Selling trail books?

Looks in the various Mortgage Broker magazines out there, as there are a few people advertising that are after trail books.

Going rates seem to be around 1 to 2 times the annual trail. So if you have 3 loans producing $100 per month trail you would get around $1200 to $2400 for it.

Terryw
Discover Home Loans
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no you don’t

if I don’t have to be in the industry to buy trail books, then how do I get the trails to be transfer to me once I buy from the sellers? what are the costs involved, and how secure are the trails meaning what if the clients move within a few days of me being owner of the book? what’s the guaranteed that the seller will not return to rewrite the loans to his clients?

not guaranteed that all clients will stay with me the day after my purchase of the loan book?
at that 1.3 times ratio, then a trail book that generates an annual $120,000 revenues would cost me $156,000?
which I have no control over, so this $120k could go down to half within a month or $5k per month?
seems very risky, unless all the clients are within the clawback period say 18 months so a client exiting his loan would cost him to repay back the upfront commission that was paid to the seller? or is there not such exit clause for the borrower/client?

• This reply was modified 9 years, 9 months ago by  CharlieX.

Hi James, Terry is right – investing in trail books can be a risky thing and while you can put in contractual obligations with the seller against things like clawback it can still be difficult. I would suggest teaming up with a mortgage broker and paying them a small cut of the trail to help manage the book and any refinances. As long as you stay in touch with your client on a regular basis and offer some genuine additional value over the next guy you should be able to limit the trail book losses. I do this service for a accountants firm at the moment where they purchased the loan book to get access to the clients for accountancy work. I look after their client for a small fee per month. If the client needs a new loan I keep the upfront but the trail goes back to the accountant. It was fairly simple to set up.

TerryW,
so I would have to get a lawsuit after the seller if he came back to refinance those loans in the book he sold to me? how long is the grace period for this clause? what is the industry average on drop off rate? is fixed rate loans more valuable? it seems most sensible to just buy trail books from those who are exiting the industry completely, to avoid more legal costs?

Richard,
if you purchase say 2 times the annual trail, how do you increase the trail’s volume? you then sell them insurance policies, vehicle finance, and so on, provided that you have the proper qualifications to do these additional revenue generating works?

so it seems that if I am to buy a trail book, I should look for a book that has high proportion of fixed rates of loans?

I think the lawsuit will be more expensive than the amount of the trail I would be trying to get, especially I heard that appearing at the court with a lawyer starts about $10k already.

say a trail book that returns $100k per year, you paid $200k for it. it has a 5% drop off each year.

is this the proper way to assess it?
if you do nothing, the returns would be
Year 1 = $95k
Year 2 = $90k
.
.
.
.
Year 20 = $0

these are depreciating assets, but you earn your $200k back within 3 years?
and in 20 years you would have earned $950k from this book?

doesn’t seem to be too bad :)

• This reply was modified 9 years, 9 months ago by  CharlieX.