All About the Discount Notes and Cash Flow Industry

The Discount Mortgage Note  business is a unique real estate related entrepreneurial enterprise primarily based upon purchasing “paper” in the form of private residential owner carry-back mortgage notes, deeds of trust and land contracts.  An extension of the Note Broker real estate investment side of the industry is the Cash Flow Consultant business which includes the brokering of contractual or semi-contractual payment obligations often referred to simply as “Cash Flows”.  Note Broker

Both Note Brokers and Cash Flow Consultants act as middlemen or “finders” that source investment paper for various institutional buyers.  For their referrals, they are paid a commission or “finders fee”.

Note Broker Business Overview

Note Brokers tend to focus 100% of their time locating owners of real estate-backed, private mortgage notes and mobile home notes.  The business of note brokering tends to be one of “long-cycle sales”.  Most owners of notes do not want to sell their note when initially contacted, being very content collecting their monthly checks which are paid at interest rates 3-5 times that of a typical bank CD.

Circumstances change however, and many, if not most note holders, are eventually forced to sell their note because of…

  • divorce or legal matters
  • unforeseen medical emergencies
  • tax issues
  • unforeseen expenses involving children
  • job loss or retraining expenses

So, the business of Note Brokering is a very low cost, simple business.  Professional note brokers typical employ a CRM (contact relationship manager) to build expansive lists of note holders as they find them.  They will then utilize “drip marketing” techniques to stay in touch with that note holder and build a relationship so when the time comes to sell, they will get first chance at providing a quote (note offer) so they can earn the business (and a finder’s fee commission).

 Cash Flow Consultant Business Overview

While the cornerstone of the industry has traditionally been private real estate mortgage notes, Cash Flow Consultants take this unique industry of opportunity to a whole different level.  Not content with the long-cycle sale mortgage notes as their only product, Cash Flow Consultants add a myriad of other contractual or semi-contractual obligation that can be discounted for an immediate sale that generates lump sum cash.  Products include…

  • structured settlements (annuities)
  • business notes (payments form the sale of a small business)
  • mobile home notes 
  • inheritances (beneficiary awards tied up in probate)
  • legal damages claims (wrongful death, product liability, personal injury, etc.)
  • gaming and lottery winnings and awards
  • luxury asset loans (short term loans on collectibles or similar assets)
  • senior insurance policy cash outs (typically policies on the elderly)
  • business finance (factoring, asset-based loans, merchant cash advances) 

In all cases, the business typically boils down to an owner of a financial obligation (which pays monthly, periodically, or at some time in the future) wishing to sell the rights to those future payments for lump sum cash today.  The purchase of such rights is always at a “discount” to the true face value, reflecting the time value of the investor’s money.

An Industry Overview by Leland von Syring

View this excellent industry overview by Leland von Syring.

Enterprise Opportunities and Goals

Though many industry participants enter this opportunity strictly with a focus as a middleman or “broker”, the ultimate goal of most practitioners is usually to become a real estate or note investor.  The purchasing of (investing in) inheritances, annuities, structured settlements etc. is too legally complex and risky for the average person / investor, however investing in physical real estate, residential mortgage notes, mobile home notes, notes on small commercial buildings, etc. is not.  The high investment yields available in these instruments (8% – 20%), when compared to today’s CD rates, is the primary reason for the industry’s attractiveness.

A Perfect Add-On For Real Estate “Mobile Creatives”

While some will enter discount notes with a limited career in “paper” as their goal, this industry is really tailor-made for “mobile creatives” who may initially focus heavily on the owner-financing and note investing aspects of the industry and eventually add them to or develop their other real estate related enterprises such as:

  • Real Estate Wholesaling
  • Rehabbing and Flipping
  • Lease Option Investing
  • Mobile Home Investing
  • Investing in Foreclosures

Setting aside the time to understand the “private / investment” side of the mortgage note industry is also perfect for mortgage brokers and even realtors to some great extent.  The ability to earn broker fees and commission income as a middleman with other “cash flow” obligations as additional product opportunities is always

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