by Michele Robbins, CPA
“Second Tier” Note Investors
Next are “second tier” cash flow note investors. These are companies
that purchase notes, usually with their own funds or lines of
credit, but are in the business of trading the paper immediately
or within a fairly short time of purchasing the paper. Many times
the notes are held for term, but usually they are sold fairly
quickly. These companies may eventually sell to the institutional
buyers or to private investors that only they have access to.
For example, our company originated from my old tax
practice. We have funds available to purchase notes from many of
our old tax clients; money that no one in this industry would
ever have access to otherwise. If we use those funds to purchase
individual notes and then pool them together to form a nice
portfolio we will get more overall for those notes from the
institutional investors later. This ends up being a win-win
situation for everyone including ourselves, the note seller, the
note broker and many times an institutional investor.
Second-tier companies can be as competitive in pricing as
institutional buyers for individual notes as well as portfolios.
Many of these companies specialize in hard-to-do transactions
such as simultaneous closings (our specialty), rehab notes, flipped
transaction notes, etc., that may be difficult to do otherwise.
Broker-Buyers
Finally, there are “broker buyers.” These people are
brokers. They put buyers and sellers together and take a broker
fee for their time and effort.
Before you put your foot down and decide that you do not
want to work with any brokers, you must know that there are two
different types of brokers in this group: Experienced brokers
(sometimes known as master brokers) and new brokers. Experienced
brokers may have relationships with some investors that you do
not have access to. They may be the most willing group in this
industry to hold your hand through your first few transactions.
They may lead you eventually to the institutional or second tier
buyers.
There are many, many good reasons to work with an experienced
broker at times – especially if you are just starting out. But
again, do your research. Ask around. Ask for references. Be certain
to distinguish them from new note brokers that do not have any
contacts that you could not otherwise obtain and who will lead
you through the infamous broker daisy chain.
Don’t Forget The Obvious
But don’t forget the obvious! Indirectly you are still most
likely selling your note to one of the two groups (institutional
buyers or ‘second tier’ investors) described above! This is where
my word of caution about burning your bridges comes into play.
The logic is simple. There are very, very few institutional
buyers and very few second tier investors that you will have access
to in this part of the industry.
So really, truly, you do not have thousands (or hundreds)
of choices of buyers when selling your note! Usually at any given
time one decent note would yield about 4 or 5 ultimate choices of
investors — if you knew everyone in the normal circles of this
industry. Certainly, if you have a perfect note, that number will
increase. Or alternatively, if you have a difficult note (i.e.,
simultaneous closing, etc.) that number will decrease. Because of
this, keeping ALL of your relationships open and healthy is vital
to success in this business.
So the lesson is: Unless you really, and I mean REALLY, feel
compromised, do not burn bridges with investors. Sellers and notes
and brokers will come and go – investors and note buyers usually
will not. If you are upset because your pricing changes, for
example, take it with a professional attitude. Look at all sides.
Always put yourself in the buyer’s shoes first. You never want to
ruin your relationship with your investor/buyer because they are
your constant in this business. You can almost always use a
different investor/buyer later, yet keep that line of
communication open. You never know when you will need it!
If the time comes when you decide to end a buyer
relationship, do it with as much tact as possible. Do it silently,
if you can – so that they are not even aware that it has been done.
If you really feel the need to tell them the reason behind your
decisions, be tactful and respectful. Always know that your needs
could change in the future. If you make a knee-jerk statement I can
promise that you will almost always regret it. This is true in life
as well as in this business. But in this business, word travels
fast. A difficult or deceitful broker is exposed very quickly in
our industry.
Just remember there are hundreds and hundreds of new
note brokers and sellers…but not a lot of investors.
**************************************************************
Where do you find the REAL cash flow note investors? Since 1992, the answer has always been: In THE PAPER SOURCE REGISTRY OF NOTE INVESTORS. Go to
https://papersourceonline.com/registry-of-investors/how-to-get-in/
**************************************************************
