WHAT IS A LETTER OF INTENTION?
A Letter of Intention (LOI) in real estate investing is a preliminary document outlining a party's intent to enter into a formal agreement or transaction, such as buying or leasing a property. While it is not legally binding in most cases, it serves as a sign of good faith and establishes the basic terms and conditions that both parties agree to before entering into a full contract or deal.
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For example, in a real estate purchase, an LOI would typically include:
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Parties involved: Identifies the buyer and seller (or landlord and tenant).
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Property details: Describes the property or real estate in question.
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Proposed terms: Includes important details such as price, deposit amounts, payment schedule, contingencies, and any other major terms.
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Timeline: Specifies key deadlines or timeframes for due diligence, inspections, and closing.
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Non-binding nature: Clarifies that the letter is not a binding agreement, and a formal contract will follow.
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Investors often use a Letter of Intention as a way to express serious interest in a deal, without committing to a full purchase or lease contract right away. It’s also useful for providing both sides with a clear starting point before engaging in more complex negotiations or legal agreements.