Brokers are increasingly viewing their trail book as an asset that can either be sold as a portion or in its entirety. Selling in portions is increasingly popular as it liquidates the asset without sacrificing the ongoing annuity stream.
What’s not often realised is how quickly a trail book transaction can occur. This is particularly beneficial if a business needs cash flow quickly to either alleviate debt or facilitate growth.
Alan Rae, from Sydney-based brokerage Mortgages Pty Ltd, is well-accustomed to using a trail book to release working capital to expand his business. “We did two sizable transactions with Trail Homes back in 2006 where I used part of my trail book to help settle some commercial real estate bought off the plan. Tapping into my own asset was an appealing alternative compared to sourcing funding through traditional financial channels – which are historically very slow, difficult to secure, inflexible, and expensive to set up and run,” he said.
More recently, Mr Rae received funding within 24 hours for a trail book sale, which enabled him to invest into building a new company website. “We’ve recently been doing some major strategy work for my business. Off the back of these efforts, we decided to redo the company’s website, which required immediate cash flow to facilitate its imminent launch. To sell one of my trail books was the obvious choice to enable us to expand the business, bypass debt through a ‘self-funded’ structure and retain our clients,” he continued.
On a Sunday, Mr Rae reached out to Trail Homes with the request for urgent funding. He then emailed through his commission spreadsheet, was presented an offer that was accepted, and within an hour had a contract for the aggregator to sign. By 11am Monday morning, his aggregator, Outsource Financial, authorised the release of the trail book. By COB that day, the funds reached his bank account.
The trail book was valued as an independent asset and his clients weren’t bundled into the transaction. This is a critical distinction that enables the best of both worlds: a cash injection without impacting client relationships, which are the bloodline of any broking business.
A common view is that the sale or purchase of a trail book automatically includes clients as part of the transaction. This does not need to be the case, which is significant. When separated from clients, a trail becomes an immediate equity stream that can provide tremendous opportunity. The upside is that trail books, either as a part or as a whole, can be sold independently at multiple stages of a business’ life cycle to coincide with growth, paying down debt or alleviating cash flow. Client retention need not be impacted by the sale.
Separating the trail book from the clients also allows brokers to continue to write new loans, refinance old loans (and receive future upfront and trails off these new loans) with their client base intact and untouched. This ‘self-funded’ revenue stream is also an increasingly appealing alternative to trying to secure a business loan – which is challenging due to trails being considered high-risk.
We actively encourage brokers to view their trail book as an asset and make it continuously work towards realising their financial goals throughout the business’ life cycle.
Nick Young is a results-driven specialist who has more than 20 years’ experience in the mortgage broking industry, and now heads Trail Homes: Australia’s most established and longest serving trail book purchaser.
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