Tim, I want to get to $10,000 monthly income as quickly as possible. How can I get there brokering notes starting from ground zero?
The average referral fee on a brokered note transaction is usually somewhere between 2 and 10 thousand dollars. That’s a fairly wide range so let’s figure, say, $5,000 grand scale average fee. That would mean you would need to broker, on average, two notes a month to get somewhere around the 10 thousand dollar figure.
Some months may be less, some months may even be more depending on the size of the notes you broker, your negotiating skills and other variables.
The average time to close a given transaction being anywhere from 2 to 4 weeks, you should always have at least one note in the pipeline.
Now, let’s talk about the fastest way to reach these note holders. I’m assuming you want to start today, move quickly from ground zero as you said, so a big key is that you want to generate leads quickly. Meaning bona fide leads, private note holders who are currently holding notes with the criteria that your investors are looking for. You want closeable notes.
Quickest way is you can buy these types of leads that are carefully screened and researched from public records at somewhere around 20 cents a lead, give or take. Direct mail is THE most effective method and virtually the only method of marketing directly to private note holders. You have their names and mailing addresses on the list you’re buying. You do not have their email addresses or phone numbers, but no one else does, either and it doesn’t matter because direct mail is, and has always been historically THE best way to market directly to them and direct mail’s response rate trumps email in most any industry anyway.
Knowing that a 2% response rate on direct mail is considered good, I think you should start with an initial mailing of, say, 3,000 leads. Let’s do the math on this so we know what your marketing investment will be for this mailing. By the way, you’re going to love the return on investment you stand to enjoy, but anyway here goes:
20 cents a lead will work out to $600 dollars for 3,000 leads. Next, you’ll want to figure around 30 cents per color printed card. That works out to $900 dollars for 3,000 cards. I like color printed post cards because they are classier and get a better response rate in my personal experience for the message I’m sending out. But you can get by quite a bit cheaper on the post cards by going smaller and not going with color. In that case, a strong, short, effective bold message in black and white can counteract the lack of size and color and still get you a very good response rate.
If you’re going with the larger cards, figure 35 cents per postcard mailing times 3,000 names equals $1,050 dollars in postage.
So, your total marketing investment for this mailing– 3,000 cards– will be around $2,550 dollars total.
OK, now, regarding the mailing, I think you should factor in a 2% undeliverable rate. We do this based on experience. Biggest reason for undeliverables is that approximately 15% of people move every year. And although we don’t have the new address this time around on these, our leads supplier will usually find it when the next round of leads are culled. So, then, figure 2,940 mailings out of 3,000 will actually reach the note holders.
Still with me? All right, let’s drill down a little deeper. In our experience, 2% of note holders NEED to sell at any given point in time. Notice I said NEED to sell, not want to sell or thinking about selling. These are the people who will respond to your mailing. So, 2% of 2,940 note holders are likely to respond to you this time around. That translates into 58 people responding to you who are interested in selling now.
By the way, you’re going to see similar numbers on your next mailing, but also if you mail again to the same list, the interested parties are going to be partially made up of some of the people who did not respond the first time around because now THEY have now become motivated… so you stand to enjoy much higher response rates than you initially got the longer you’ve been mailing.
OK, but back to THIS mailing. Of those 58 people, figure anywhere from 55 to 80% of them will actually request quotes from you. Good mailers get more quote requests so you can see the importance of the marketing piece you’re sending out. All right, so anywhere between 31 and 46 people end up requesting a quote from you.
A conservative bet that I usually bank on will be that somewhere between 10 percent on the low side up to 40 percent or higher in some cases will accept your first offer. All of this depends on your negotiating skills, of course. The longer you’ve been doing this, you should add another 2% to that acceptance rate for each year of experience that you have under your belt. And, also, follow up offers are oftentimes accepted too, so you can absolutely get to a stage whereby well over half of your quotes will be accepted for any given mailing. And, for the ones that aren’t, you will simply stay in contact with those note holders and follow up again with them down the line and you stand an excellent chance of closing them later on. We do a ton of business with people who initially turn down our first proposal.
So, for this mailing, figuring 10 to 40 percent of 31 to 46 people means that anywhere between 3 and 18 of your quotes will be accepted.
Now one more thing we have to allow for are surprises like low credit scores or low appraisals that come to light after the offer is accepted and the note is submitted for purchase, causing us to renegotiate the offer. That’s going to happen sometimes, so I’m going to figure those possibilities into my projections. Carrying that forward, the percentage of sellers who accept your offer that actually close may end up being anywhere from 60 to 85 percent. So that translates into anywhere between 2 and 15 of these that will close.
Now, the fun part– we’ll figure out how much you’re going to be making. Being super-conservative, I’m going to figure your gross profit from each note as being anywhere from $3,000 to $5,000 dollars (again, this may actually end up being higher but I’m using a very conservative estimate- not pie in the sky at all- and you can add, at the very least, $500 dollars to these conservative projections for every year of experience that you have in the business).
So figure your gross profit from this whole mailing with 2 to 15 closed transactions would get you anywhere from $6,000 on the low side to $75,000 dollars or even more on the high side. When you subtract the $2,550 dollar upfront marketing cost, you end up with a net profit from the whole mailing of anywhere between $3,450 and $72,450 dollars or more.
So, for an initial outlay of $2,550 dollars for the direct mail campaign, that’s a return on investment of anywhere between 135 and 2,841 percent! Even the low end 135 percent return is likely to be way better than you’re earning elsewhere on any other investment. Not bad income, wouldn’t you say?! After you’ve been brokering notes for a couple of months, just plow part of your profits back into your marketing cost and then wash, rinse, repeat– just keep doing this over and over and over again.
Even if you hit the low end of this spectrum but you do this every month, that’s a cool $41,400 dollars per year on the low side working part time. If you’re on high side, you’re full time all the way and may even have people working for you by that time.
Remember the importance of repeat mailings. Many sellers who aren’t motivated today oftentimes become motivated later on.
Now, remember, I’m responding to the question about getting off the ground fast and that’s why I’m pointing you towards purchased leads. But, if you have no money for a direct mail campaign of this magnitude and you have a little time, you can either research the leads on your own through the county recorder’s office or you can go with the indirect method– referral sources like attorneys, accountants and financial planners who have clients who may be holding notes. And, whether you’ re direct mailing a list or not, you should always be building your list of referral sources up regardless. This is how your business will take on a life of its own down the line. And we’re going to cover that and a whole lot more in other posts..
Tune in to NoteInvestors.com for Tim’s regular posts and columns on notes, investing, and personal wealth building. You can email him here.