14 Steps to Multifamily Acquisition - Step #7 Submitting an LOI
Introduction
As the Chief Investment Officer at Groundswell Assets Multifamily Investment Firm, we have analyzed a lot of deals to learn what it takes to make offers on the right assets. It has been our experience that it takes reviewing anywhere from 100 to 150 deals to submit 10 to 20 letters of intent (LOI) to secure 1 to 2 deals under contract. This highlights the importance of doing your due diligence and carefully evaluating each opportunity before making an offer.
When the offer is made, sponsors and investors alike need to be prepared to close the deal. We don't offer on assets we don't intend on closing. That means investors should be prepared to wait for a period of time and be ready when the call comes in that the LOI has been accepted.
What’s an LOI?
The LOI is a two-page document that outlines the basic terms of the buyer's offer. This includes key details such as the property address, buyer and seller names, tax parcel number, offer price, financing terms, earnest money, closing costs, due diligence and closing timelines, and any other specific details related to the deal.
In the highly competitive world of multifamily investing, earnest money, legal fees, inspection fees, lending fees, and travel may not be refundable depending on the deal. The sponsors typically front these fees with the expectation of reimbursement at closing from investors in the deal. There is significant risk associated with putting these types of deals under contract and unfortunately, they do not all close.
After the LOI is presented to the listing broker, the seller will respond with acceptance, a counteroffer, or rejection. In some cases, they won't respond at all. The LOI is a negotiation tool in its simplest form. The buyers and sellers negotiate all the terms through this instrument and will all sign it when terms are agreed upon.
After the LOI is Negotiated
Now that the LOI has been accepted, the parties will send it to their attorney for review. The attorneys will prepare the purchase contract and negotiate any legal matters within the contract. Once both parties sign the purchase agreement, the contract is binding and the clock starts ticking.
During the run-up to the contract acceptance, the sponsorship team may start their due diligence before the contract is signed. This additional time can be 7-15 days giving the sponsors a little window before their earnest money becomes non-refundable. If they have not already, many sponsors will travel to the asset in an early look phase to make sure they get their eyes on the deal. This is the ideal time to terminate if it is not a good deal.
Additionally, during this LOI timeline, the sponsors are working with the lender and insurance companies to start their financing process which can be lengthy. The other thing that sponsors do when their LOI is accepted is to notify their investors of the deal and put them on alert. Investors may then have an opportunity to review the deal to decide if they want to invest. Initially, they will offer a commitment by subscribing to the deal. Money is not transferred until just before closing.
Finally, during the LOI timeline, the attorneys will start preparing the SEC filing paperwork for the syndication that allows sponsors to offer the investment and discuss potential returns with investors. They start working on the private placement memorandum (PPM) and the LLC operating agreements for managing the asset. All of this is ultimately shared with the investors.
Join Us
As a team at Groundswell Assets, we are passionate about helping our partners achieve their financial goals through multifamily real estate investing. We understand the importance of making informed decisions and finding investment opportunities that deliver outsized returns. That's why we are committed to providing unparalleled investment opportunities and expert guidance to our partners.
We believe that multifamily real estate investing is a powerful tool for those looking to grow their wealth and secure their financial future. And with our access to top-notch deals, extensive industry knowledge, and a commitment to delivering results, we are confident that we can help you reach your investment goals.
So if you're ready to take control of your financial future and join the ranks of savvy investors, drop us a line. Our team of experts is standing by, ready to help you make the most of this exciting investment opportunity. Don't wait - secure your financial future with us now.
