How to Structure a Winning LOI for Multifamily Real Estate Investing

What is an LOI?

It is a one page, non binding agreement that expresses your intention and some of the terms you intent to offer.

Why do you need an LOI?

On larger multifamily deals, it is standard procedure. LOIs can be accepted and then the process goes into rounds of offers where buyers can change the price of terms with each round. Almost always does the offer price increase in the later rounds, especially if there are multiple buyers offering.

Tips to getting your LOI accepted

1. Have a template that is both professional and easy to understand.

2. When you like the deal after your underwriting and want to write a LOI, call the broker and find out information on what the seller must get in regard to terms and purchase price.

Figure out what is important to the seller. Maybe things can come up like they need a quick close, have. 1031 and have special conditions needed, etc.

"I want to put the best LOI I can in for the seller. Let me know what the seller wants and if it's something I can do, I'll do it."

3. Have your LOI be structured similar to industry norms.

In the call with the broker, ask for market standards in terms of earnest money down if you don't already know. 1% earnest money is typical. Up to you if you want it hard at day one, or after due diligence.

Due diligence is a usually 21-30 day period but sometimes can be less depending how fast you are and the condition of the property.

30 days after due diligence period ends to close.

Usually two 15 day extensions are included, but you could make these 30 day extensions as well. With each extension, you usually need to add more earnest money down with each extension you do. These extension around may be 1/10 to 1/5 of your initial EM amount, but it could be anything.