Brokerage comes in many forms and wears many professional hats. Some brokers serve as the go-between for import/export businesses, and help to negotiate such things as customs fees, shipping arrangements, and certification of documents. Other brokers work to find exotic cars for customers. And there are even those who make a living by arranging marriages in some cultures.
But most of us know of brokers through two basic fields of expertise, namely stockbrokers and Realtors. Those who work on Wall Street arrange for sellers and buyers to meet and exchange stocks and bonds – thus the important word "exchange" in the famous name "New York Stock Exchange". Similarly, real estate brokers specialize in finding buyers for those who want to sell property, and then help to negotiate the transaction to a successful close, for a commission fee.
Brokerage can be a lucrative and simple business, because the broker gets paid each time goods or services are traded, bought, or sold – but they don’t need to own property or inventory to take advantage of a profitable market. They enjoy a freedom and independence not found in other kinds of business endeavor, and those with skill can amass great wealth without investing hardly any money for start-up expenses, overhead, or equipment.
One of the most interesting opportunities in brokerage combines the skills of both the stockbroker and the Realtor, and involves trading mortgage notes (which are similar in many ways to bonds or high-yield stocks) that are tied to the ownership of property. For almost every piece of real estate sold, a note of debt is created. But many of the people or companies who own these notes want to sell them for a lump sum, rather than holding on to them to receive monthly payments.
For instance, many homes are sold with owner financing. Say, for example, that a middle aged retiree decides to sell his home in Texas, and he finances the sale for the buyer with 15-year owner financing, as a way to ensure that he will get steady monthly income for 15 years into the future. Maybe he is getting payments of $1,500 every four weeks, but he changes his mind and decides to sell the loan because he needs to raise a large amount of cash to pay for an unplanned heart surgery.
One option for him is to enlist the services of a broker to sell the note to an investor. The new owner of the note will probably get a good investment at a nice discount, and the seller will get a lump sum of cash to pay his medical expenses. And the broker who arranges the whole thing will pocket a handsome fee for performing the valuable service of bringing the buyer and seller together in a timely manner.
Through real estate note brokerage, you can make money in the real estate business without every actually owning any physical "brick and mortar" property. Whereas you might need a security patrol to protect your investment in an apartment building, you only need a buyer and a seller to earn a profit as a broker.
Keep in mind that those who broker houses have to make appointments to do property showings, spend weekends holding Open Houses, and take care of annoying details like digging holes to place For Sale signs in their clients’ yards. But those who broker the mortgages for those houses do most of their work with an ink pen and a telephone, from the comfort of their own home or office. Note brokers have the opportunity to take advantage of all sorts of market climates because both bull and bear markets create the need for buyers and sellers of mortgage paper to swap and trade. No matter what profit margins the transactions represent to the buyer or seller, the broker is always guaranteed payment at the point of sale.
