Posted by John Behle on April 13, 2000 at 12:34:26:
There are basically two approaches. You mentioned the one which is just to cut yourself a piece out of the middle. You can do that by just holding a double closing. You don’t have to own the note (or have paid your cash for it) to sell it. You can buy it at 2:00 and sell it at 3:00 at the same title company - funding the purchase with the proceeds of the resale.
I’ve actually sold and closed on the resale of notes and properties as much as a week before closing on the purchase. That’s rare and not an exciting proposition for title companies, but possible. I’m not advocating it, it’s just that it is possible. It is really quite simple to buy and sell in the same day. It’s called a “Double Closing” - NOT to be confused with “Double Contracting” which is totally different. Others call it “flipping”.
It’s possible for the person you are selling to to put up the cash for the credit report, inspection, appraisal or other costs. I’ve done it that way when I first started and it can be tricky.
I would suggest following the other approach, which is to negotiate a fee with the funding source. Many will do it that way and prefer to be on the front lines when it comes to negotiating, gathering data, etc.
Your concern is someone doing a “commission-dectomy” on you. Cutting you out of the middle or going behind your back. You can have “non-circumventure” agreements signed, but the biggest safeguard is just dealing with someone who is a real player in the business. No LEGITIMATE funding source would dare cut you out of the picture at the risk of their reputation.
You can also work with a “Master Broker” like Mike Morrongiello on deals like you suggest and receive a fee while learning the business.
The risks are also very high with someone new that the deal won’t close or the profits will be very small. An experienced broker has a much higher likelihood of making it all happen and generating profit. So, you could look at it as giving away some of the profit to someone else or you could recognize that more deals will close and the profits are higher. In the long run, I believe people that are new to note buying/brokering are best off working with another broker at least through the first few deals.