Commission advance companies, loan sharks or helping hand?

Commission advance companies. Loan sharks or helping hand! Nine years ago when TLW and I opened Tutas Towne Realty, Inc., we did it on a shoe string. Actually, I guess it was more of a goose egg, than a shoestring, since we didn't have any money. We opened our business on pure determination and a prayer. We had a lot of confidence, since we had both been in the business for a few years, working for a management company. TLW and I were the only Realtors in the company. Since the company we worked for did short term vacation rentals they did not need a Real Estate license. They had an out of area "rent a Broker" who did nothing more than qualify the company. So TLW and I were on our own. I did all the sales and she took care of all the marketing. We were pretty smart from day one and did a lot of advertising for ourselves and just had the company name in fine print as required by law.

Anyway, a few years into this, we tried to purchase the management company, with the backing of several investors. Unfortunately, this deal fell through, at the last minute, so we decided to leave and do our own thing. So we left and opened Tutas Towne Realty, Inc., in our home. The good thing was, I took all of my listings with me. At that time I had 20 houses and about 50 lots on the market. So we were up an running. The only bad thing was, all the money we had, was spent on incorporating and getting signs. Most of this was put on credit cards. So here we were, new business owners with lots of listings, lots of signs in the ground and no money. But you know, it was very exciting and we were up to the challenge.

Still, we had bills to pay and we needed money to continue our advertising. Our goal was to run our little business as a big corporation and spend lots of money on advertising. We knew this would payoff in the long run. Well, needless to say is was a struggle. We knew if we could just hold on and sell some of our listings we could make it over the hump. We needed cash. As anyone knows that is in business for themselves, cash flow is a must. No cash. No flow. It's as simple as that.

That's about the time I saw an ad in Realtor magazine for a commission advance company. Now this sounded interesting. If I could write a deal and place a property pending, this company would advance me 80% of the commission, for a price. It would cost us, but we could get a check within 24 hours. I liked it. I liked it a lot. There was light at the end of tunnel. Over the next couple of days I wrote a deal on a duplex, I had listed, and decided to test out this commission advance scheme. Well folks, it worked! I sent them a copy of the purchase contract and the next day we received a check for $4,000. We were off and running. We ended up doing this a couple more times, and before we knew it, we were over the hump. Our pipeline was full and we never looked back. Without this company we may not have been able to get our business jump started. So for us, they were a much needed helping hand.

There are quite a few commission advance companies available to Realtors. Some require no qualifying and some you have to complete an application and credit approval process. The non qualifying programs obviously charge the higher fees. The fees vary, but you can count on paying between $300-$500 on a $4,000 advance if it is paid back in 30 days or less. The fee structure varies with the length of the loan. If for some reason the deal doesn't close you can normally substitute another property closing or you have a certain amount of time to pay them back the money. These are basically paycheck advance companies for Realtors. The money is very expensive but can offer a short term solution to a cash flow problem. Here are some links to a few different companies if you are interested in getting more details.

Now folks, just so you know, the interest on these advances, if you figure it out, is real, real high. Like 100% to 200% annually. So they are not a long term solution to money problems. They can, however, be a viable short term solution to cash flow management. They are not for the faint of heart. So read up on them and see if it may be something that can help you get over the hump.

So, commission advance companies, loan shark or helping hand? What say you?

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