What Is a Private Mortgage Note Broker?

Mortgage Note Brokers
Close up of young couple working on laptop at home.

The home-business centered around “Discount Notes and Mortgages ” has been practiced for decades and it’s key component involves either the purchase of private mortgage notes 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 Private Mortgage Note?

A private mortgage note is basically just what it sounds like.  It is a promissory note that is collateralized (secured) by some kind of real estate and is originated by a private party (an individual) rather than a bank or other 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 originated 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 that usually the provided in instances where a given property is difficult 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.

An Attractive Business From the Investor Side

For real estate “savvy” entrepreneurs, investing in real estate notes can be quite profitable with 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 that specializes in the purchase of private mortgage notes.  In most cases, however, such secondary market note buyers will “discount” the purchase price of the note so as to further improve their investment yield.  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 notes vary considerably but it is not unusual for such “discounted notes” to provide a yield of 10-15 percent to the note investor.

The Business of Mortgage Note Brokering

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 by selling their investment note.  When a seller is located, the note broker will provide a “quote” form to the seller which provides all the details of 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 his/her commission and then submit a “net” purchase price to the seller.  If the note seller agrees to the purchase price, then 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 Note Brokers Operate

As you can imagine, this is a business whose success hinges on locating private notes and the holders’ of those notes that need to raise cash through a timely sale.  Private mortgage financing is actually very common so there are thousands upon thousands of individuals that hold such valuable investments.  The key to success as a broker is to “be there” when the occasional need to sell the note arises.  Successful note brokers will utilize court house research to view mortgage recordings that evidence that a private individual and not an institution is the originator or holder of the mortgage note.  The broker will typically us a standard CRM (Customer Relationship Manager) to build prospect lists and to store the important data on the note and the contact information for the note holder.  While it is not the norm that a note holder is contacted by the broker 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 substantial list of note holder, 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 and to succeed, you will need…

  • Training:  Although a simple business, you will need a certain amount of training.  There are many courses available to you including online course and none are particularly expensive, 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
  • Website with Blog:  As a broker, you will likely be networking on social media such as Facebook, Twitter, etc. and you will need an attractive website where a visitor can complete a form and request a FREE note quotation.  This is the primary tool of all note brokers for lead-generation and your included blog plays a BIG role in driving visitors to your site and genertaing leads.  (See website samples)
  • CRM:  You will need to have the capability of building lists and storing information about the notes and the note holders you uncover through your research
  • Email Marketing:  You will need an email marketing program such as MailChimp (free for first 2,000 entries) so you can periodically

Alternative Home Businesses

The business of note brokering is a “time honored” home business that almost anyone can start and succeed in.  If it has a drawback, it is that it is a “one trick pony”.  As a note broker, your only product is private mortgage notes.  If you like this business, however, there are two related solutions which offer all the same benefits but with considerably more income potential.  Check out the business of Cash Flow Broker and the much more attractive business of Consumer Finance Consultant.