Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
With the still unreliable real estate market, the events that have happened recently in the note industry and the new regulations as dictated by the Dodd-Frank Act, especially on the seller financed note side, how realistic is it that a note broker can be successful? I was informed that in a recent interview with a well-known note industry professional it was stated that brokers couldn’t survive in the seller financed note industry as it is and may need to look at getting into the origination business. I’m not so sure. It is the opinion of this Master Buyer that a note broker in the seller financed note industry can survive and be successful with a few changes to the way they do business.
As many of you know, I have been a note buyer/broker since 1991 and I can honestly tell you that I am surviving and doing fine. One of the main reasons I believe that the note industry will survive in the future and that I will continue to be successful is that I have always run my business with the highest ethical and moral standards. The tag line for my note business is “Straightforward, Honest, Fair…The Way It Should Be”. I have always believed that if I am straightforward and honest with the note holders and give them a fair price I will eventually get the deal. I do not get every transaction, far from it, but I do think that my way of dealing with people has given me an edge over other note brokers in the industry.
As a note broker you must always be truthful with both the note sellers and the note investors. You should never give the note holder a higher price for a note just to get the deal while you know full well that you will never give the seller that price at the end of the transaction. There are some brokers out there that have done and still practice the following: they give an unrealistically high price to get a deal, drag it out for six to eight weeks and then at the last possible minute, when the seller is ready to sign, they lower the price dramatically for some reason and the seller, who is just tired of waiting to close, just signs it out of frustration and walks away angry with less money than they thought they were going to get. I am willing to bet that some note holders are too smart for this and do not sign at the closing but just walk away. What happens to these note holders now is that since they have been basically screwed by one note broker they then lump all note brokers into the unethical, lying, cheating, stealing and thieving category and can never trust another. Thus, the industry gets a bad name and then the regulators will continue looking at our industry and start laying out even more guidelines, rules and licensing requirements. That is not what we want to happen as an industry, this is not the way to run a note business. You will not last or be successful if that is the way you get your business.
Additionally, a note broker should not always try to get as much as possible from every transaction. On a simple SFH note under $50,000 I am happy to make $1,000 after expenses. There are many times when a seller will tell me exactly what they need and I calculate that I would make a large commission if I just gave them what they asked for. I have been known many times to surprise the sellers at the end of a transaction when they receive their closing documents with a higher purchase price than originally quoted. You would not believe the response I get when they find out that I am giving them more money than they thought they were going to receive, it is a wonderful moment. I know that this has led to many referrals and more deals from past note holders for my business.
Business did slow down for me over the last couple of years as it did for everyone in the industry but the good news is there are signs of things picking up again; there is no doubt about that. Note buyers and investors that stuck it out and are still around using their own funds continue to hold tight to stricter criteria. They are making offers on all notes, good bad or ugly however the prices reflect the risk more accurately and the note holders are not always realistic or accepting of how poor the quality of some of their notes are. We as note brokers need to understand that the note investors are in business to make a profit, not to pay broker fees and commissions, and not to buy as many notes as they can every month. I think that you will find many of the remaining note investors are now observe this disposition. There are many note investors that still love to work with note brokers and will go out of their way to get a transaction to close as long as it is profitable for them to do so.
When I started in the cash flow industry the only “niche” at the time was the seller financed note side of the business. Now, although 95% of my business is still seller financed real estate notes, I always have an ear open for other opportunities. I have done several transactions in the last year or so with business notes, structured settlements, and even one on a cellular tower lease! A note broker must be able to recognize other profitable opportunities that will come across their desk in the course of doing business.
The reality is that being a note broker is a real business. It is not a get rich quick scheme or a way to make a quick buck when you need it. Like any other business it has its hills and valleys. If you want to get something out of it you have to put something into it. At a minimum you are going to have to put in, time, effort and money for marketing until you find what works best for you. And from time to time you will have to tweak, change and adapt your note business to keep it running profitably.
If today’s note broker wants to survive and be successful they can do so with an open mind, straightforward, honest, fair communication with the note holders and note investors as well as persistence, dedication and determination. Remember success demands action, keep on marketing, it’s going to work! TWITA! (That’s What I’mTalkin’ About!) J