The always popular home business centered around “Discount Notes and Mortgages” has been practiced for decades, and its key component involves either the purchase of private mortgage notes at a discount as an investment or acting as a “finder” and brokering such notes to investment companies that specialize in that industry. While the former, the investor side of the business, requires significant capital, the finder side (brokering) is an extremely low-cost business opportunity to enter. This business is a cornerstone of the business of Cash Flow Consultant and is also typically included as a featured product in the larger business of Consumer Finance Consulting.
What is a Discount Private Mortgage Note?
A private mortgage note is just what it sounds like. It is a promissory note that is collateralized (secured) by some kind of real estate. Unlike traditional mortgage notes, these mortgage notes originate from a private party (an individual) rather than a bank or other traditional institutional lender. Private mortgage notes are the result of “Owner Financing” when a property is sold. Such notes can be very attractive investments since they typically carry a higher interest rate than popular deposit investments such as certificates of deposit, and they are usually created with either shorter terms than traditional mortgage products, or they will feature a “balloon” payment that requires the note to be paid off prior to its full term (amortization). Owner financing is a valuable accommodation for certain buyers. It is usually provided in instances where a particular property is challenging to sell or when a prospective purchaser of the property has tarnished credit and, for whatever reason, cannot qualify for a traditional loan from a bank or similar financing institution.
The Investor Side: Discount Mortgage Notes as an Attractive Long-Term Business
For real estate “savvy” entrepreneurs, investing in real estate discount mortgage notes can be quite profitable with enticingly high rates of return. When a mortgage note originator or the holder “in due course” finds they need to raise cash and sell a note, they will typically resell the note to another individual or a company specializing in purchasing such “private” mortgage notes. In most cases, however, such secondary market note buyers will “discount” or pay less than the face value of the note so as to improve their investment yield further. If the originator of the note is strapped for cash and willing to sell for the discounted price, a transaction occurs, and the note changes hands. Investment yields on such discounted mortgage notes vary considerably, but it is not unusual for such notes to provide a yield of 10-15 percent to the note investor.
The Finder Side: A Low-Cost Home Business with Excellent Passive Income Potential
The brokering or “finder” side of the discount mortgage business is fundamentally very simple and extremely low-cost to enter. Mortgage note brokers do not invest in notes but rather work to find those individuals in need of raising cash and need to sell their investment notes. When a prospective note seller is located, the note broker will provide a provisional “quote” form to be completed by the seller. The seller completes the form and will provide all the details about the note and information on the property that collateralizes and secures the note. With the form completed, the broker will submit it to his note buyer (investment company) of choice to get a provisional quote (purchase bid). Once a provisional bid is established, the broker will reduce the bid by their commission and then submit a “net” purchase price to the seller. If the note seller then agrees to the purchase price, the entire transaction is then handled by the institutional note buyer, and ultimately, the deal is closed, at which time the broker is paid the commission.
How Discount Mortgage Note Brokers Operate
As you can imagine, this is a business whose success hinges on locating private notes and the holders of those notes who need to raise cash through a timely sale. Private mortgage
financing is very common, so thousands upon thousands of individuals hold such valuable investments. The key to success as a broker is to “be there” when the occasional need to sell the note arises.
Content marketing on social media platforms, such as Facebook, Twitter, and LinkedIn, is essential for note broker success. Successful investors and brokers will actively create blog posts and will utilize content marketing to build relationships with existing noteholders. Additionally, many note brokers will research courthouse records to view mortgage recordings that provide evidence that a private individual, not an institution, is the originator or holder of the mortgage note.
Professional note brokers will typically use a standard CRM (Customer Relationship Manager) to build noteholder prospect lists and to then store the important data regarding the note and the contact information for the note holder. While it is not the norm that the broker contacts a noteholder at the exact time he or she needs to raise cash and sell the note, everyone’s financial circumstances change. Issues involving medical problems, legal matters, the need to help children, job loss, etc., all can pop up at any time and spur the need to sell a note. Successful note brokers will, over time, build a substantial list of noteholders, stay in contact with them periodically through email or other methods, and let the holder know that if or when the need for a sale arises, the broker is there to fill the need.
What is Needed to Enter this Business?
As previously mentioned, this is a very low-cost business to enter. As with similar finance home businesses, you will need these four key startup cornerstones. In addition and to succeed, you will need a…
- Training Program: Although a simple business, you will need a certain amount of training. There are many courses available to you, including online courses, and none arecostly, usually just $100-$200.
- Computer: You will need the basics of a home office, including a laptop or desktop (preferable) computer and a 4/1 printer with scan capabilities
- Financial Calculator: HP 10b II or similar.
- Website with a Blog: All successful “professional” note brokers will be networking on social media such as Facebook, Twitter, etc. This is very much a “content marketing” business, and you will need to use your blog articles that you will also post to social media. You will need a professional website where a visitor can complete a form and request a FREE note quotation. “Quick quote forms” are a primary tool for lead generation for all note brokers and play a BIG role in driving visitors to your site and generating leads. (See website samples)
- CRM: You will need a Customer Relationship Manager to be able to build lists and store information about the notes and the note holders you uncover through your research. You may “get by” early as you launch without one, but eventually, you will uncover too many notes to handle without a quality CRM.
- Email Marketing: You will need an email marketing program such as MailChimp (free for the first 1,000 entries) so you can periodically email information to noteholders about the economy, real estate, etc.
Alternative Home Business for Tough Times
Purchasing or brokering mortgage notes at a discount is a “time-honored” home business profession that almost anyone can start and succeed in. It is especially attractive to launch when economic times are tough, and noteholders find themselves forced to liquidate their mortgage note holdings to deal with other mounting money problems. This is not only a recession-resistant business enterprise but also one that excels as economic times become more and more difficult.
