How To Make Money Note Brokering
By Thomas` | October 23, 2008
By note brokering you can make money without much investment
(just time, phone, and advertising). It has become a more
competitive area, so it may be tough to get started. It may
be worth it, though, considering this is almost risk-free,
while potentially very profitable.
Real estate notes are the loan documents (the contracts)
created when real estate is financed. They include mortgage
notes, second mortgage notes, and contracts-for-sale. If a
seller agrees to take payments from the buyer for part of
the purchase price, he has a contract - a note. If at some
point he wants a large chunk of cash instead of monthly
payment, he sells this note.
These notes sell for as much as a 30% discount off face
value, making them a potentially profitable investment. How
would you like to buy $100,000 for $70,000? But what if you
don't have that kind of cash to invest? There is another way
to make money with real estate notes.
Note Brokering - How To
There are large investment companies that buy real estate
notes. They are ready to buy them virtually anywhere in the
country, but they can't be everywhere at once, this is where
you come in. You find the note holder who want to sell, and
get a chunk of the sales price. Let's look at an example.
First you have to find one of these investment companies
that work with note brokers like you. A quick search online
will get you started. Some will charge you an up front fee
of as much as a few hundred dollars to join their
organization. This is okay as long as you know what you are
paying for - are they definitely a regular buyer of notes,
and do they give you some support?
Now you place an ad: "Tired of collecting payments? I can
cash you out." Alternately, you just start listening to
people until you find a friend or acquaintance who has money
owed to him for real estate, and wants to get a chunk of
cash instead years of payments. You find a friend of a
friend who is still owed $120,000 on a piece of farmland he
sold years ago.
You get the details of the loan, the land, and the borrower.
You forward this information to the investment company and
they eventually make an offer of $102,000 for the note. Some
companies pay you a percentage, but this one just lets you
set your own price with the note holder to get your profit.
You tell the note holder that you can get $94,000 for his
note. He tells you that he can't do it for less than
$97,000. You agree.
After the note buyer completes the transaction, you get a
check for $5,000. You can see that this is a good way to get
involved in making money in real estate when you have no
money to start. I have spoken to investors who do this in
addition to their other real estate investing, and some of
them claim to do a couple deals like this every month.
Of course this is a simplified example, but many of the big
note buyers will do all of the negotiating for you once you
find a note holder who wants to sell. They also handle
virtually everything else, from arranging for an appraisal
of the property that is collateral, to doing the credit
check on the the person paying on the note.
More About Real Estate Notes
1. Most note buyers don't ask for up front fees from note
sellers. There are many note buyers who will do a credit
check of the person paying on the note and give you a quote
without charging the holder of the note. Work with one of
these.
2. Note buyers figure their expenses before making the
offer, so there are only a couple fees that a note holder
may have to pay. He may have to pay for the title policy,
but only if there are problems with the title that prevent
purchase. Also if the property appraises at less than the
sales price, he may have to pay for the appraisal. Be sure
you understand what these expenses may be and explain them
clearly to your prospective note seller.
3. Seller's of notes should get a written purchase agreement
with purchase price and contingencies. Work with a note
buyer that will provide these.
4. Note buyers should check the property buyer's credit up
front. Unethical companies quote one price initially, and
then lower it later, using the excuse that the property
buyer's credit score is low. Called "bait and switch," this
isn't ethical. Don't associate with companies that do this.
5. As a note broker, you'll be gathering information like
the type of property, sale price, payment amounts, current
balance, etc. Know exactly what information you note
buyer(s) need.
6. Once you have an agreement, your note holder will need to
provide copies of the Mortgage or Deed of Trust, the Note,
the closing or Settlement Statement, and the Title Policy.
If an appraisal is required, the note buyer will usually
arrange for that (and they will pay unless it comes in below
the sales price).
7. Be aware of what the average processing time is. Once a
note seller agrees to an offer and sends the documents (if
it is done by mail), he should receive a certified check or
electronic transfer to his account within two to three
weeks. Ask when you'll receive your check as well. Get
enough commissions as a note broker, and you can start
buying real estate notes for your own investments as well.
Copyright Steve Gillman. This article was an excerpt from 69
Ways To Make Money In Real Estate. Want to know the other 68
ways? Visit
http://www.99reports.com/make-money-in-real-estate.html
Topics: Investing |
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