All Topics / Finance / Selling trail books?

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  • Profile photo of chargedcharged
    Participant
    @charged
    Join Date: 2006
    Post Count: 2

    Hi everyone, i’m not sure if i have posted in the correct area but after looking at all the areas on this site i thought this would be the most relevant.

    I am very much a ‘part-time’ mortgage broker in that i have written a loan or two for family and friends in the past. Not a very high volume of loans though.

    I have been told by a few people that it’s possible to sell your trail commissions to other brokers and investors, is this possible?

    If it is how much are trail commissions worth on the open market (for instance if a single loan was returning $700p/a trail what would it be worth to sell?). Are there people who buy trails in very small amounts such as 2 or 3 trails?

    Sorry for the questions but i have never heard of this happening before, if anyone could shed any light on the subject and perhaps point me in the direction of an organisation that deals with this sort of thing that would be great!

    James

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi James

    Yes there are organisations that buy trail books and the value of the books is dependant on many factors.

    I have in the past purchased the trail books of many small operators who were keen to get there money upfront.

    I would have not have thought that maintaining your PI cover was warranted for such a small amount.

    More information would be required to enable us to provide you with more information.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of chargedcharged
    Participant
    @charged
    Join Date: 2006
    Post Count: 2

    Hi Richard,

    I am covered under my aggregators PI policy so that certainly helps cut overheads :)

    My ‘real world job’ is in the finance sector so i did all the applicable courses and got accredited basically with a view to supplement my income by writing a few loans for friends and family as mentioned.

    I don’t have any desire to make broking my full time career, i’m quite happy where i am at present but it’s sort of just a little ‘hobby’ business. I’d probably only write on average a loan a month or something so it probably isn’t worth my while (or anyone elses for that matter) just to sell my pathetically small trail book!

    Just really asking out of curiosity, had never thought of the concept of selling trails before. My average loan at this stage is around the 300k mark if that helps. I have acouple more loans in the pipeline at the moment so my book is growing slowly but surely!

    James

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    James

    In the old days you could probably get upto 18months worth for a trail for a new loan but given the churn period this has dropped and depends on whether the loan in:

    1) Fixed / variable
    2) Int only / p & I
    3) lodoc / fully verified.

    Most of the trails i have purchased in the last 6/18 months have been at around 6-12 months of trail value from the date of settlement.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    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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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    i’m looking to get into the mortgage industry from an engineering career, my thought was to buy trail books to get some cashflow at the beginning. so my question is, do you have to be in the mortgage industry already to be able to buy trail books? that is do you have to already been licensed as a mortgage broker before you are allowed to buy trail books?

    Profile photo of TerrywTerryw
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    @terryw
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    no you don’t

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
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    With the banning of exit fee….trail books are selling on average 1.3x the annual return

    Mick C | Shape Home Loans
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    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    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?

    Profile photo of TerrywTerryw
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    @terryw
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    Contractual provisions – but there are no guarantees.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    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 5 years, 7 months ago by  CharlieX.
    Profile photo of TerrywTerryw
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    @terryw
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    Investing and business is risy chariie. You have to look at industry average drop off rates, the perccaentage of the book on fixed loans etc and have a restrain clause that the seller is prevented from writing loanss to those clients (he might just get one of his/her mates to refinance all)!Any clawbacks you would get the seller to wear.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Albert WaldronAlbert Waldron
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    @albert-waldron
    Join Date: 2009
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    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.

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    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
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    Hate to say you would be paying a darn sight more than 1.3 x Annual trial income in the current climate.

    1.9 – 2.1 x is the acceptable industry norm these days.

    As Terry said no guarantees but if you service your clients you would expect to make a considerably more than the purchase price.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    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?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You would have to assess the merits of suing the otherside at the time they breach your agreement. It may or may not be worthwhile. Fixed rates are more valueable because the client is less likely to move banks while the loan is fixed.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    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.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
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    Perhaps Charlie. My trail book has perhaps 5% fixed but my drop off rate is very low, perhaps less than 5% drop off each year and that is because they sell.

    Lawyer fees would depend on the court, the higher courts cost more and which court you end up in will depend on the size of the dispute generally.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    CharlieX
    Participant
    @charliex
    Join Date: 2015
    Post Count: 98

    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 5 years, 7 months ago by  CharlieX.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
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    Your maths is off, but that is the general concept.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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