Being a note broker offers many opportunities to make money and provide a valuable service. Despite what infomercial companies may claim however this is not an easy path to overnight riches.
To be successful a note broker must be able to do three things. This article will cover: finding investors and sellers, structuring notes, and closing transactions.
Identifying Potential Buyers and Sellers
Note brokers act as financial matchmakers. They seek out note holders who are receiving payments from their notes and connect them with investors seeking to purchase those notes.
The most important skill a note broker needs is sourcing. It’s hard to make money in this business if you can’t find notes to buy or sell.
Seminar hucksters often tout the ability to work as a note broker from home, claiming that it can be done by stay at home moms or retirees. While it’s possible to work from home, the vast majority of a note broker’s time is spent meeting with attorneys, accountants, lenders, appraisers, investors and other professionals.
Additionally, many of these same seminar promoters will tout on-line exchanges that promise to help a note broker locate notes. Unfortunately, these on-line exchanges are rarely useful and can often be fraudulent. The vast majority of notes listed on these sites have already been screened by the site promoter and are often sold to investors that the site promoter has previously vetted.
Structuring Deals
Many note brokers start out as solo entrepreneurs. They can grow their business by hiring assistants, administrative assistants, and in-house legal counsel as revenue grows. They may need to acquire licenses such as a mortgage brokering business license and open an escrow account. They also need to obtain the required amount of insurance for their business.
A good loan note broker can find investors for a note and negotiate prices with the seller. They can also help borrowers with foreclosure alternatives. Often a loan note broker is a former real estate investor who wants to avoid the headaches of property management.
Many note sellers are scammed by “note buyers” that promise them a high price for their note and then tell them the offer is too low. The scammer then moves on to another seller and this continues in a chain. In the end the note seller never gets the money they are after and the legitimate note buyer loses a valuable investment opportunity.
Closing Transactions
Note brokers can help facilitate closing transactions by assisting in negotiations, answering questions, and performing due diligence as requested. They can also coordinate or assist with appraisals, inspections, and other activities as needed.
Savvy note brokers will often write themselves into the deal by making their fee a portion of the note being sold. This way they can grow their income while building their net worth at the same time.
Some note brokering training companies will sell you a list of “note funders” or “note buyers.” The problem is that these people aren’t real investors; they are simply other people who have gone through the same seminar course as you. Using these lists will almost always result in you being paid less for your notes by the actual end investor. Our note broker training paired with bank prospector will eliminate this problem quickly and easily for you.
Post Closing Responsibilities
Typically, loan note brokers have backgrounds in real estate or banking and make money by matching up sellers with investors who want to buy their real-estate-secured deeds of trust and mortgage notes. They are not for the faint of heart, however. They need to work hard to build their networks and learn how to negotiate a deal.
Post-closing is a complex and time-consuming task that requires a virtual mailroom to collect and manage physical and electronic documents. Automated tools like Optical Character Recognition elevate paper documents to digital data streams that can be organized, cross-checked and streamed into a format that meets investor reporting requirements.
Backlogs can occur if the process isn’t managed effectively. This creates a situation where a buyer can’t get the financing that they need, and a seller can be forced to accept a lower price for their mortgage note. Both situations are bad for business, and it’s important to keep the closing processes running smoothly.
