If you’ve ever been there, you know how awful it feels. If you’ve never experienced it – be grateful and learn from this article
What am I talking about? Getting stuck in a loser deal. It will make you want to slam your head against a wall.
But there’s a way not to get stuck. Instead of painting yourself into a corner with a binding contract, use what is called a Letter of Intent (LOI).
The properly worded LOI gives you the right, but not the obligation to sell a property. And the good thing is that it allows you to market a property in which you have no controlling interest.
The LOI spells out exactly how you want to purchase the property, and under what terms.
This can be worded in a casual, personal tone. This is the best way to spell out your intentions to purchase a property. You’ve seen those multi-page, non-binding contracts that are stuffed full of legal jargon. If used at the outset, such documents may intimidate the seller. All the seller needs to know at this point is how the buyer will be purchasing the property and he or she can then determine if the terms are acceptable or not.
Negotiations are much smoother and simpler when using the LOI. This means you are not wading through pages of formal contracts to make any changes. It is the responsibility of the investor to word the LOI as clearly and succinctly as possible so that nothing is misunderstood. Be honest and forthright and add all needed details such as
· Purchase price
· Down payment
· Terms
· Conditions
· Due diligence time
· Closing time
· Other clauses or provisions
This is particularly helpful when working with a distressed seller who is already under a great deal of stress. This type of transaction is highly non-threatening.
Once the seller accepts the terms, the time of due diligence begins. With the LOI in place, you can now locate your buyer and not a penny of your cash is tied up in the interim.
The time of due diligence continues until the end of the term that has been agreed by both. Only then will a binding contract be created. Also keep in mind that a non-binding agreement means if you need to drop it, you can. Of course this is not something you should habitually do; otherwise, your reputation could become compromised. But in a pinch, you might be forced to back out of the LOI.
The LOI requires a minimum amount of time, includes no legal fees, and can be easily read and understood by all interested parties. If the Letter of Intent has not been in your toolbox of REI strategies, it should be!
Once you learn the basics of using an LOI, your REI business will explode.
