A note broker locates (finds) people or companies that hold notes secured by (most commonly) real estate (residential or commercial) or something else, like a business or other type of property or collateral, and then brokers (or refers) those note holders to cash buyers (investors) who will pay a lump sum of cash up front in exchange for the rights to receive the future monthly payments on the note to keep as a long-term investment or to resell to another investor.
The note broker receives a referral fee or percentage of the OPB of the note as payment. In this way, a note broker can earn substantial fees using OPM (other people’s money) without putting up one dime of their own money.
The note broker can earn money by simply finding someone who is collecting monthly payments but is in need of cash with a note buyer who is seeking the steady return that real estate notes can bring them and are willing to hold the note as a longer-term investment.
What does it take to be a note broker?
A note broker must do one thing very well- find note holders. In other words, lead generation is paramount. Theoretically, a note broker need not be well-versed in the investing side or the due diligence process– if he can develop quality leads, he can refer them over to the investor who then takes over from there, drawing up all the paperwork and handling all details of the transaction while paying the note broker a referral fee at the end.
The process has to be done correctly, however, to ensure compliance with all legalities and not run afoul of any state regulatory bodies. For this reason, institutional note investors can be a solid choice when putting together your own network of note buyers and investors to flip, or refer your transactions to.
This is an ideal home based business that can be done from anywhere; Note brokers typically work from home, as many rarely, if ever meet face-to-face with note buyers and sellers. And in today’s world, thanks to technology, transactions can be put together from virtually any location, with the note broker usually pursuing notes secured by real estate not only locally but also well outside of their home state and then referring them to national note buyers.
Closings are usually arranged by the note investor’s preferred title company and checks are cut and distributed or wired or ach’d to all parties at closing. Some seasoned note brokers, however, like to use their own hand-picked title companies for closings and, if that be the case, many note investors will accommodate the brokers’ wishes.
Marketing for notes being arguably the most important skill a note investor can develop, the wise novice starts out as a note broker with a heavy concentration on the marketing end and then learning the backend process by watching the note investor go through the due diligence process. In short, by watching the pros close the deal, valuable experience can be gained by learning what the seasoned, everyday, professional note investor considers a good or bad note as well as becoming thoroughly versed in the documentation process. This experience is invaluable to a newer note broker and then later, after the broker has run through X number of transactions through an investor, the smart broker can use some of the money generated from the referral fees to invest in some of the notes he finds through his marketing efforts rather than brokering them outright.
So, in the next video, I’ll talk about investing in notes for your own account after you’ve brokered a few and have developed a working knowledge of the due diligence and funding process.
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