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Article by Ed Lisogar

2002: Getting Off On the Right Foot

Insider's Look at Common Broker Mistakes and How to Avoid Them.

2002!!! Wow. Time flies when you're having fun. Are YOU having fun? Is the cash flow industry everything you'd hoped for or everything you FEARED? Are you moving forward, stuck in neutral or simply ready to bag it? If you're anything but "juiced" about another year in your chosen profession maybe its time we looked at where you're at, or NOT at, and get you back on track towards a profitable 2002.

I've been personally involved in this industry since 1993, as a broker and eventually a principal investor. In 1993 I completed a five day course in brokering real estate paper taught by the National Mortgage Investors Institute (the first of several adult educational training camps dealing with the cash flow industry put on by The American Cash Flow Association). Basically we learned what a seller financed note was, a few marketing tips about where to find them plus basic instruction on the financial calculator. My early days were horribly unsuccessful. There were a variety of reasons why which we'll explore later however suffice it to say that as my wife was counting on my success (not to mention VISA and American Express) there was little time for a "learning curve".

Maybe this sounds familiar?

Eventually, with the help of a two unselfish mentors (Janet Lyon, now a member of a prominent Orlando law firm, and Eddie Adams, still going strong in Tulsa, Oklahoma) I closed my first few deals. Following each funding I sat back and analyzed the transaction and the step by step process that eventually lead to a successful closing. I compared these closings with failed transactions of the past. I saw mistakes I had made, incorrect details provided to sellers and funding sources, incorrect numbers on worksheets, no discussion with sellers about "fulls" versus partials, splits, etc., etc. As additional deals were consummated I shuddered when I looked back on early deals and how I truly had no clue what I was doing. No surprise seller's did not have the confidence in my abilities and decided against selling their notes.

How about you? Have you, DO YOU STILL do all you can do to be as educated on your chosen cash flow as possible? Do you read your Cash Flow Journal from cover to cover each month? Have you surrounded yourself with available educational material, tapes, books, etc., do you search for industry web sites, do you participate in internet chat rooms, forums, etc., where not only YOUR questions and concerns are being addressed but those of your fellow cash flow brokers? I'm afraid that for most of you, the answer is no.

Every year at different conventions I have the pleasure of meeting hundreds of you, the brokerage network. We sit at our booth or find a place to have a cup of coffee and talk about the industry and how your business is going. Unfortunately the overriding theme is that you are not doing anywhere near as well as you'd hoped. You ask what you can do to turn things around. I always ask the same question…"why do YOU think you're not successful?". Most of you have few answers. When I ask about your marketing plan, you have none. When I ask how many Chamber of Commerce meetings you attended in the last six months its zero. When I ask what your favorite funding source's typical yield and ITV are for real estate, business notes, land notes, etc., you have no idea.

How can you succeed when prospective clients don't know you're out there and you yourself can explain little about the services you say you can provide? While there are plenty of you that are doing "okay", most of you could be doing better. I know, I know, "God, not another Lisogar lecture…". Sorry gang, it's wake up time. So here's the choice…turn the page and move on to another article that babies you and is non threatening, or take a deep breath and read on. Warning: the following may be beneficial to your bottom line.

Let's look at some of the most common mistakes us funding sources deal with on a daily basis. Some may seem nit picky, some trivial and to a degree, on their OWN, they would be. Problem is misery loves company and when these problems rear the ugly little heads they typically arrive in groups!


Worksheets are the life line between you and the money, you and the funding source. This is the industry standard manner in which you start the dialogue between yourself and the investor you've chosen to make you rich. Many of you have decided that completing a worksheet is beneath you. You fax a hand written scribbled note with minimal information (you know, the payment amount DOES help us arrive at a quote). You send an e-mail with even less. Folks, we need details to give you a solid number to take to your sellers. The optimum word regarding worksheets is "accurate"…second to that is "complete". Worksheets arrive regularly half empty…numbers don't jive ("Purchase price: $60,000, Down Payment $10,000, Note Amount:$127,888…"). Often they look like someone's scratch pad…handwriting that a Doctor would be proud of or simply in a language we cannot decipher. If we cannot read it, how can we quote it? If the numbers don't make sense, what's the point in submitting it? One year I received a worksheet whose numbers made absolutely no sense at all. It was accompanied by a cover letter that advised "…I realize the numbers aren't correct, I'll be resubmitting another worksheet when I get the right figures…". Honest, I really did. I'm still not sure what I was supposed to do with the incorrect one while we waited…it reminded me of the letters my Father used to send to me in college. They always finished off by saying "I was going to enclose $50 but I already sealed the envelope…".

It's real simple. Use the appropriate worksheet as you script. Start from the top, work your way down EACH SECTION. When it's completed, go over it, make sure the numbers provided add up. If not, ask! Ask the seller how 4 - 2 = 16…REMEMBER, this is likely the first time the seller has tried to sell a note. He doesn't know anymore than you do. Matter of fact, although your green, the training you received puts you head and shoulders above 99% of all sellers. So ask LOTS of questions. Getting the correct information to the funding source THE FIRST TRY gets the deal started on the right foot. Above all BE CONFIDENT. That's the key. I'm the most confident guy I know…I put a nickel in the parking meter when my wife goes into the mall…now THAT'S confidence!

Lien Positions

There are 1st position notes and 2nd position notes…sometimes even 3rd position. Most of your funding sources are interested in 1st's only. Some of us buy 2nds but their certain criteria for a 2nd to be reviewed. The typical rule of thumb for a 2nd to be of interest is that its balance must meet or exceed 50% of the "senior" lien ahead of it. In plain English, if a 1st is $100K, the 2nd must be $50K or larger. Every investor receives worksheets regularly that have a $200,000 1st and a $20,000 2nd for sale. With few exceptions, I don't know a sole that will buy that 2nd. When talking with your sellers, make sure that the purchase price less the down equals the note in question…if it doesn't, ASK WHY NOT! You'll likely find that the buyer got a bank loan for the 1st and the seller carried the small 2nd…if it doesn't meet the 2:1 ratio explained above, why send it in?

Additionally, there generally is NO market for 2nd position business notes yet we're asked to quote them on a regular basis. Knowing the basics about what makes a note salable and one that will waste your time is crucial to your success.

Buying Paper vs. Originating Loans

One of the most misunderstood aspects of this business is, and I know it's hard to believe, exactly what it is YOU do! Let me tell you what you DON'T do... you DON'T LEND MONEY. Your marketing prompts calls from individuals that are looking for loans. Unless you are a licensed lender, you are not in the business making loans. It is imperative that you explain this right from the get go in every single conversation you have about your business, whether its to 2 people or 200. Your investors buy notes…notes that are ALREADY in existence, or that will be shortly. We must go over this 4-5 times a day with brokers that start the call as follows: "I have a client that wants to buy a business/house/10 acres/mobile home…what kind of terms can he get from you?". Someone that is trying to arrange money to buy something is looking for a loan. The ONLY way we can help is if they are receiving periodic payments from some type of income stream. We can liquidate it in one of several ways to raise the cash they require. Otherwise, point them to their local bank. Every one of these parties has the most incredible project on earth, no risk, slam dunk, we'll all be rich, etc. My immediate question, after I tell them again that we're not lenders, is why haven't they gone to their local bank where people know them and know their capabilities? That's when the song and dance begins. From my viewpoint, it's normally BECAUSE their bank knows them and their abilities that they can't get a traditional loan for this "slam dunk" project.

Additionally, don't get caught up in a bunch of smoke and mirrors. "I own 20 acres free and clear, your investor can put a note on it, that's a note play, right?". NO! Isn't that what a bank does when it makes a loan? Registers a note and mortgage on the "collateral" as security? It's NOT a note play. When all the dust settles, what would we have done? We've made a loan! Do we make loans? NO! Point them to your local mortgage broker or banker…that's how you begin to assemble a nice referral base. Referrals should be the #1 source for your business.

Gauging a Seller's Expectations…the "NEED" Syndrome

Those of you that know me know this is a topic that I harp on endlessly. Problem is its ignored 95% of the time. Understanding what the seller's realistic expectations are for his note will save you a lot of frustration. Conversely, it will help you close more deals as you'll stop wasting time on deals that have no chance of closing, and allow you to zero in on the ones that will. What does that mean? Simple. What's my company's Maximum ITV for a business Note? Don't know? 80%? 40%? 90%? Do you know ITV stands for and how to calculate it? ITV is Investment to Value. It ensures we do not over invest into any one note type relative to what we feel is the fire sale value of the collateral. The MOST we'd invest into a business note is about 50%, all things being equal. "…but Ed…" you say…"that's YOUR job, knowing that fancy numbers stuff…". Well, technically, yes. However, don't you want to maximize your time in this industry? Don't you want to know right out of the chute if this deal is going anywhere? When you know certain basic criteria for the area of the cash flow industry your specializing in, it allows you to instantly recognize trouble in the making.

E.g. Business sells for $100K, buyer put $30K down, new note for $70K…six months into it the seller contacts you and wants to sell the note. He tells you he won't take less than $65K for it. What's our Max ITV for this note? See, most of you forgot already. 50% ITV…or $50K. You know right away that you'll never get anywhere near his desired goal. Most of you have not heard this "siren" going off and you go through the brain damage of completing a worksheet, waiting for the note, and eventually faxing it all in. What you SHOULD have done was to give him a quick explanation of ITV and why $65K is not possible. You immediately discuss how much better a partial or split payment option works. He STILL may not want to go that route but at least you got to the heart of the matter in what…five minutes? Maximizing your time will minimize your frustration and increase your profits.

These are but a few typical "speed bumps" most new brokers stumble over. There are others:


Having to call a broker to tell you we're trying to fax you is insane. If you're going to be in this business, BE IN THIS BUSINESS. Trust me when I tell you you will see no visible difference in your electric bill by leaving the fax machine on 24 hours a day. Nothing is more frustrating than trying to return a quote to a broker and the fax never goes through.


Do you use e-mail? Questions or quote requests are generally returned in the same medium as they arrived. We naturally assume that if it arrived via e-mail that's how it should be returned. At least once a week we receive a scathing voice mail that someone submitted a worksheet via e-mail and has not heard back from anyone in our office. "How unprofessional you people are!". However, a review of outgoing e-mails indicates that it was responded to the very same day. When asked if they've checked their e-mail they state "Oh I don't check that more than once a week"…unbelievable.

Now before you jump on my case let me say that yes, there are PLENTY of terrific brokers out there, many of whom have been closing deals with us for years. The problem is THERE SHOULD BE MORE OF YOU! I know you're out there, the 20+ worksheets that arrive by fax or from our web site a day tell us that. You just need to apply yourself and in particular, pay a little more attention to detail.

We WANT you to succeed. After all, we're 60% broker driven. That's why redesigned our web site to be as broker friendly as you'll find in the industry. Have a question…have SEVERAL questions? That's what the "Forum" page at our site is there for. Join in, post questions, respond to on going conversations, etc.

Have something that's a little "off the wall"? Send a brief e-mail or fax a very simple thumbnail sketch. We'll tell you whether or not there's anything to be done there. DO NOT FAX EVERY DOCUMENT IN CREATION and expect us to understand what's going on. Documents, security instruments on their own don't tell the tale…that's what worksheets and cover letters are for. As a rule we NEVER want to see more than the Promissory Note anyway until we do an initial review. IF there's a deal to be done we'll tell what we need to see…and when.

There is a tremendous living to be made in this industry but it will not fall in your lap. Throwing enough deals against the wall in the hopes that one will stick is NOT the way to succeed and profit. Start paying attention to what your seller's are telling you, in both the most basic details of their notes as well as their expectations. Maximize your efforts. Never stop learning. Volunteer to speak to a Monday morning real estate gathering at your local Coldwell Banker office. Find out when the next Chamber of Commerce monthly "mixer" is and arrived with a stack of cards…everyone else there is! Network, network, network. You have a tremendous product to distribute, something EVERYONE needs…its MONEY! All you have to do is let the world know you're there and as professional as you can be. The rest will fall in line.

You can do it. 2002 will be your best year yet.


What's more...

Ed Lisogar is a keynote speaker at several financial industry conventions each year, is a noted author with two best selling manual/software publications, is a regular contributor to several industry publications and periodicals and is an Advisory Board member of a prominent secondary market web site. An expert in secondary market acquisitions he can be reached by telephone at 602.370.5670, fax at 707.885.0304 or by e-mail at

He can also be found on the web at

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