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Where do you find the major cash flow funding sources? In THE PAPER SOURCE REGISTRY OF NOTE INVESTORS. Go to www.PaperSourceOnline.com at the Registry of Investors tab
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Institutional Investors
    I  put note buyers into three distinct, separate groups.  First are the institutional investors. They will buy notes nationwide for their own portfolio, with their own money. They may securitize and sell them on the open market later, or hold them  for their own portfolio, or occasionally trade them to another institutional investor at a later point. 
 
    These buyers want you to bring them notes. They will pay you a broker fee or allow you to deduct your fee net of their quote to you. But you must know who they are. They advertise to attract you. Many times they call you to introduce themselves to you. 
 
Beware Of These "Buyers"
    Why, then doesn't everyone know who these buyers are? I can answer that question with one simple word: DECEPTION.   The reason many brokers do not know who these buyers are is because they are constantly being deceived by others in the industry that use the same tactics to solicit you for your notes.

These 'others' are usually new note brokers that are trying to find notes, just like you, perhaps. They will call other note brokers and tell them they are direct note buyers. They advertise also. They shop notes posted on websites. They do all of the same things that institutional buyers do. If the new note broker believes them, then that is just another broker fee being tacked onto the deal, giving the seller less for their note, the note broker less control of the deal, and usually a big waste of time for everyone.
 
    How do you overcome this huge obstacle? RESEARCH. Go to www.PaperSourceOnline.com at the Registry of Investors tab.   Any institutional buyer should be happy to give you a reference to another broker that they have purchased notes from.

 

"Second Tier" Investors
    Next are "second tier" 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.

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· Time Value Of Money
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