Case Study: LOI to the PSA in 10 Steps with Josh Cantwell – EP 277

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I wanted to jump on here for a quick solo episode and share some great news and how we got it done. We just closed on a fiercely competitive, 296-unit deal. Over the last few weeks, we’ve been going back and forth with the seller, their attorney, and the brokers to negotiate the fine details and agreements from our letter of intent. Standard stuff, right?

In our letter of intent, we agreed on a purchase price of $16.3 million and $350,000 of non-refundable earnest money to get the deal across the finish line within 90 days. We had to settle a number of issues, including the closing duration (and if the purchase price would go up if we failed to close in time), which title company we would use, and how much prorated rent the owner would receive–just to name a few.

In this episode, I want to walk you through how our letter of intent (LOI) set the framework for our purchase sales agreement (PSA) and what we did to get the best possible terms under the circumstances. For anyone about to negotiate their first significant deal (or any deal for that matter), I hope these insights will offer some value to you.

Key Takeaways with Josh Cantwell

  • How we set the closing terms for this deal and why it led to a negotiation with the seller about which title company we were going to use.
  • How we negotiated prorated, past due, and additional rents.
  • Why everything in an apartment building, down to the doorknobs and keys, is negotiable.
  • How we wrapped our negotiations to close on the property by May 1 for $19.5 million–and why it will be worth over $26 million by the time we’re done with it.

Josh Cantwell Tweetables

“It's not all roses and rainbows and unicorns. There are some points where this can get kind of ugly. But it's also very fun to negotiate these large deals and make them happen.” - Josh Cantwell

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Josh Cantwell: Hey there, guys. In this episode, I want to talk to you about negotiating your purchase and sales agreements once you have an accepted letter of intent. 




Josh Cantwell: So, hey, guys. Welcome back. I’m super excited. Actually, just five minutes ago, just executed a DocuSign for a $16.3 million purchase. I’ll tell you about the deal when we close on it. It’s 296 units. It’s in the Cleveland market and it was fiercely competitive between us and other buyers. And really, over the last two-and-a-half weeks, we’ve gone back and forth with the seller and the seller’s attorney and the brokers kind of negotiating the fine details of the purchase and sales agreement from the letter of intent. So, let me quickly give you some of the high-level things we agreed on in the letter of intent. Number one, we agreed to a purchase price of $16.3 million, $200,000 of non-refundable earnest money down, another $100,000 of non-refundable after the due diligence period, and another $50,000 of non-refundable earnest money if we needed an extension. Okay. So, a total of $350,000 of non-refundable, earnest money in this deal in order to get across the goal line. Normally, we would have a 30-day due diligence period and then a 30 day closing period, and then another 30-day extension. So, we call it a 30-30-30 closing, and that would give us 60 days to close the deal, plus another 30 days for a total of 90 with the extension. 


So, all that was agreed in the LOI. Then you get to the PSA and now you get down to the fine-tune detail. Originally, the seller wanted us to close in 45 days. So, we were kind of awarded the deal a couple of Fridays ago. Usually, the PSA takes about a week to negotiate. It’s now been two-and-a-half weeks to negotiate this PSA. And originally we had said, “Look, we can close in 45 days. We can do our due diligence in 30 days. We can close 15 days thereafter and then a 30-day extension.” And so, we agreed to that in the LOI. We thought that would really get us over the hump and kind of win the deal between the non-refundable, earnest money, a very competitive offer price, as well as a 45-day closing. So, we got on the phone with our broker, our lender broker, and said, “Hey, do you think you can get this funded from the first mortgage within 45 days?” And he said, “Well, look, if you get awarded the deal on Friday and the PSA gets inked up the following Friday, we’ve just bought ourselves a week. So, now instead of 45 days, it’s actually 52 days. Now, since it took us two-and-a-half weeks to actually get the PSA done, we bought our broker, our lender two-and-a-half weeks, basically 18 days. 


And during the negotiation of the purchase agreement, we said to the seller and to their attorney we said, “Look, we have been able to close multiple deals within 45 days. We closed the deal called Brookside Shady right at Christmas time, 45 days end-to-end. We also closed another deal called 170 Valley and 52 days end-to-end. That one closed right after Thanksgiving. So, we have a lot of confidence that we can close a really big deal really, really fast. And on those deals, I raised about $4 million for Valley and another $5.4 million for Brookside Shady. We’ve raised all this capital in 52 days and 45 days to fund those deals so raise almost $9.5 million. So, we went to the broker. We said, “Look, our confidence in closing quickly really comes from the fact that we have a certain team. This team can close this deal quickly.” The team is the current lender, the current broker, Freeland, the same insurance guy, and the same title company. So, then in the PSA negotiation, the seller says to us, “Well, listen, we want to use our own title company,” probably because they’re getting some sort of kickback or some sort of financial incentive to use their title company. So, they were adamant, “No, we need to use our title company. No, we need to use our title company.”


I said, “Okay. Listen, if you want to use your title company, here’s the give and take. There has to be a value exchange. We can close in 45 days if we use our same team, including the title company. But if you throw a wrench in there and you say we can’t use our title company, then I don’t have any confidence in closing in 45 days because I have no confidence in your title company. If I don’t have any confidence in your title company, I can’t sign this agreement saying that I’m going to close in 45 days when that would be really dependent on your title company. I don’t know your title company. I don’t have any confidence in your title company, so I can’t sign this thing. I’m going to close in 45 days. What if your title company falls apart? What if your title company screws up? What if your title company is slow?” So, I said, “You’ve got one of two choices,” and we went back and forth and I said, “Look, here’s where we basically went. If you want us to close in 45 days, we use our title company. If you want to use your title company, then we close in 60 days. Pick one. I’m fine with either one. Pick one.” And so, they decided to pick a 60-day closing with their title company. I’m like, “Okay, great.”


So, now normally we would have had basically the LOI. We would have had a week to do the PSA then 45 days to close because they wanted us to close fast. Instead of that, now, we had 18 days between the LOI and the PSA being executed, which was again just about 10 minutes ago. And now we’ve got 60 days to close the transaction. So, we got a full 30 days of due diligence then we got a full 30 days to close thereafter. And then we got a full 30-day extension thereafter if we need it. Now, of course, the seller still wants us to close on time and close quickly. So, they said, “Look, if you don’t close within 60 days, then the purchase price needs to go up by $200,000.” And I said, “Fine. We can agree to that.” So, now the way the money works is $200,000 down at the signing of the PSA, which is today. So, my CFO, Roberto, is on his way to the bank to wire $200,000. Secondly, we do our due diligence for 30 days. We’re already up 200,000 non-refundable, so we’re going to put up another $100,000 non-refundable after 30 days, and then 30 days after that, we’re going to close. If we don’t close within 60 days, we can buy an extension but we have to put another $50,000 of non-refundable down and the price goes up to $200,000. So, it actually costs us $200,000 in the purchase price. 


So, that was some of the gives and the takes that happened between the LOI and the PSA. So, a couple of the things that had to be negotiated was the prorated rents. So, if we close on 60 days from today, today is March 1st, if we close on May 1st, which is about the time that we’ll be closing, that’s the first of the month so there really isn’t any prorated rent because it’s the first day of the month, right? But if we close in the middle of the month, let’s say we close April 15th, then the seller gets his 50% of the prorated rent. We get 50% of that month’s prorated rent. And then we wanted that any additional rent that we collect like past due rent or any kind of rental assistance or what we call CHN money, Cuyahoga Housing Network, which is basically the gift money from the government, which is still from COVID. We thought, “Hey, well, if we collect the money post-closing, we get to keep it all.” They wanted that to be prorated. So, we said, “Well, look, we’ll wire you the earnest money on the day of effectuations, the day of execution, which is today but any rent that we collect post-closing is ours. So, we get prorated rent for that month and anything we collect over and above that is ours to keep. So, we agreed on that. 


The final thing that had to be worked out was the personal items. So, there’s a truck there, there’s a plow there, there is 296 fridges and stoves, the 296-unit building. And there’s also a tremendous amount of desks and file cabinets, and there’s a management office with a kitchen and kitchen tables. And also, there’s an entire basement of maintenance supplies. You know, there’s shovels, there’s salt, there’s doorknobs, there’s keys, there’s a key cutter, there is vents. I mean, you name it that you could put in an apartment building, there’s wire piping, bronze piping, PVC, you name it. There’s 3,000 square feet of storage in the basement of all of the maintenance items. We, of course, want all of that because we’re going to buy the building and we’re going to need all of it to continue to manage the building. And so, that part we couldn’t get in the PSA because it was so late. We wanted to make sure that we had a verbal agreement that we’d be able to keep all that stuff, which we got. So, that was a verbal agreement. So, I wanted to record this podcast so that when you’re negotiating your next deal, whether it’s a small one, big one, medium, whatever, this is a 300-unit that we’re buying for 16.3 million, that you realize all these negotiable items. It’s all negotiable. 


The LOI is simply a guide. It’s a non-binding guide, a letter of intent that kind of sets the framework for a PSA. But then all these things that I mentioned, prorated rents, title company, earnest money deposits. When would the earnest money be wired? The personal items, when we would get access to the deal room with the tax returns and the bank statements and the pro formas and the projections and the P&Ls and the income statements for the past three years? When would we get access to the deal room? All of that stuff is negotiable so that when you get to the PSA that both parties, the seller and buyer, can create a win-win and make sure both people are comfortable with closing and going forward. They’ve got to give the seller a lot of credit because they were adamant that they only wanted to commit to what they could execute. I think they did a great job of saying, “This is what we know we can execute so we only want to put this in the purchase agreement because this is binding and we want to make sure that we can indeed execute on this. If we don’t think we can execute on it, we don’t want it in the PSA because we don’t want to breach the contract. Once we go into a contract, we want everybody to be very confident that they’re going to close.” 


And so, they were very strategic and savvy about what they would give us and when they could give it to us because they didn’t want to promise something that they couldn’t deliver. And then, therefore, have a breach of contract, which means if there’s a breach, we can walk away and we can get our earnest money back only in the event of a breach. So, this very important kind of work through all these items. So, sure, it took us two-and-a-half weeks. It should have taken us a week. Our broker that got involved was really probably the piece that needed to happen in order to get everybody to agree on some things, kind of nudged the deal forward, kind of playing the middleman back and forth of just trying to get all the parties to understand, “Hey, this is where they’re coming from. This is what they want to have happen. This is what works for them.” The attorneys in this deal frankly didn’t communicate very well but that’s okay. You know, our attorney’s busy, their attorney’s busy. They’re both handling lots of transactions. So, I was really happy to have the broker jump in and help us kind of get across the goal line. And so, let me just list out one more time all of the items that can be negotiated and that we just did negotiate on this $16.3 million purchase. When you’re going from the LOI to the PSA, here’s all the things that we just worked through. 


So, number one, purchase price of 16.3 million with a 200,000 increase in the purchase price if we did not close within 60 days. That’s the first thing that we negotiated. Number two was the earnest money deposit, $200,000 upfront, $100,000 at the 30-day due diligence when that ends, and another $50,000 if we need an extension. That’s number two. Number three is when would the earnest money be actually wired? We originally said we would wire it within three days. They came back and said, “No, we want you to wire it the same day that you effectuate the contract, which was today.” Number four, when would we get access to the deal room with all the financials, the tax returns, the bank statements? We originally said we would give them five days. They came back and said, “Look, as soon as we receive your wire, we will give you access to the deal room.” Okay. So, that became a little bit of a negotiation. Number four. Number five is that the closing time frame originally was supposed to be 15 days, we kicked it out to 60 days. I’m sorry. It was supposed to be 15 days from the end of the due diligence so total of 45 days. We kicked it out to 60 days in exchange for number 6, who was going to handle the title work in the title company? So, that’s the sixth thing you’re going to negotiate is the title company. 


Number seven is the due diligence period. We agreed at 30 days but we also agreed that we would wire more non-refundable money at the end of that 30-day due diligence. Number eight is the extension. Again, we agreed that we would do a 30-day extension if we needed it. We won’t need it. But if we did, we would give them $50,000 of non-refundable and the price would go up by $200,000. That’s number eight. Number nine is the prorated rents, okay, the day of closing assuming like it’s the last day of the month or the first day of the month. There’s not really much to prorate there. But if you close in the middle of the month, then you have a big proration. We have a big proration, then who’s going to get the money post-closing? So, we negotiated that. And then finally, number 10 is the personal items, okay, the truck, the plow, the maintenance equipment, snow blower, all of the maintenance materials that are in the shed and, of course, all of the fridges and stoves. So, 10 different ways, 10 different things, 10 different points that we had all agreed on. And we got it done. And now I’ve got another $16.3 million property that we’re going to be closing on or about May 1st. We’ll be all into that thing when it’s all done for about 19.5 million and it pencils out to be worth over 26 million by the time we’re done with it. So, we’re super, super excited about that. 



Josh Cantwell: Guys, listen, I just want to tell you how fun this is for me to just kind of get on camera, get on audio, and tell you about my deals kind of be just super transparent about how this goes. It’s not all roses and rainbows and unicorns. There are some points where this can get kind of ugly. It’s also very fun just to negotiate these kinds of big, large deals and make these deals kind of go and happen. And I hope you enjoy me just telling stories and telling you how these things really go and I hope you enjoy it. If you do, first of all, you can always go apply for our coaching and masterminded partnering program, which is at And also, don’t forget to leave us a rating and review. I’d be so grateful if you would let us know that you enjoyed this episode that you enjoyed the podcast. Leave us some questions but leave us primarily a rating and a review so we can get the word out to everybody else. Thanks for being here today, and we’ll see you next time.

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