An Overview of the Discount Mortgage Note and the 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.  A bi-product of the real estate investment side of the industry is the brokering of private mortgage notes (and other various payment obligations) often referred to as "Cash Flows". 

Cash Flow Brokers are "middlemen" that source investment paper for institutional buyers.  While the cornerstone of the industry has traditionally been private real estate mortgage notes, this unique industry of opportunity is always expanding and now includes the purchase of or cash advances upon dozens of other current or anticipated payment streams and obligations such as. 

  • 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) 

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 a welcome and added bonus.