Latest / Real Estate Note Investing / Episode 57: The Letter of Intent

Transcript

Episode 57: The Letter of Intent · Real Estate Note Investing

• 0:00
  SPEAKER_00: Welcome to the show, where you'll learn how to invest in mortgage notes, the savvy real estate investor's secret weapon to create cash flow without tenants and property acquisitions for pennies on the dollar.
• 0:12
  SPEAKER_00: My name is Robert Peta, the founder of FixNotes, and my mission is to make note investing ethical, profitable, and accessible for you.
• 0:20
  SPEAKER_00: In every episode, we're democratizing the industry to put these powerful Wall Street assets into the hands of mainstream investors like you.
• 0:29
  SPEAKER_00: So without further ado, let's get into the show where you're in good hands with my AI clone.
• 0:34
  SPEAKER_00: Let's go.
• 0:37
  SPEAKER_00: This program is for informational purposes only and should be independently verified before taking action.
• 0:44
  SPEAKER_00: The letter of intent is the document that converts a conversation about a loan into a formal offer with terms.
• 0:50
  SPEAKER_00: It tells the seller what you are willing to pay, on what conditions, and within what timeline.
• 0:54
  SPEAKER_00: Done well, it protects you before you spend money on full due diligence, gives the seller enough confidence to grant you exclusivity, and sets the professional tone for the entire transaction.
• 1:03
  SPEAKER_00: Done poorly, it can burn a relationship or commit you to a deal you have not adequately researched.
• 1:09
  SPEAKER_00: The first thing to understand is that there is no single format for a letter of intent.
• 1:14
  SPEAKER_00: It can be as simple as a formal email with a loan level pricing table, or as structured as a PDF document with a cover letter, a detailed term section, and a proof of funds attached.
• 1:26
  SPEAKER_00: The format matters less than the substance.
• 1:29
  SPEAKER_00: What every letter of intent needs to contain, regardless of format, is a loan level price breakdown, a clear contingency section, and a defined timeline for closing.
• 1:40
  SPEAKER_00: The loan level price breakdown is your offer stated at the individual asset level.
• 1:45
  SPEAKER_00: If you are bidding on a tape of 10 loans, you provide a price for each loan.
• 1:49
  SPEAKER_00: This is not optional.
• 1:51
  SPEAKER_00: Every sophisticated seller will expect to see individual loan prices.
• 1:55
  SPEAKER_00: They need to be able to accept some loans and pass on others, and a single blended portfolio number gives them no ability to do that.
• 2:02
  SPEAKER_00: When you are preparing your loan level prices, make sure you are pasting values rather than formulas into the spreadsheet you send.
• 2:08
  SPEAKER_00: Sending a spreadsheet with live formulas that reference your internal pricing model exposes more information than you intend and creates confusion if the formulas break in the seller's environment.
• 2:18
  SPEAKER_00: The contingency section is what protects you from committing to an asset that turns out to be different from what was represented.
• 2:25
  SPEAKER_00: A standard set of contingencies for a non-performing loan purchase should cover complete and enforceable collateral files.
• 2:31
  SPEAKER_00: The note, a launch, mortgage, and assignment chain.
• 2:35
  SPEAKER_00: Deliver to your specification.
• 2:37
  SPEAKER_00: It should cover the accuracy of the data provided by the seller.
• 2:41
  SPEAKER_00: If the property value comes back materially different, if a title report surfaces an undisclosed senior lien, or if the borrower's credit reflects a first mortgage and foreclosure that was not disclosed, your contingencies give you the right to fade your offer or walk away without penalty.
• 2:55
  SPEAKER_00: Think of contingencies as your insurance policy.
• 2:58
  SPEAKER_00: You hope you never need them, but you are grateful they are there when you do.
• 3:02
  SPEAKER_00: Timing is the third essential element.
• 3:04
  SPEAKER_00: Your letter of intent should specify how long you need to complete your full due diligence.
• 3:08
  SPEAKER_00: Typically 10 to 30 days, depending on portfolio size.
• 3:13
  SPEAKER_00: And when you expect to fund and close, sellers want certainty.
• 3:17
  SPEAKER_00: A buyer who can name a specific closing date and has a track record of meeting, it is worth more to a seller than a buyer who vaguely references closing as soon as possible.
• 3:26
  SPEAKER_00: Being specific about your timeline and then meeting it is one of the most powerful ways to differentiate yourself.
• 3:32
  SPEAKER_00: How you approach the letter of intent also depends on the type of seller you are working with.
• 3:37
  SPEAKER_00: When you are bidding in a competitive process alongside other buyers, put your best foot forward on price and keep your contingencies reasonable.
• 3:45
  SPEAKER_00: Excessive contingencies in a competitive process signal hesitation and may cost you the award even if your price is competitive.
• 3:52
  SPEAKER_00: When you are working with an exclusive seller, a community bank or a private lender who has not sold loans before and does not have other buyers at the table, the dynamic is completely different.
• 4:03
  SPEAKER_00: Here you can be more conservative on your opening price because there is no competing bid to worry about.
• 4:08
  SPEAKER_00: And you can be more thorough in your contingency language because the seller does not have another buyer waiting in line behind you.
• 4:15
  SPEAKER_00: One practical piece of advice always follow up a submitted letter of intent with a phone call or email to confirm receipt.
• 4:22
  SPEAKER_00: This is not about badgering the seller.
• 4:25
  SPEAKER_00: It is about reinforcing that you are an engaged, communicative buyer who is easy to work with.
• 4:30
  SPEAKER_00: The call takes two minutes and tells the seller that you are committed, organized, and ready to move when they are ready to proceed.
• 4:36
  SPEAKER_00: Finally, a submitted letter of intent that is accepted by the seller grants you exclusivity for the due diligence period.
• 4:43
  SPEAKER_00: Honor that exclusivity by moving quickly and communicating proactively.
• 4:47
  SPEAKER_00: If your due diligence surfaces something that changes your price, tell the seller as soon as you know.
• 4:53
  SPEAKER_00: Do not wait until the end of the period to surprise them with a fade.
• 4:56
  SPEAKER_00: Early communication keeps the relationship intact even when the news is not what the seller hoped to hear.
• 5:01
  SPEAKER_00: Next time, we are going to walk through the full due diligence process from start to finish, the sequence of steps, the vendors you engage, and how to organize your findings into a final bid.
• 5:12
  SPEAKER_00: Thanks for sticking around to the end, and thank you to my trusty Robot and the Fixed Notes team for putting together another episode.
• 5:19
  SPEAKER_00: If you want to learn more and hang out with the real not AI version of me, join our free school community at school.com slash fixed notes.
• 5:28
  SPEAKER_00: That's s k-o-l.com slash f I X N O T E S.
• 5:34
  SPEAKER_00: In the meantime, we'll see you in the next episode.