We asked twelve major investors in the note business to complete this statement: “If I could give just one piece of advice to a note broker, it would be…” Their answers fall into a handful of themes: quote creatively, verify everything, pick the right deals and investors, put the client first, and run a real business. Here is what they said.
Quote options, not just a full buyout
Because of the unique nature of the cash flow industry, no two transactions are exactly the same. The best brokers stay creative and flexible in their approach to every deal. Look at each transaction as an opportunity: every security instrument secured by real estate is worth something. For instance, depending on the transaction, take advantage of several different ways to quote your note holder.
It has become all too common to quote a note seller a full buyout of the note. This is a huge mistake, because your seller will generally hang up the phone and call the next person, and the next, and so on. Each full quote competes directly with the next. If you’re lucky, that seller may call you back and tell you the highest bid he or she has received. If you’re lucky.
Instead, why not quote the seller a variety of options, such as a 120-month straight partial, a split partial, a reverse partial or a multi-stage buyout? Depending on your seller’s situation and need for cash, you can meet their immediate cash needs now and let them keep a residual interest (the remainder) in the payments not purchased.
The more options you give your seller, the more likely you are to get the deal. And here’s the best part: the broker earns a fee on the first purchase and has the opportunity to earn another when the seller comes back to sell the remainder. Knowing and selling different options will make a difference in the number of transactions you close. Being creative makes all the difference in competitive times.
— Mark Donoghue, Vice-President, Metropolitan Mortgage & Securities Co., Inc.
Verify every fact before you submit a deal
My advice is two-fold: take ownership and be honest. Brokers should handle each deal as if they were going to invest their own money in the note. What would they want to know before writing the check?
Too often, note brokers merely pass along the information note sellers give them. The broker seems “afraid” to push the seller for complete information and would rather assume things. I can’t tell you how many deals I see with inaccurate data: wrong sales price, current balance, property type, note rate, you name it.
Three factors drive our pricing: seasoning, credit and LTV (equity). If we receive correct data on how many payments have been made, the borrower’s credit score and the property value, brokers will get a competitive price they know they can count on.
Brokers must add value to the deal for both the note seller and the investor. Would you buy a deal without knowing and verifying all the data? Get a copy of the note and the settlement statement, pull a credit report and ask for a pay history. The more the broker takes ownership of the deal, the more likely he or she is to sell it at the best possible price.
And be honest. If a broker finds out facts that would keep an investor from buying a bad deal, tell the investor. A quick profit now is not worth ruining an investor relationship. It’s a small world in our industry, and we all want to be successful and still be here years from now.
— Bob Repass, Sr. Vice President, InterBay Funding, LLC, a seller finance division of BayView Financial Trading Group, L.P.
Spend your time on deals that can close
The single most important piece of advice I would give a note broker is to focus on the right deals.
I recognize this may be easier said than done for a new broker. We have seen countless brokers spin their wheels on loser deals and never close anything. They get frustrated with the business, blame others and quit. In my opinion, the trap brokers fall into is going after the perceived “easy” deals.
One of the worst places to find these “easy” deals is the internet. Not all internet deals are weak, but some of the ways of getting deals online are. For example, some of the website networks brokers belong to are notorious for creating heavily “shopped” deals. Sometimes we see the same mortgage worksheet from five brokers. A new broker who doesn’t know this is probably wasting his or her own time and the funding source’s time. When we see a broker who appears to work only on heavily shopped deals, we give that broker’s worksheets a lower priority, and I imagine other funding sources do the same.
Another source of “easy” deals, online or off, is the deal that looks too good to be true. Many brokers respond to an email or a plea for help from an apparent note seller and get trapped in a loser deal. Some of our favorite examples of deals that had no hope of closing: a one-billion-dollar loan request secured by the ferry boat tolls under a famous bridge, a third mortgage for sale on a ship from Denmark, a one-billion-dollar loan request to build a city, prime-bank guarantee deals, anything involving gold, and the Nigerian loan scam we have seen a dozen times. I could go on and on.
Many brokers see the dollar signs of a big commission and don’t step back to analyze the deal. Ask yourself: does this deal make sense, and if I had the money, would I invest in it? If the answer is no, don’t spend time on it. The key to working on the right deals is finding the balance between common sense and creativity. It is never too late to change where you get your business.
— Jeff Long, C.P.A., President, Financial Resources, Inc.
Choose investors who close on their word
The advice I would give brokers of any cash flow is to look for more than just the best price when choosing an investor to place their business with.
Other considerations, in many cases even more important, include the investor’s performance history. If the owner of the cash flow made accurate and honest representations and everything else about the transaction checked out, the investor should have no excuse for not completing the transaction at the original price and terms.
I have heard many horror stories over the years of investors coming up with all kinds of excuses at or near closing to adjust the price, delay the closing or simply walk away. The credibility of the broker or referral source is damaged, and the owner of the cash flow could decide to sue and name the broker or referral source as a defendant. You don’t need that aggravation, or the defense costs, and you can help avoid it by choosing your investor carefully. Industry websites and publications can reveal quite a bit on this subject.
— Martin Granoff, President, Granoff Enterprises
The best advice I can give a new note broker is to use the wealth of information available in industry publications. Surround yourself with the professionals you choose to work with, and build personal relationships with principals who have a proven track record. Stay focused. Don’t get caught up in the dollars game; always put your clients’ needs first. Treat clients the way you would like to be treated. Be honest and trustworthy, and your cup will overflow.
— Stefan Klima, Poser Investments, Inc. (Business Note Investors)
Put the client first and play the long game
A single piece of advice is difficult to give a note broker, because no one part of the business works by itself. However, I would say it is critical to be patient, persistent and a people person, and the customer’s interest must be your foremost goal. Customers couldn’t care less what you have done or how long you have done it. All they are interested in is what you can do for them.
Contrary to the late-night infomercials, you cannot make a few phone calls and earn a $10,000 profit on one deal! Not long ago I saw note-business ads running on TV time and time again, and out of curiosity I went to one of the presentations. The presenter looked like she had just stepped out of Saks Fifth Avenue: a gold Rolex, diamond ear studs as big as your little fingernail and a gold chain with a large diamond pendant. Just before the break, she made a point of telling the audience that someone would probably confront them in the bathroom or the hall and try to tell them what she was presenting was bogus.
I talked with some of the attendees and asked what they did for a living. The two I spoke with were both blue-collar workers with limited education and no financial or real estate background. They were excited about the program and sure it was the answer to their financial future. The presenter had basically told them that all they had to do was make three or four phone calls and they could expect a commission as high as $10,000. I wanted to ask her where to make the calls and where to find a note that would produce such a large commission, but I did not want to get into a heated discussion.
— Jim Clements, President, Woodstone Financial Corp.
The most important advice I can give a note broker is to always act in the best interest of his or her client. Sometimes this will mean making less than is possible or doing more than is necessary, but the long-term rewards will always exceed the short-term gains.
— Jim Lokey, President, Settlement Capital Corp.
This sounds like such a simple question, yet reducing it to one single item makes it difficult. I’d advise brokers to consider the business only on a long-term basis. Long-term success requires dealing with integrity, so you build good, lasting relationships with investors, sellers and others. It also gives you time to get educated and acquire product knowledge, and it helps you avoid the pitfalls and disappointments of the get-rich-quick fantasy.
A long-term outlook takes more commitment and determination than a short-term approach. Sooner or later, it will encourage you to buy some notes for yourself, which provides some regular income and also leads to a better understanding of your business.
— Terry Preuit, President, Cash For Contracts, Inc.
Run a real business, not a tip jar
The single most important advice to a note broker is: don’t be a broker!
The biggest challenge is the thought pattern of someone operating as a broker. That person is working for tips. The constant mentality is the next deal, rather than being in business for yourself with the objective of becoming financially independent.
“Next deal” thinkers are just looking for a paycheck. They might as well punch a time clock; same result. If you think of yourself as a business person, the thought pattern is to create a business with ongoing revenue, whether or not you cut a deal. Building a business is a process, not something that happens overnight, as many people with a short course in note brokering seem to think. Build the thought patterns of a business person, not a tip taker.
— B.H. Tilton, President, Cross Creek, Inc.
Run your business like a professional business. For instance:
- Get a business name.
- Get a dedicated fax line.
- Get letterhead.
- Get incorporated.
- Answer the phone like a business.
- Get a real email address on your own domain, not a free webmail address.
- Get a real business address, not a P.O. box.
This is not a scientific principle, but if you act like a real business, you greatly increase your chances of staying in business. All the other advice, like “learn the business” and “learn real estate and finance,” comes after act like a business. Get your head on straight, take this seriously and you are already miles ahead of the competition.
— Wm. Kelly Crow, President, Morningside Mortgage Management, Inc.
No one has to tell us that our world is changing faster than ever. To succeed in changing times, brokers have to be incredibly flexible. That means being aware of new market conditions and recognizing new opportunities when they arise. But recognizing opportunities is only half the battle. Knowing how to capitalize on them and take action is the all-important follow-up punch.
One key first step is to let prospects know the depth of the services you offer. For example, some savvy brokers routinely include inheritance advances in their advertising and marketing.
— Doug Lloyd, President, Inheritance Funding Co., LLC
My advice consists of five tips:
- Find out who you can do business with. Find out who “walks the walk,” who does what he or she says and delivers on promises.
- Learn what is a doable deal and what is not. Move away from the deals that aren’t doable as quickly as possible.
- Treat your investor’s money as if it were yours. Your job is to uncover and disclose everything pertinent to the deal.
- Look at every deal as an opportunity to carve out an equity position. Start by buying a full note and selling a partial. Move as quickly as possible from the role of broker to the role of investor.
- Develop your people skills. This is the most important tip of all. Build a strong relationship with the note seller. Learn what the seller’s real problem is and why he is selling the note, and focus all your energy on solving that problem. This is how you prosper.
— Kevin Clancy, American Funding Group, Inc.
