Here’s an example: Someone owns a house free and clear — no mortgage. They sell their house for $200,000, receive a $40,000 down payment from the buyer and take back the $160,000 balance as a note, an IOU, from the buyer, where he promises to pay the $160,000 plus interest in installments. The note is secured by the house, so if the buyer defaults the seller can foreclose and get it back. In other words, the seller is the bank.
How would you broker the above note?
One day the seller decides he needs more cash than the monthly payments are giving him. He contacts you for a quote on his mortgage. Maybe by now it has been paid down to a $150,000 balance. If you are a note broker, you get the details, check with the investor you’ve chosen (you´ll find the most reputable real investors (not brokers) in THE PAPER SOURCE REGISTRY OF NOTE INVESTORS) and offer the note seller something less than what the investor will pay.
For example, let’s say your investor quotes you $141,455.00 for the note. You offer the note seller something less, and that’s how you make your commission. If you offered $137,455.00 you would make $4,000. You don´t need the cash to do this. The investors will wire the funds directly to the title company handling the note sale. The title company then cuts you a check for the difference.
Or, you can be the investor, keep the note, and now you collect the monthly payments. Your investment produces a nice double-digit yield on your money, and if the payor ever defaults, you get a $200,000 house (perhaps worth even more than that by then) for your $137,455.00 investment less the payments you already received.
What can go wrong? Lots of things. That´s why you need the education we provide. This is only one of dozens of examples of how note buying and note brokering work. Sometimes you´ll buy a “partial,” which means you (or your investor) get the next X number of payments, then the note reverts back to the note seller and he collects the rest. Or sometimes you´ll buy half of each monthly payment and the note seller gets the other half each month. Or you´ll buy all the payments and he gets the balloon. Or you´ll buy half the balloon and no payments…the note buying combinations are fascinating and almost endless, but they all have one thing in common: PROFITS!’
