Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
We all know that times have been a little tough the last couple of years with all of the events that have happened in the real estate and note industry, how realistic is it that a seller financed note broker can be successful? I recently heard an interview of a top note industry veteran who stated that brokers couldn’t survive in the seller financed note as it is and may need to look at getting into other aspects of the real estate industry like the origination business. I disagree. I am here to tell you that it is the strict opinion of this Master Buyer that a note broker in the seller financed note industry can survive and be successful but they will have to change the way they do business.
As many of you know, I have been a note broker and buyer for just over 22 years now and that fact alone tells you that I have survived through some pretty tough markets. One of the main reasons I believe that I will continue to survive in the future and be successful is that I have always run my business with the highest ethical and moral standards. The tag line for my business is “Straightforward, Honest, Fair…The Way It Should Be”. I have always believed that if I am straightforward and honest with the note sellers AND the note buyers the transactions will come to me and get closed. I do not get every deal, 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 buyers (investors). You should never give a note seller 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 note brokers out there that have done 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 sellers are too smart for this and do not sign at the closing but just walk away. What happens to these sellers now is that since they have felt “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 one. Thus, the note industry gets a bad name and then the regulators will start looking at our industry and start laying out more guidelines, rules and licensing requirements. That is not the way to run a note business. You will not last or be successful if that is the way you intend to get 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. The home runs will come; don’t try to make one on every transaction. 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 wanted. 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 previously stated it is a wonderful moment. I know that this has led to many referrals and more deals from past note sellers for my business.
Business has been slow the last couple years yet the last couple months of last year and thus far this year signs of growth have developed. The thing that all of us in the seller financed note industry need to remember is that the business is different; different than 20 years ago, much different than 10 years ago and very, very much different than even 3 years ago. The days of note buyers purchasing questionable notes are over.
Note brokers must be able to set realistic expectations with their note sellers. They must know their note buyers, their requirements and expectations. A note broker should know that a note with zero down, no seasoning, a buyer with no credit, sold for more than the comparable properties in the area and in the middle of a swamp will not get the seller 80 cents on the dollar! Most note buyers these days are using their own funds and either will not purchase these not so good types of notes or will pay a price that will still make it profitable for them if the note goes into default. We as note brokers need to understand that the note buyers/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 note buyers are now beginning to have this frame of mind. There are many note buyers that still love to work with 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. Think of it this way, if it was your money, you might ask questions that don’t seem normal to you either.
The reality is that being a note broker is a 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. Like any other business you are going to have to put in, at a minimum, money and time until you find what works best for you. And from time to time you will have to tweak (change) your business to keep it running profitably. Remember, success demands action! Keep on marketing, it’s going to work! TWITA! (That’s What I’m Talking About!)