May 15, 2019

JF1716: How To Submit A Syndicated Apartment Deal Offer Part 1 of 2

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Get ready for some more syndication knowledge bombs from our resident apartment syndication instructor, Mr. Theo Hicks. He’ll be taking another step forward in the syndication process, explaining step-by-step how to submit your apartment offers. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to, or to learn more about the Apartment Syndication School, go to, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes, on Wednesday and Thursday, that will focus on a specific aspect of the apartment syndication investment strategy. Usually they’ll be two-part series, up to eight or ten-part series. I think the longest one we’ve done so far was eight parts. For the majority of these series we will be offering some sort of document or spreadsheet or resource for you to download for free, based on what we discussed in that series. All the free documents for the previous Syndication School series, as well as the Syndication School episodes, can be found at

This episode is going to be part one of  a quick two-part series, so just today and tomorrow, entitled “How to submit an offer on a syndicated apartment deal.” As the title implies, by the end of this episode you are going to learn how to begin the process of submitting your offer, which starts with creating a letter of intent (LOI).

At this point you should have already essentially completed the steps outlined in series one through fourteen. This is series number fifteen, so in the previous series, number fourteen (eight parts), we discussed the process for underwriting a value-add apartment deal. If you haven’t listened to that episode, I highly recommend that you listen to that first, because we went into extreme detail on how you get to the point where you can determine whether or not to submit an offer, as well as at what price.

As a refresher, after you’ve inputted all the information into your cashflow calculator, which we gave away a free, simplified cashflow model, and you can download that at under series number fourteen – at the very end of that, one of the last steps was to determine an offer price. That offer price is based on the return goal of you and your investors.

Let’s say for example your investors want an internal rate of return over five years of 14%, and let’s say you are offering them an 8% preferred return. That means that you need to essentially through an iterative process (trial and error) input purchase prices into the cashflow model until that five-year IRR is 14% or higher, and since you’re offering 8% preferred return, you’re gonna want a cash-on-cash return each year of at least 8%. Once you have that inputted, then you have essentially your best and highest offer.

Once you get to that point, before submitting an offer, something that you’re gonna want to at least consider is how much the owner wants for the property. Usually, as I’ve mentioned before on these larger apartment deals, if we’re talking like 20 units or below, or maybe even 15 units and below, there might be a price listed… So when you’re underwriting, you can input that price initially, and then see what the returns are based on your assumptions. But if there isn’t a price listed, there are a few ways to at least get an idea or a ballpark estimate of what the price is going to be. There are two ways of doing this.

One is, if you remember the series about underwriting, one of the things you wanna do while you’re filling out the cashflow calculator, those first few steps where you’re inputting the rent roll, inputting the T-12 and you’re reading through the offering memorandum, you’re gonna want to create a list of questions for the broker. So “Hey broker, why is the vacancy on the T-12 10%, whereas on the offering memorandum it says it’s 5%?”, for example. Or “Hey, I see that the maintenance and repair expense for the previous 12 months is really high. I noticed that one month there was a really high expense for a boiler repair. What was that? Was it an issue that came up, or was that more of a cap-ex expense?”

Something else you might wanna ask them is “What price do you expect this property to sell at?”, or “Is there a whisper price that the owner wants for the property?” Essentially, ask them in some form or fashion what the owner wants to sell that property for.

They might say “Well, it’s gonna be dictated by the market”, so at that point you can ask “Well, based on your expertise, what cap rate do you expect this property to trade at?” Typically, what they’ll say is “I expect it to trade at 5.5%, based on recent sales etc.” Or you can look at the OM and see – sometimes they’ll include a rent comps and a sales comp, and you can take a look at the price per unit of the comps that they used. That’ll give you an idea of maybe what the owner is expecting for a price per unit.

But if they tell you what they expect the property to trade at from a cap rate perspective, then you can go to the OM and see what they listed as the current net operating income. You can take net operating income, divide it by that cap rate, and determine (give or take a few percentages) what the property is going to sell for.

Now, if you are underwriting the deal and you determine that your best offer would be ten million dollars, for example, and you ask the owner what the whisper price is and they say 20 million dollars, then it’s really up to you, but you might not want to really proceed any further. It’s not gonna hurt to submit an LOI, but at the same time, it could potentially hurt you in the eyes of that broker… Because if they essentially tell you that the property is gonna sell for 20 million dollars and you submit an offer for 10 million dollars, the broker might not take you as serious. But at the end of the day it’s really up to you whether or not you wanna submit a really low-ball offer.

But overall, once you’re finished up with the underwriting process, if the results of your final calculator, after you’ve asked all of your questions to the broker, they’ve answered it, and you’ve seen the property in person, and then everything I’ve talked  about in the eight-step process, and you’ve got an offer price that is close enough to the whisper price or the price based on the cap rate, or based on the price per unit in the sales comps in the OM, and you’re still able to meet or exceed your return goals, it’s time to submit an offer. The way that you do that depends on the process outlined in the offering memorandum, if it’s an on-market deal.

Generally, on one of the first few pages in the OM they will list out what the offer process is, and typically, there will be a call to offers date. That’s the last date that they’re accepting offers. They will ask you to submit a letter of intent, and they will most likely have a list of things at a minimum that need to be included in that letter of intent.

At that point they might just decide who they’re going to go with and do a call with that person to qualify them. If the person is qualified, they’ll accept that offer. If not, they’ll go back to the next LOI. Or they might accept a handful of LOIs and ask you to come back submit your best offer. After that, again, they might accept the best offer or they might have some best and final call with those top offers to get a little bit more information on the buyer and their business plan to qualify them.

If it’s off-market, you are just gonna submit a letter of intent.

So regardless of whether it’s on-market or off-market, or what the process is, at some point in the process they’re gonna ask you for a letter of intent. In this episode I wanna focus on how create this letter of intent in order to maximize your chances of having your offer accepted.

The letter of intent, or the LOI, is a non-binding letter, so it’s not something that you’re legally bound to. Essentially, it’s something that represents your intent to purchase the property, and it defines what the terms of your offer are. When you’re submitting your LOI, as I kind of already mentioned, you wanna come in with a strong offer that you’d be able to close at, but you don’t want to over-offer to the point where you can’t meet your return goals… But you also don’t wanna give your highest and best offer, because again, if they come back and ask for your highest and best offer and you submit the exact same offer, then that’s gonna be perceived differently.

Also, you don’t want to have to be forced to over-offer, because you gave your best offer and they rejected that, and you’re emotionally attached to the deal, for example. That’s something else you don’t wanna do – you don’t wanna get emotionally attached to the deal, and sacrifice your underwriting to meet your return goals. You don’t wanna go back after they’ve rejected your first offer and say “Okay, maybe I can reduce this expense”, or “Maybe I can increase the rents”, or “Maybe I can find some rent comps that allow me to increase my rental premium. Now the deal makes sense.” You don’t want to manipulate your spreadsheet. You want to essentially base everything on how the property is currently operating, and based on the explanations I gave for setting your assumptions in the eight-step underwriting process series.

For the actual letter of intent, once you’ve decided what offer you’re gonna submit – and again, keeping in mind it needs to be strong, but not over-offer, not your highest and best offer, and not something that you know is gonna be rejected, and not something that is a result of you manipulating your underwriting – here are the things that you’ll want to include in the letter of intent. And again, this is not necessarily at minimum, because the minimum amount of information you need to include in your letter of intent will likely be outlined in that offer process section in the offering memorandum… But these are things that you’re going to want to include to make sure that you are able to obtain all the information you need once you put the deal under contract.

Number one is obvious – the purchase price. The purchase price is going to be what you offer, based on, again, the goals of you and your investors. Next you’re going to want to include information on how you plan on financing the deal.

A specific example, you can say “I’m going to secure an 80% loan-to-value loan from Fannie Mae.” And I know we haven’t talked about loans yet on this podcast; that’ll likely be the next series that we do before we go into the due diligence process after you put the deal under contract. So it’s information about your financing.

Next you wanna set terms for your due diligence. For example, one piece of information you’ll wanna include is when does the seller need to provide you with all of the documents that you need during the due diligence period. Generally, this is going to be defined as a certain number of days after the execution of the purchase and sale agreement. So first you submit an LOI; if it’s accepted, then the seller will send you a formal contract, which is called a purchase and sales agreement (PSA), and ideally that will have the terms you outlined in your letter of intent. For example, you would say that “We request the following documents within 14 days of a signed and executed purchased and sales agreement.”

Now, here’s a list of things that you’re gonna want to list out in the LOI that you want. Because again, if you just say “I want all of your historical financial documents and other reports that you have”, that’s pretty vague. You want to write out explicitly what you want. I’m gonna just run through these things, and these are things you’re gonna want to include in your LOI.

You’re gonna want the past three years of financials, preferably in Excel format. You’re gonna want a current rent roll, preferably in Excel. You’re gonna want copies of all the current leases, you’re gonna want a copy of a blank lease agreement that they have, you’re gonna ask for copies of the current and past three years tax assessment and bills. You’re gonna ask for a current insurance binder or policy for the property, including any casualty and liability and insurance loss runs for the past few years. Anytime they followed a claim, you’ll wanna know about that as well.

You’re gonna want a list of the salaries and wages for all of the employees that work at the property. You’re gonna want copies of all maintenance records and warranties. You’re gonna want a trailing 12 month non operating, below the line expenses – these are the non-operating expenses like debt service, or asset management fees, or anything else that was not included on the initial T-12 that you received. You’re gonna want a 12-month capital improvement budget – any cap ex projects they’ve implemented at the property over the past 12 months, you’re gonna want to know what those are, and the costs.

You’re gonna want complete copies of all records, instruments, contracts and agreements for the property, so all those contract service line items. You’re gonna ask the seller to provide you with a list of all personal property that you will receive at closing. You’re gonna want an updated survey. You’re going to want a current title policy. You’re gonna want a detailed list of all capital improvements, along with the costs, made to the property over the past three years. You’re gonna want a copy of any plans and specifications related to any planned or unfinished interior and/or exterior improvements to the property.

You’re gonna want copies of all service contracts. You’re gonna want copies of the past 30 years utility bills. You’re gonna want a full general ledger, so not just the cash account, and you’re gonna want bank deposit statements for the past year, ideally in Excel.

You’re gonna want a schedule of any write-offs over the previous 12 months, as well as an explanation of their current write-off policy, so their bad debt policy. You’re gonna want to ask for an aged receivable report, including details by each resident. You’re gonna want the 12-month capital improvement budget, so what they plan on doing if they held on to the property for the next 12 months, if they actually have that.

You’re gonna want a historical occupancy report for the past 12 months. You’re gonna ask for the historical environmental reports. You’re gonna ask for a list of their personal property at the property, and you’re going to ask for a breakdown of the SPS income. And finally, you’re gonna ask for any other non-confidential documents; it specifically says “Other non-confidential documents as the buyer may reasonably require, which are in seller’s or in the property manager’s possession.”

So there’s a lot of things to request. I didn’t wanna spend  too much time going through each of those individual items that you’re requesting, but overall, the two reasons why you’re requesting these is 1) it’s gonna be more detailed information that you can use to either confirm or adjust all of those assumptions you made during the underwriting process. And 2) when you’re performing due diligence, you’re gonna get all these reports from various vendors, and your property management company, and you’re gonna want a copy of those same reports that the seller has over the previous 12 months, for comparison purposes.

You’re also gonna want to state in this section that the seller should provide you with access to the property for your physical inspections, because again, you’re gonna need that during the due diligence period. And again, I’m gonna go in a lot more detail on what some of these things mean, not in the next series, but two series from now, when we go over how to perform due diligence on a deal once you have it under contract.

The next section of the LOI will lay out the closing information. Essentially, when is the closing date. Generally, for these apartment deals, the closing date is 60 to 90 days after the execution of the purchase and sale agreement.

You’re also gonna want to include in there when the purchase and sale agreement should be executed by. Typically, you will say that your letter of intent is valid for a certain number of days, and if you don’t have a signed PSA after three days, or five days, or a week, then the LOI is no longer valid.

Lastly, you’re going to want to include any information about your ability to extend the closing date. Will you have the ability to extend the closing date? And if you do, how many extensions do you want? In order to get an extension, is it going to be free, or are you going to provide additional earnest money?

For example, you can say that the closing date is going to be 60 days after the execution of the purchase and sales agreement, and that you want two 30-day extensions. If you extend one time, then you will do an additional — let’s say for example the earnest deposit is a million dollars. Then you can say that “If we extend for 30 days, I will put down an additional $100,000 that will be non-refundable. If I need to extend a second time, I will put down an additional $600,000 that’s non-refundable.” Again, this is an example. These numbers are gonna be completely flexible and negotiable based on the actual purchase price. If the purchase price is $400,000, you’re not gonna be putting down a non-refundable deposit of $400,000.

The next section is going to be the earnest money. Essentially, this is going to be a down payment that you put up at the execution of the purchase and sales agreement, to show your intention and ability to close. You want to outline what that earnest deposit amount will be, which is completely up to you, but generally it’s around 1% to 2% of the purchase price… And then also, the terms of the earnest deposit – is it going to be refundable, or non-refundable? …with the non-refundable earnest deposit making your offer stronger, compared to a refundable.

For example, you can say that the earnest deposit will be due at the execution of the purchase and sales agreement, or that you may offer a portion of the earnest deposit at the execution of the purchase and sales agreement and then another portion of the earnest deposit once you’ve completed the inspection period… And then again, you might also want to talk about the extra earnest deposits if you are requesting an extension.

We could also say that it’s non-refundable regardless, or we could say that’s non-refundable subject to certain things, like a clean environmental survey, or a clean title, or a financing contingency, or things like that.

The next section is gonna be information about the title and survey. Pretty simple… Who’s going to pay for the title insurance – the seller or the buyer? And who is going to pay for the new survey, or recertification of an existing survey?

Next is closing costs, so we’re gonna outline who pays for the closing costs, the buyer or the seller; things like broker commissions, costs to clear the title and the escrow fees to the title company, the cost for recording the deed, any attorney fees, who pays for that.

Next is gonna be commissions, so what parties are involved in the deal that will receive a commission. Typically, this is going to be the broker that’s representing the seller… So a list of who is gonna receive the commission and who pays that. Typically, the seller is the one that pays these commissions.

And a few other things that you can include in the LOI. You can mention that you’re allowed to sign the contract to a single purpose entity. For example, most likely you’re gonna need to buy the property using an LLC, so if you submit your LOI under your name, and you don’t have the ABC Property LLC created yet, then you’re gonna want to have the ability to sign the contract to your LLC.

Also, you’re gonna stipulate that the seller needs to continue normal operations and repairs and maintenance during the contract. Another thing you can ask for is all vacant units need to be make ready at the time of closing. You can also request that the buyer and seller should work to complete the purchase and sales agreement within a certain number of days after executing the LOI (a week, two weeks etc.)

Something else you wanna include is once the PSA is executed, the seller is not allowed to solicit for, or receive, or accept any offers.

Now, once you’ve created your LOI, or at least have an idea of the terms, make sure you talk with either a real estate broker or your property management company to learn about what the generally accepted terms are in your current market. So do you need to have a non-refundable earnest deposit? Do you even have a chance of winning a deal? What should the earnest deposit amount be? How long should you request the due diligence process to be? Things like that.

And then just to reiterate what I said earlier, to kind of conclude this episode, about my final words on the letter of intent – the terms should be strong, and you should be able to have the ability to close. If your LOI is accepted, you should be excited to close at those terms… Which means you don’t want to over-offer, you don’t wanna provide your highest and best offer yet, you don’t want to submit an offer that you know is going to be rejected, and you don’t want to get emotionally attached to a deal and sacrifice your underwriting to fulfill that emotional attachment to the deal.

And finally, a note on the refundable versus non-refundable, besides talking to your management company and/or broker – if you are very confident in your underwriting, and you know it’s conservative, and you know the market really well, then feel free to submit a non-refundable earnest deposit. If you don’t know the market very well, if you’re maybe newer and aren’t 100% confident in your underwriting, it might not be the best idea to go non-refundable.

That concludes this episode. What I’m going to do is I will include a sample letter of intent template based on the information I outlined in this episode, what to include in there… So you can essentially use that, and essentially change the numbers – change the offer price, change the earnest deposit amount; if you want to, you can change the due diligence inspection periods, and refundable versus non-refundable for earnest deposit… But that will be a good starting point for your letter of intent.

Now, in the next episode — so you’ve got the letter of intent created, and then you submit the letter of intent, so what happens next? That’s what we’re gonna discuss in the next episode.

Until then, I recommend going back through and listening to the other Syndication School series about the how-to’s of apartment syndications, if you haven’t done so already… As well as to download that free letter of intent template, as well as the other free documents we’ve got for this Syndication School series. All that can be found at

Thank you for listening, and I will talk to you tomorrow

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