The business of flipping discounted notes, mortgages and cash flows requires some easily acquired knowledge and skills but requires little or no cash.
That is one of the many reasons the discounted cash flow business requires serious consideration.
Let me first explain what a mortgage flip is for those of you who are not familiar with this concept.
Step #1--Find someone who has sold a property and as part of the transaction has taken back a mortgage.
For any number of reasons (probably because you told them it was possible) they are now willing to sell that mortgage if they can end up with some cash.
Step #2--Find a buyer for that mortgage.
Step #3--Facilitate the transaction.
Step #4-- Pocket the difference between what the seller wanted and what the buyer would pay.
This may be somewhat simplified but there really is not a lot more to it once you know what you are doing.
Go with a Pro I highly recommend that you flip loans only to professional institutional note buyers.
There are several reasons for this.
Professional buyers put up all the money, do almost all the work and take all the risk.
As far as I'm concerned that is all the reason you need to be in this business.
The discounted cash flow/note business has dramatically changed in the last few years when more and more institutional buyers entered the market.
My best guesstimate is that my primary institutional sources are buying in the range of over 40 million dollars worth of mortgages per month.
Some of the commercial buyers make you conditional offers on the loans you bring to them, as long as you provide them with information such as loan amount, terms of the loan, number of payments made, number of payments remaining, etc.
None of this is very difficult.
When the loan seller accepts your offer (what the note buyer has offered less your profit), it is now your job to collect the necessary information such as copies of the mortgage, the note, settlement sheet, etc.
After you have collected the necessary information the commercial buyer then takes over and does all the things you do not know how to do.
They order credit reports, do title searches, order appraisals, prepare all the settlement documents and a lot of other things.
Best of all they fund the transaction and pay you the difference between what they offered for the loan and what you offered the loan seller.
For example, if they were willing to pay $100,000 for a mortgage and the note seller was willing to accept $95,000 your profit would be $5,000.
They really do not care how much you make.
I suggest that you remain reasonable, do not try to get rich on every deal and you will make your fair share of transactions.
When Things Go Awry Things do not always go as planned.
There are instances when the institutional buyer discovers that there are problems with the transaction.
These problems range from innocent mistakes to outright fraud by the note seller (can you imagine such a thing?).
What happens now? Who gets stuck with all those expenses that were incurred along the line when the deal breaks down? Guess what! The commercial note buyer does, as long as they agreed to this in advance.
Now that is really a good deal! Another recommendation I would make is to start this business part time.
This is a business that has a way of growing slowly but steadily if you will just stick with it.
Starting part time has a way of reducing the pressure and the need of immediate results.
In this business instant success is the exception and not the rule regardless of what some of the TV gurus would lead you to believe.
Getting Started Let's talk about what you need to get started in your discount mortgage business.
There is one absolute necessity that you cannot do without and that is a telephone.
I do not know how you could run a discount mortgage business without one.
What I am really getting to here is all the things you do not need to start your business.
I have seen many people pay big money to buy into a business or franchise opportunity but that is often only the beginning.
There may be many additional necessities to operate that business.
A location to operate the business may be needed which can be costly and may obligate you for a long period of time whether your business is successful or not.
You may be required to stock inventory, buy equipment, hire people, etc.
I have run my discount mortgage business for many years without taking on any of these obligations.
If you get a letter from me I was the one who licked the stamp.
I have no employees, no inventory and very little equipment.
Besides a phone, which is a must, you should have voice mail (unless you're always by the phone), and a fax machine.
You can literally run this business from a card table in a rented room where you are living.
This business offers tremendous freedom.
I work out of my house because it suits my life-style.
I can roll out of bed when I want and I am at work.
However, I also like to travel and as I get older I find I no longer enjoy the frigid winters that we experience here in the northeastern part of the country.
I just returned from spending four months down south and my business never skipped a beat.
As long as you can get to a phone you are in business.
This business knows no geographical boundaries.
I have successfully closed transactions from Hawaii to Alaska to Pennsylvania and so on.
The best part is you can do it all without ever leaving your chair.
A Tax Break An article of this nature would be incomplete without mentioning the enormous tax benefits that accrue to those who have their own business even if it is part time and especially if it is out of their home.
I am not an accountant or an attorney and I will leave the sophisticated tax lessons to those more qualified than I.
But I do know that too much wealth is eroded by taxes and one of the best, if not the best, defense against this is having your own business.
I have been told that the average person can save about $5,000 per year just by having their own business.
It is better to pay your children to work for you than to pay them an allowance; it is better to be able to put $30,000 per year toward your retirement than $2,000; it is better to be able to write off gas mileage starting from when you leave your house rather than from when you get to your business destination; and on and on.
A Very Simple Business This is really a very simple business.
You find someone who has something they probably do not want and match them with someone who wants what they have and you get paid handsomely for that service.
What is nice is that you can do this without ever leaving home.
There is one final benefit that I would like to mention and it is an important one.
Two things are happening simultaneously as you become more experienced and close more discounted note transactions.
(1) You become an expert in discounted cash flows.
By working with the institutional buyers you learn to tell the difference between good and bad transactions, what documents you need, what research needs to be done, etc.
In other words you are being taught all the intricacies of the business by experts.
(2) The best part is while you are learning you are getting paid.
So, when a really good note comes along you are in a position to invest in that note for your personal portfolio at rates of return other people do not even dream about.
This is the way you create wealth.
It does not get any better than that!