12 Days Of Note Investing - Day#2 Note Referral Fees

[Tracy Z. Rewey]

Let’s talk Note Investing! Most of us learn best through real deals. This is Day #2 of sharing a deal where we can review, dissect and analyze note buying strategies.

In addition to making money investing in notes you can also earn referral fees. This is similar to wholesaling real estate where you get an option or agreement to purchase on the note and then assign to an investor for a higher purchase price.

This transaction involved the sale of acreage in the Tampa, Florida area. The transaction had closed with owner financing and the seller had collected one monthly payment when the note was sold to an investor.

Here are the details:

• Sale Price $237,640
• Down Payment $ 98,640
• Original Balance $ 139,000
• Terms: 6.5% interest, $878.58 per month, all due in 5 years

Deal Analysis:

• UPB: $138,874.34
• Amount Invested $: 120,141.27
• Purchase Price %: 86.5% of UPB
• Yield To Investor: 10.09% based on balloon and 7.96% based on amortization.
• Discount: $18,733.07 (or 13.5%)
• LTV*: 58%
• ITV*: 51%

*Loan to Value (LTV) and Investment To Value (ITV) based on FMV of $237,640

• Investor Offered $120,141.27
• Note Holder Offered $115,141.27
• Note Finder Referral Fee $ 5,000.00

The investor funded the deal and collected payments to earn their yield. The difference between what the investor offered and the seller accepted was $5,000, which was also funded at closing. This $5,000 Referral Fee was earned for locating a note seller and matching with a note investor.

Referring deals to an investor for a fee at closing will supply insights and knowledge, enabling you to earn while you learn. We all have marketing costs, overhead, and personal expenses so referring notes to “earn a living” or a cash fee at closing makes good sense.

It also provides the marketing machine to generate leads that can be matched with an institutional investor, a partial investor with tail-end opportunities, or your own portfolio. Even when buying a majority of notes for long term holding, it still proves useful to broker a portion once in awhile. Not all notes will fit your parameters and it helps to stay apprised of current market conditions to keep pricing competitive and personal portfolios liquid.

So what does an average referral fee look like? While it varies by transaction size and complexity, referral fees are generally 3-6% of the amount invested.