Step Three: Get it under contract.
Use a checklist to get the asset under contract.
1. Create a ceiling. This means establishing the maximum you want to pay for the asset.
2. Gather information. The best way to gather info is by calling the listing agent or owner to casually get as much information about the asset. This doesn't mean drilling them for details, because they’ll push you to the listing or marketing package. I say call them because the information you get from them over the phone is gold.
Side note for gathering information: When you call the listing agent or owner ask only open ended questions to make sure they don’t feel like you’re trying to get a competitive advantage. For example, "What else should I know about this asset that might not be listed in the agreement?" They might have seen something on the property that doesn’t make it in the listing. Let them candidly tell you anything else. Then zero in on specific things they might say. For example, they might have had a dip in the income, then they recovered or they might think the color of paint is ugly—who knows! This information is gold because once you get under contract, you can do a site visit to see how long people have been there by going door to door. This is an "estopel," which is a document for residents to sign that says, "These are the lease terms, this is my mobile home, this is what I pay." This reveals whether or not the income of tenants has changed. Then, you can uncover a lot and make adjustments from this. Perhaps many of the residents are unemployed (change of employment), and you can leverage this with the owner to get a lower price for the property.
3. Let the information you gather inform your offer. Give the owner or listing agent another call, asking something like, "What number do I need to offer to make this happen?" How they answer that question will help you determine your actual offer.
4. Submit your offer. Always submit your offer with a proof of funds. This proof of funds includes a bank statement or investment portfolio—some liquid asset to prove the that you can pay for the asset. I never send an offer without a proof of funds, and it works very well for me.
5. Send a "buyer’s resume" in the form of a letter. In this letter state who you are, what you do, and what your specialty in this type of real estate is. This is a “buyer’s resume”. You're saying thank you for entertaining my offer, and this is my experience with this type of asset and this is my intended purpose for the property. It’s like a job resume only for a one-time job! You’re making the listing agent or owner comfortable with you as the buyer. That way they know you’ll finish the contract. In this letter show off your team and that you’re proud of what you can do! Keep it short and sweet.
To complete this step, send three documents.
- The contract
- Proof of funds
- A "buyers resume" as a letter
Side note about sending in the letter: As an aside, you'll often see people writing a letter of intention (LOI), which says we intend to draft a contract to purchase this asset. For guys like me and smaller groups, it's easy to write an offer on a contract, but for those buying something larger that requires a complicated contract, they will use an LOI. The LOI says, we'd like to offer this price, and if you agree, I will draft the contracts.
My advice: for most transactions, you'll just want to send a contract and not an LOI, because an LOI can be a waste of time for smaller contracts. By skipping the LOI and offering a contract, you can capitalize on a quick deal. If you give someone the ease of seeing the contract and everything else they need to make the decision all in one email, you can seal the deal quickly. Time kills deals. If you give someone an opportunity to kick the offer back to you, you’re giving more room for interruptions and potentially lose the deal.
Once you get the property under contract, then you start due diligence.