Starting a mortgage company....thoughts?

[FrancisK]

This summer has been a really garbage one for me. I spent the entire summer stressed to hell dealing with insurance adjusters and attorneys which is still ongoing. I had lost a newish business to a fire and I had set up my other businesses to run without me so while I've been busy it really hasn't been a progression. I need to figure out my next move, I'm done sitting around waiting like I did all summer. I've never been a "free agent" before and I've been presented more business opportunities this summer than I can remember, a vast wide array of them. I have one very big thing I'm working on which looks great but it won't be a day to day thing.

My partners in the business I lost have since reopened and they are starting to do well, it's been restructured with different product lines and still doing well. They're itching for me to come back in and want me to run my own location in a different market but quite honestly I don't want to do that, the business wasn't something I wanted to be doing in the first place I only went in because of the numbers and potential I saw. The fire to me was a sign that it wasn't right for me, while I'll keep a stake specifically in the e-commerce portion of it as that is my expertise I don't want it to be my day to day anymore, I'm content to take my insurance money whenever it comes(don't get me started), my passive e-commerce stake which will generate nice income and move on. But still even after I looked into everything else it was my best option to go back in and I had to do something so I've been working on that, I've been toiling around for long enough I'm too young to just sit back with what I have already.

I won't bore you guys listing all the different business opportunities that have been presented to me but today I had one presented which I never expected. My super mega businessman uncle called me a few days ago to tell me to be at his restaurant, which doubles are our makeshift conference center, as he had some people he wanted me to meet. I went and I was presented with an opportunity to start a mortgage company. I've never been in the mortgage cult but with rates starting to come down and everyone having bought homes at high rates it's going to be ripe again really soon. He had me meet with 2 young guys who wanted to start one, have been high ups in a huge company for many years and didn't have the cash to do it themselves they had the business plan all lined up and ready to go down to the last detail. My uncle wants to be an investor but my uncle needs someone to babysit them and having run a financial office for my uncle in the past and knowing I'm looking for the next opportunity he wanted me to also invest and run the show. All went well, the guys seemed very knowledgeable young and hungry, maybe even a little desperate which I like, and I'm going to do my DD but I like the idea.

When they left I stayed with my uncle for a while and asked what the rub was, why do these guys need us. He flat out told me one is a degenerate gambler who has no money and the other invested all his money in a failed weed business(common story around here). All fine for me, what they do with their money is their business it means they will always be hungry, it's not as if it's a cash business where they can steal. Don't get me wrong I do believe I can be a good influence on these guys and lead them to a better path but it does explain why I am being presented this opportunity which is always the first thing I ask "why me".

Absolute worst case scenario I'll know within a year if it's worth it or not and if it's not I'll back away and move on. The financial investment is miniscule compared to the potential reward and everything is a risk. Yea I don't want to potentially lose a year of my working life but that's how it goes, you have to try and take risks otherwise you won't get anywhere

What do you guys think? I always value the diverse and unbiased opinions of the men here.

 

[Thomas More]

This summer has been a really garbage one for me. I spent the entire summer stressed to hell dealing with insurance adjusters and attorneys which is still ongoing. I had lost a newish business to a fire and I had set up my other businesses to run without me so while I've been busy it really hasn't been a progression. I need to figure out my next move, I'm done sitting around waiting like I did all summer. I've never been a "free agent" before and I've been presented more business opportunities this summer than I can remember, a vast wide array of them. I have one very big thing I'm working on which looks great but it won't be a day to day thing.

My partners in the business I lost have since reopened and they are starting to do well, it's been restructured with different product lines and still doing well. They're itching for me to come back in and want me to run my own location in a different market but quite honestly I don't want to do that, the business wasn't something I wanted to be doing in the first place I only went in because of the numbers and potential I saw. The fire to me was a sign that it wasn't right for me, while I'll keep a stake specifically in the e-commerce portion of it as that is my expertise I don't want it to be my day to day anymore, I'm content to take my insurance money whenever it comes(don't get me started), my passive e-commerce stake which will generate nice income and move on. But still even after I looked into everything else it was my best option to go back in and I had to do something so I've been working on that, I've been toiling around for long enough I'm too young to just sit back with what I have already.

I won't bore you guys listing all the different business opportunities that have been presented to me but today I had one presented which I never expected. My super mega businessman uncle called me a few days ago to tell me to be at his restaurant, which doubles are our makeshift conference center, as he had some people he wanted me to meet. I went and I was presented with an opportunity to start a mortgage company. I've never been in the mortgage cult but with rates starting to come down and everyone having bought homes at high rates it's going to be ripe again really soon. He had me meet with 2 young guys who wanted to start one, have been high ups in a huge company for many years and didn't have the cash to do it themselves they had the business plan all lined up and ready to go down to the last detail. My uncle wants to be an investor but my uncle needs someone to babysit them and having run a financial office for my uncle in the past and knowing I'm looking for the next opportunity he wanted me to also invest and run the show. All went well, the guys seemed very knowledgeable young and hungry, maybe even a little desperate which I like, and I'm going to do my DD but I like the idea.

When they left I stayed with my uncle for a while and asked what the rub was, why do these guys need us. He flat out told me one is a degenerate gambler who has no money and the other invested all his money in a failed weed business(common story around here). All fine for me, what they do with their money is their business it means they will always be hungry, it's not as if it's a cash business where they can steal. Don't get me wrong I do believe I can be a good influence on these guys and lead them to a better path but it does explain why I am being presented this opportunity which is always the first thing I ask "why me".

Absolute worst case scenario I'll know within a year if it's worth it or not and if it's not I'll back away and move on. The financial investment is miniscule compared to the potential reward and everything is a risk. Yea I don't want to potentially lose a year of my working life but that's how it goes, you have to try and take risks otherwise you won't get anywhere

What do you guys think? I always value the diverse and unbiased opinions of the men here.

I'd say at least in the short term there will be a lot of mortgage refi activity due to falling interest rates. However, I expect inflation and higher interest rates after that. I would expect the mortgage industry would suffer after that. Maybe you can plan on cashing out in the next couple of years. I assume you will sell all the mortgages after originating them.

The way you describe these two guys isn't very flattering. Sounds like they have character issues, and you would expect them to steal from you if they could.

 

[FrancisK]

I'd say at least in the short term there will be a lot of mortgage refi activity due to falling interest rates. However, I expect inflation and higher interest rates after that. I would expect the mortgage industry would suffer after that. Maybe you can plan on cashing out in the next couple of years. I assume you will sell all the mortgages after originating them.

The way you describe these two guys isn't very flattering. Sounds like the have character issues, and you would expect them to steal from you if they could.

Well you start with two guys and you hire guys under them and more team leaders and it's almost like a pyramid scheme but not a "scheme". Regardless the risk is low and the reward is huge, the barrier to entry is really in incentivizing strong employees to join you over the big companies. The real cost to me honestly is my time but as I said I haven't really found anything that has jumped at me that I wanted to do, I've found lots of things I would settle for but nothing really where I would say "yea I want to do that" and this one I would know pretty quick if it's going to work out or not while the others that wouldn't be the case.

They can't steal, there is no cash to steal and nobody is going to pull anything over my eyes regardless. I used to gamble a lot when I was younger, it's not something I'm proud of but I overcame it so while I would absolutely deter someone from it I can't judge them for it. I never cared for the weed business myself but guys investing in it and losing their asses is kinda common around here in Michigan....everyone thought they were going to be Pablo Escobar.

 

[SkiPro]

This summer has been a really garbage one for me. I spent the entire summer stressed to hell dealing with insurance adjusters and attorneys which is still ongoing. I had lost a newish business to a fire and I had set up my other businesses to run without me so while I've been busy it really hasn't been a progression. I need to figure out my next move, I'm done sitting around waiting like I did all summer. I've never been a "free agent" before and I've been presented more business opportunities this summer than I can remember, a vast wide array of them. I have one very big thing I'm working on which looks great but it won't be a day to day thing.

My partners in the business I lost have since reopened and they are starting to do well, it's been restructured with different product lines and still doing well. They're itching for me to come back in and want me to run my own location in a different market but quite honestly I don't want to do that, the business wasn't something I wanted to be doing in the first place I only went in because of the numbers and potential I saw. The fire to me was a sign that it wasn't right for me, while I'll keep a stake specifically in the e-commerce portion of it as that is my expertise I don't want it to be my day to day anymore, I'm content to take my insurance money whenever it comes(don't get me started), my passive e-commerce stake which will generate nice income and move on. But still even after I looked into everything else it was my best option to go back in and I had to do something so I've been working on that, I've been toiling around for long enough I'm too young to just sit back with what I have already.

I won't bore you guys listing all the different business opportunities that have been presented to me but today I had one presented which I never expected. My super mega businessman uncle called me a few days ago to tell me to be at his restaurant, which doubles are our makeshift conference center, as he had some people he wanted me to meet. I went and I was presented with an opportunity to start a mortgage company. I've never been in the mortgage cult but with rates starting to come down and everyone having bought homes at high rates it's going to be ripe again really soon. He had me meet with 2 young guys who wanted to start one, have been high ups in a huge company for many years and didn't have the cash to do it themselves they had the business plan all lined up and ready to go down to the last detail. My uncle wants to be an investor but my uncle needs someone to babysit them and having run a financial office for my uncle in the past and knowing I'm looking for the next opportunity he wanted me to also invest and run the show. All went well, the guys seemed very knowledgeable young and hungry, maybe even a little desperate which I like, and I'm going to do my DD but I like the idea.

When they left I stayed with my uncle for a while and asked what the rub was, why do these guys need us. He flat out told me one is a degenerate gambler who has no money and the other invested all his money in a failed weed business(common story around here). All fine for me, what they do with their money is their business it means they will always be hungry, it's not as if it's a cash business where they can steal. Don't get me wrong I do believe I can be a good influence on these guys and lead them to a better path but it does explain why I am being presented this opportunity which is always the first thing I ask "why me".

Absolute worst case scenario I'll know within a year if it's worth it or not and if it's not I'll back away and move on. The financial investment is miniscule compared to the potential reward and everything is a risk. Yea I don't want to potentially lose a year of my working life but that's how it goes, you have to try and take risks otherwise you won't get anywhere

What do you guys think? I always value the diverse and unbiased opinions of the men here.

I've had business partners before that weren't entrepreneurs. It doesn't work out and you end up resenting them and having to get rid of them.

I would throw gamblers and other degenerate types into the same bucket and not touch it with a barge pole.

If they gave you the business plan and you like the model/industry then just find better people and do it yourself.

 

[FrancisK]

I've had business partners before that weren't entrepreneurs. It doesn't work out and you end up resenting them and having to get rid of them.

I would throw gamblers and other degenerate types into the same bucket and not touch it with a barge pole.

If they gave you the business plan and you like the model/industry then just find better people and do it yourself.

The thing is with the mortgage model the entire thing is built on making sales. If these guys were high up at the big companies that means they are good at making sales, they had to have been to move up. The barrier to entry is not the money the barrier to entry is the team that is going to make these sales for you. I've never done mortgages without these guys there is no business, doesn't matter how much money you throw at it or how well I can run a business.


I agree 100% in regards to having bad partners, it never works out and I hate partners in general for that reason the business I lost in the spring was the first time I ever had a partner and I only did it because my segment of the business was pretty much isolated and autonomous from the part my partner ran. I will be the majority owner with my uncle as the next majority in the potential mortgage company. The two other guys who are bringing their teams in will have minority stakes.

 

[SkiPro]

I agree 100% in regards to having bad partners, it never works out and I hate partners in general for that reason the business I lost in the spring was the first time I ever had a partner and I only did it because my segment of the business was pretty much isolated and autonomous from the part my partner ran. I will be the majority owner with my uncle as the next majority in the potential mortgage company. The two other guys who are bringing their teams in will have minority stakes.

I still think that if you're having to ask the question here then there's probably some red flags that you need seek our input on.

You can also hire other decent sales people who come without the degenerate behavior. It's a different business model though.

 

[FrancisK]

I still think that if you're having to ask the question here then there's probably some red flags that you need seek our input on.

You can also hire other decent sales people who come without the degenerate behavior. It's a different business model though.

My main red flag is that I've never been in the mortgage business, I've managed financial offices and businesses in general I'm sure I could learn but about the mortgage game specifically I'm on the ground floor. Hiring two guys who made mistakes and are looking for an opportunity doesn't bother me, perhaps I overstated that aspect of it but it was more to illustrate why I was presented this opportunity in the first place which is always my first question when someone asks me to get involved in something.

If I had to go out and poach people myself from the ranks of other companies I wouldn't even be looking into this, my connections to that industry are all second hand and quite frankly I just wouldn't deal with that mess in general.

 

[Australia Sucks]

In general I think it’s a bad idea. Mortgage broking is a highly commoditised business which has price sensitive consumers and is highly regulated.

Also scale matters a lot. Big mortgage broking companies who are doing say $1 billion plus per annum of mortgage origination with a single bank get much higher commissions from that bank as they get volume bonuses/rates on the commission structure.

Also it’s the type of business where having good software systems and lots of admin people, compliance people, etc matters a lot.

Its literally a business that depends on scale. I have a friend who used to be a self employed mortgage broker for almost a decade albeit in Australia but a lot of the same basic principles apply to the USA mortgage broking industry.

 

[Pointy Elbows]

What are the margins like in this business? Do you have a good feel for costs like RE, payroll, bonding, etc? As for degen behavior, it seems like lots of sales pros have it, and it is better to have a devil you know than don't (especially if it is a cashless business). Just watch the company credit cards. Verify all your vendors, that's how lots of white-collar business get defrauded by shady employees.

Benefits
- Appears to be low maintenance once you set up your systems and rewards
- low physical impact = you can operate it well into old age. In your 50s this counts as you watch your friends die/break/lose a living.
- bonding, regulation, insurance, and employee stability, are nice high barriers. Great for the guys that can clear those hurdles.
- I believe there has been much industry consolidation recently (PE, mergers, buyouts, etc.). Twitter RE sphere has been talking about this. Leaves space for a quality mom-pop operation.

Negatives
- If these guys are bailing on a good job, why won't they do it to you in 3 years?
- Seems like a marketing sensitive business. Are you good at marketing/advertising?
- total industry situation seems slow. It might be a good time to enter, but I know local mortgagers have had a slow 2 years. So rate-sensitive
- LOTS of scamming going on now in the industry. Are you on top of OPSEC and net security? Last place I closed on wouldn't even do wire transfer for payment. Bank certified check.

To me, business is just business. Doesn't really matter what you do (so long as ethical/legal), it is just a little truck to carry money to your bank. They must all have: margins, quality control, security. Good luck either way!

 

[SkiPro]

In general I think it’s a bad idea. Mortgage broking is a highly commoditised business which has price sensitive consumers and is highly regulated.

Also scale matters a lot. Big mortgage broking companies who are doing say $1 billion plus per annum of mortgage origination with a single bank get much higher commissions from that bank as they get volume bonuses/rates on the commission structure.

Also it’s the type of business where having good software systems and lots of admin people, compliance people, etc matters a lot.

Its literally a business that depends on scale. I have a friend who used to be a self employed mortgage broker for almost a decade albeit in Australia but a lot of the same basic principles apply to the USA mortgage broking industry.

Once upon a time SP used to be in commercial mortgage broking. An entirely unregulated market.

Let me tell you young fellas, those were some good times. And you also used to be able to sexually harass the secretaries all you wanted.