Day 38: How to Write a Self Storage Letter of Intent That Actually Gets Accepted

All right, well, good evening everyone and welcome to day 38 of the Storage 100. I am Joe Downs from the Storage Mastermind, and today we are diving into the letter of intent, or LOI as we call it in the industry. And it's the first step that signals to the seller that you're a real buyer. You'll need to get comfortable writing these because, uh, can't buy a deal if you don't make an offer. Uh, just remember this rule when you do write them. Complexity kills deals. Simplicity gets them started. So let's dive into what this document actually is. All right. So what is the LOI exactly? Well, think of it as a handshake on paper. It's the dating phase of the acquisition process. And I say dating because it's a non-binding contract. All right. You're not getting married. You're just saying, hey, let's dance around some key terms here. So, and that's key because it should help alleviate any fears you have about writing one. I know a lot of people get spooked about that. So, It's simply, it's an outline that the basic framework of the deal. Yes, you do sign it, but again, it's not binding. You want it signed because it shows a little bit of a level of commitment, right? But all you're communicating with this document is the price and the terms that you think you and the seller should have an agreement around. The main purpose is to set the ground rules before you start spending serious money on lawyers and due diligence. Because if you think about it, if you can't agree on a framework now, there's no point in moving forward to the actual contract that can cost thousands of dollars. That's pretty much how you test the waters without the commitment. That's why we call it dating. So, consider the LOI as the friendly 2-page max document and the purchase contract, which we'll eventually get to, is the scary 40-page document. You want to start with the LOI because it costs you nothing and takes 15 minutes to write. The contract, on the other hand, can cost you thousands in legal fees and can take a week or two to write, and even longer sometimes when you go back and forth negotiating the terms of the contract, the details. Never skip the LOI and jump straight to the contract. I know folks do that just because they think it's a waste of time, but that's a recipe for wasting time and money on a deal that was never going to happen because you didn't have a basic understanding of the original terms and the bigger terms. The LOI can get you a quick yes or no on those major points before you commit to the heavy lifting of the little details. See what I did there? Because that's really what happens. You end up agreeing on the bigger points faster than you do on the smaller detail points. That's just the nature of the business. All right. So let's look at the 5 key terms that you must include in this friendly 2-page document. First, obviously, purchase price, which is the headline number, and everyone focuses on that. It's the first thing they look for. Then they're gonna look for the earnest money deposit. That's why it's second, and it's usually gonna be 1 to 2% of the purchase price. That's gonna show you the seller— it's gonna show the seller that you're serious. Third is the due diligence period, your inspection phase. You're gonna ask for 30 to 45 days. It's going to depend on any number of factors. Fourth is the closing date, and you're going to negotiate that too, by the way. Fourth is the closing date, which is when the seller gets paid, and that's usually 30 days after your due diligence end. We often— you can also call it the financing period. We call it the closing period. And again, it'll end 30 days after the due diligence period is up. And then lastly, not lastly, but for tonight's purposes, the fifth term is the financing contingency. And that's going to be your escape hatch because if the bank says no, you're going to need to get out and get that deposit back. deposit back. Never waive that contingency early in the process. You might have a seller negotiate with you to get rid of it. That'll be a decision, but never just give it up easily and quickly. And while price is important, you'll soon see why the other 4 terms are what really matters. And this is the most important concept in all of real estate investing. Price is vanity, terms are sanity. Everyone gets hung up on the purchase price, but the terms of the deal are what determine if you're going to make money. So you got 2 offers here for $1.2 million. Look at these 2 offers for the exact same price. The vanity offer requires an all-cash and quick close, which likely leads to negative cash flow because high bank rates or hard money loans or, you know, deal terms that you didn't negotiate around and you didn't think through. The sanity offer, however, includes seller financing at a low interest-only rate. Same price, the sanity offer generates $30,000 a year in cash flow. And this is just a high-level example to show you the difference. You can pay the seller's price if they accept your terms. That's the power of the LOI. It helps you start to negotiate the terms while you're still negotiating the price. So now that you know how the price and the terms work together, Or can work together. Now we need to talk about the psychology of how you present those terms. So I once saw a deal die because the LOI was so complicated, it scared the seller into thinking they needed a full legal team just to read the LOI. So you get 2 choices when writing an LOI: the lawyer's way or the dealmaker's way. The lawyer's way is full of whereas and pursuant to and indemnifications, which makes the seller immediately think they need to call in their own lawyer just to read the LOI. Again, it's just an LOI. That complexity kills the deal before it even starts. The dealmaker's way is simple. It's a clear price, a clear closing timeline, and proof you can actually pay. This simplicity builds trust and makes the seller think, where do I sign? We want to be dealmakers, not lawyers. There's a time and a place for lawyers. And the reason for that is because complexity kills deals, but simplicity can build trust. And that's important at this stage. Now, let's look at the common mistakes that people make when they forget this simple psychology. First common mistake is writing a novel. Talked about that a little bit. If your LOI is 10 pages long, looks like a contract, it's going to scare the seller. Keep it to 1 or 2 pages maximum. Second mistake, trying to sound like a lawyer. Stop using words like heretofore and indemnification. Speak in plain English. The seller is a person, not a law firm. The third mistake is being the weasel. If you say the offer is subject to partner approval, for instance, you're basically telling the seller you're not the decision maker and you're gonna lose all credibility there. Be the principal. Be the one who can make the decision. Remember, complexity kills deals. Simplicity eventually closes them. So, all right, let's look at, uh, the template that can help you keep it simple. Because you've seen the mistakes, so here's the fix: the one-page LOI template. See how simple this is? It's really all it takes. Goal of the document is not to be a contract, it's to get a signature. It's your first yes in a series of what hopefully is a lot of yeses. You need a clear header so they know exactly what they're looking at. Then you need the terms, and these must be bullet points only. Simple. However you would— however you do it, keep it simple. Price, earnest money, due diligence days, closing days. That's it. Finally, you need the disclaimer that says this letter is non-binding. Make it easy for them to say yes. This simple structure will get you to the finish line faster than any complex legal document ever will. All right, now that you have the template, you can go out and put it to work. All right, final word in the LOI. If you follow this simple one-page template, you will save the seller time, you will save yourself time, and you will build trust. And they will thank you later as well for making the process so easy. Okay, if you know someone who is stuck in analysis paralysis, share this episode with them. Tomorrow we move on to day 39, where we will talk about how much to offer, And the valuation formula. So please take a second to like this for all the algos. Subscribe if you haven't yet. You are running out of days to subscribe. There are only 68 left. And of course, share this with a friend who likes to overcomplicate everything. You know who they are, and they will thank you later.