It doesn’t matter if you’re a new or experienced multifamily investor, one of the best things that you can do when purchasing a new multifamily property is to submit a letter of intent to the seller.
What is a letter of intent? It’s a letter that you’re going to submit to the seller which states that you are indeed a real buyer who is ready to close the deal. The letter of intent should specifically state that you agree to the terms and price specified by the seller, provided that both you and the seller can work out all of the details.
Although the letter of intent isn’t a legally binding document, the letter will show the seller that you have a serious commitment to closing the deal.
Is A Letter of Intent Required?
Writing a letter of intent isn’t required when closing a multifamily deal because some buyers prefer to default to formal agreements with long addendums. This strategy is also effective because if a seller comes back to you wanting to negotiate your addendums, this is a great sign that you could potentially have a deal brewing.
When it comes to writing a letter of intent, these letters can be more effective than writing a formal agreement, especially if you include a clause in your letter of intent which states that it’s expected that both you and the seller will sign a contract to buy and sell real estate within 10 days after the seller receives your letter of intent.
The obvious advantage of writing a letter of intent is that you’re essentially “setting the table” with the seller of your expectations for the deal. This will also increase efficiency and help the seller to know that you’re serious about coming to the table to close a deal.
What Else Can Help You Close A Multifamily Deal?
Besides writing a letter of intent to the seller? What else can help you to close a multifamily deal? This is a great question to ask because your goal as a seller should be to do everything possible to make your offer stand out from the other offers that a seller may be receiving.
One suggestion that you should consider is to include a personalized letter to the seller. This letter should provide the seller with more information about the reasons why you want to purchase the building, your background, and intentions for the property.
A personalized letter to the seller will be especially effective if you’re trying to buy a smaller multifamily property like a duplex, triplex or fourplex.
Many sellers who own smaller multifamily properties have personal attachments to them because they also collect t rent and know their tenants. These types of sellers will want to know that the buyer they sell the property to is going to be good to their tenants just like they have been so it’s in your best interests to write a personalized letter to the seller so that they feel like they know a little about you personally before accepting your offer.
When submitting a personalized letter to the seller, make sure to include a picture of yourself and your family so that they can see that you’re a real person and not just a “faceless corporation” when they review your offer.
Things to Remember When Closing A Multifamily Deal
Yes, a letter of intent and a personalized letter to the seller will help you to close a multifamily deal but what are some of the important things that you should remember as you get closer to wrapping up the deal?
Watch out for a liquated damage clause – This clause will state that any money you’ve paid to the seller so far, they get to keep if you are unable to move forward with closing the deal.
Sellers like liquated damage clauses because it helps them to not fall into the position of tying their property up for 30 days or longer without closing a deal so it’s in your best interests to close your multifamily deal especially if you’re paying cash for the property.
Don’t forget to sign a memorandum of agreement – These agreements are vital because once they are signed and then recorded at the courthouse, they show that you have an agreement in place and the seller cannot go behind your back and sell the property again.
Always analyze the property thoroughly before submitting an offer – You may be excited about submitting an offer but have you done your due diligence and analyzed the property thoroughly before submitting your offer? Your analysis should include finding out if it’s being sold at below the market rate and if the property’s rents are below current rents in the area.
Know your exit strategy for the property – Last of all, but most important is your exit strategy for the property once you purchase it. Having an exit strategy is vital for every investor because it’s what’s going to give you the ability to have a plan in place if things “go south” with the property after you purchase it. Beginning with the “end” in mind will always give you the advantage of a multifamily investor.
There’s no doubt that buying a multifamily investment property is an excellent way o build cash flow and long-term wealth. Using tools like a personalized letter to the seller, or letter of intent will help your offer to stand out from the dozens of other offers that a seller may receive when they sell their property.