Real estate investors love those words: “ZERO RISK.” It’s like music to their ears. The absence of risk means you can enjoy peace of mind as you move into a transaction.
The more ways you learn how to reduce risk, the more successful your business will be. The zero risk method referred to here is a simple “Letter of Intent.”
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 outline 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
- Due diligence time
- Closing time
- Other clauses or provisions
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.
This letter takes 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.