Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
Congratulations! You have decided that you want to be in the note business. You have specifically decided you want to be a note broker and negotiate first position Seller Financed Notes secured by real estate that came about when the seller of the property carried back the financing to facilitate the sale of the property (also called a Purchase Money Mortgage).
Brokering a note has its risks and its rewards. The risks could include the responsibilities and maintenance of owning a business, following the licensing regulations in your state, having the staying power (in terms of marketing dollars) until your marketing plan produces consistent results, keeping overhead under control, observing best accounting practices, having the time to complete all of the required tasks, being available at a moments notice to assist a note holder or note investor and using your time and money efficiently to name just a few.
The rewards might include having the time to do what you want to do, when you want to do it and having the money to do it with as well as working for yourself, helping people solve some of their financial problems and being in a unique niche real estate business that very few people even know about.
Once you understand the advantages and disadvantages of being a note broker you then need to determine for yourself if you fit the criteria for what a first class and thriving note broker might be. A good and successful note broker might have all or some of the following traits and/or characteristics such as: solid ethics, grounded morals, a desire to help people, a background in sales, real estate or finance could be helpful, experience in negotiating and building rapport is an advantage, good phone skills is a plus, being good with numbers is a bonus and having six to twelve months of back up money behind you would be a very good idea. You do not necessarily have to have all of the above mentioned skills and or characteristics because most of them can be learned. However, the more you have the quicker your note business will take off and the more likely you are to not only stay and survive in the business but grow your note business as well. It is somewhat of an undertaking but well worth it to learn how to broker notes properly (preferably, from someone that is currently and actively in the note business) so that you are able to put your best foot forward from the very beginning.
Brokering a note is simple but not as easy as it sounds or as easy as it is made out to be. You are not able to just go to the internet, find a note and broker it. You are not able to just call someone on the phone and buy their note tomorrow.
There is an entire process and procedures in place to broker notes and for many it is a full time business. The seven step process of buying a note includes: 1) Locate Note Holders – Have a written marketing plan with three to five marketing methods working for you all the time. 2) Compile Information – Fill out worksheet, get the story behind the note, get the numbers, build rapport, find the need, get back to them in 24-48 hours with prices. 3) Verify Information – Pick up calculator; verify payment amount, balloon if any, current balance. 4) Determine Pricing – Fax or Email as an attachment a nice, neat, clean and complete worksheet to favorite Master Buyer and/or a couple of other note investors. Receive options back in 24-48 hours. SUBTRACT flat fee and Prepare to Positively Present options. 5) Negotiate Acceptance – Smile J… Negate the full purchase & Push the Partial. If NO then put on follow up list. If YES then set the hook! Get a copy of the Note, Settlement Statement and Payor’s credit info to firm up the prices. Send copies and credit info to investor to check credit and firm up prices. Renegotiate if necessary. Prepare Initial Purchase Agreement and list of what you need to continue. Gather all copies and information for due diligence package. Send package to investor only when 90-100% complete. 6) Due Diligence – Assist Investor with any questions or additional information they may need. 7) Closing and Funding – Keep your fingers crossed that everything comes in ok and is acceptable to the investor and wait for check! J
As you can see there is quite a bit of preparation and work that goes on behind the scenes when a note is brokered. It is one of the most unknown and unique real estate businesses in the nation. If done properly, being a note broker can be an exciting, fun and very profitable business.