not usually involved in letters of intent negotiations. Further, the work
done during this process makes the actual contract process smoother and faster. The letter of
intent contains your offer along with the basic deal points like down payment amount, due
diligence time frame, escrow amount, and financing contingencies.
We’ll get to contingencies in a minute. But for now you can see why it is a good idea to
have your team in place early. The last thing you want to do at this stage of the game is
begin relationships with banks, title companies, or investors. You’ll want the relationships
to be established; time is of the essence. Get your letter of intent out as quickly as possible
so you can agree on the basic terms of the deal and tie up the building. In high-demand
markets time is not your friend, so I typically email or send a courier to hand-deliver the
document to the seller. Regular mail is way too slow.
Letters of intent are like a proposal you send to the seller. They are designed to be
negotiated and the original document you send over is the starting point. The seller will
review the offer and the terms and will usually counter the offer and adjust some of the
terms. This is a back-and-forth process, so don’t be surprised if it takes weeks to
accomplish. That’s normal.