How much can a note broker make on a deal?
That’s the short summary of a cash flow business question we received last week from a Note Broker. It was an earnest inquiry and we wanted to share our answer in this edition of Real Deals!
I was just visiting your site and wanted to know what a fair % of cash flow a broker can expect from a performing package deal?
There are buyers wanting a performing MHP package I have available with only 2-3 yrs. to maturity and the smaller lender wants to cash out.
I understand from other brokers that 25% of net is reasonable as well as a smaller finder’s fee.
What are your thoughts? I appreciate your response.
Note Broker in Arizona
(Editor’s Comment: Name was omitted as this was an email relating to the sender’s ongoing transaction)
The average fee we see to a note broker on a single note ranges between 3-6% of the investor’s purchase price. For a performing portfolio the average fee we see is between 1-2%.
The percentage is often lower on a portfolio because it is:
1) dealing in larger dollars and
2) a more competitive market with sophisticated sellers.
People certainly make more on harder to place portfolios but there is also the danger of pricing yourself out of a deal if the fee is too aggressive. If you are splitting a fee with another broker it can be whatever split you agree upon with a 50/50 split being somewhat common or 25/75 if one party is doing the majority of work processing and placing with an investor.
I’m assuming the MHP stands for Mobile Home Performing. In this event the fees on a mobile home package will likely be higher as is it one of the “harder to place portfolios” referenced. Still, I believe 25% would be pretty aggressive even on a mobile home package.
There are some investors that will cap the referral or finder’s fee if they feel it is too far out of line with market conditions. You might want to check with your potential note buyer to see if they have any such limitations.
One way to make a greater amount on a deal is to earn a small finder’s fee upfront and participate in the future cash flow. There are a couple of strategies for accomplishing this.
For additional details you might find these past articles helpful:
Making Money with Cash Flow Notes Using the “Buy Full Sell Short” Strategy
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