How to Find & Sell Cash Flow Notes

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Cash flow notes are common in real estate transactions where the buyer cannot obtain financing for a property purchase. To secure the sale, the buyer pays the down payment and signs a cash flow note -- essentially an IOU -- promising to pay the seller the balance of the price, with interest, in installments for a certain number of months until the debt is paid. The note is tradable, and note holders who prefer an immediate lump sum of cash can sell the note to a third party. However, connecting cash flow note buyers and sellers can be challenging.

Visit your county courthouse. Search the public records that list a property's mortgage owner. Find properties that were financed by private lenders. Create a list of these lenders and properties.

Write a letter explaining that you are in the cash flow note business, and that you are looking for note holders who are interested in selling their notes. Send the letter to the private lenders on your list. Follow up the letter with a phone call. Create a database list of note holders who want to sell.

Advertise your desire to buy cash flow notes in local newspapers, investment magazines and real estate websites. Add any leads to your database.

Telephone local real estate agents, mortgage brokers, banks and escrow agents. Ask whether they hold any notes or can refer you to someone who does. Follow up these leads to find available cash flow notes that holders are willing to sell.

Analyze the notes in your database. Verify the principal owed on the note, the term, the interest rate and the repayment mechanism. Check whether the note is secured by a first or second lien against the property.

Appoint a real estate agent who can appraise the value of the collateral property that secures the note. Investors will require this information before they commit to buy.

Rank the notes in order of value using the information you obtained in steps 5 and 6. As a general rule, the note's value is relative to its risk profile -- the riskier the note, the lower the price and vice versa. A note's risk profile typically includes the information you analyzed in step 5, the loan-to-value ratio and the borrower's FICO score. For example, high LTV ratios -- the value of the home compared to the outstanding balance of the debt -- are riskier than low LTVs.

Locate potential buyers for your cash flow notes by advertising in the same resources you used in step 3. Contact local real estate agencies who may be able to put you in touch with local investors. You can also establish a website devoted to your brokerage business. Clients do not happen overnight, so be patient. It may take a while for your networking to reach an audience.

Appoint an attorney to draft your brokerage terms and conditions. The key provision will be your broker's fee, which is usually a fixed percentage of the price paid for the note.

Negotiate the price and terms of sale between the note seller and the investor. Because the investor puts up the cash, he makes the price offer based on his investment evaluation. As middleman, your job is to help the parties reach terms of agreement. You earn your fee from the legwork you have put in beforehand -- finding the notes, appraising the property and so on -- and for facilitating the deal.


  • Buyers and sellers also use cash flow notes in automobile title transfers, business loans and a number of other debt transactions.


  • Find out whether you need a state license or state-mandated qualifications before starting your loan note brokerage.

    Note brokering demands a lot of time and energy, and you'll need to establish an aggressive advertising campaign. It's probably not a get-rich-quick scheme. Beware of training courses and mentoring services that suggest otherwise.