When I got started in the business and learning from my attorney friend, after about five days in, he patted me on the back and said, “You know, go get ’em tiger.” I went back home and started scratching my head because there was no marketing strategy or plan. It was just like, “There you go. Good luck.” As I started trying to piece it all together, I had this idea to put an ad in the San Antonio Express newspaper, which is where I lived. It was about three lines, with my phone number, and it said, “Top dollar paid for notes and mortgages. Call.” I put the ad in on a Monday and found out on a Tuesday that I had to go in for out-patient surgery on Friday.
I showed up at the hospital, had my hernia surgery, they gave me a bunch of pain meds, and I went home and laid on the couch. I’d listed my home phone number because I didn’t have an office number. People started calling off the ad and answered and started just talking. People often ask me what I said and to this day I have no idea what I said! I guess the pain pills worked. Well, a lady showed up at my door with a file full of paperwork on Saturday morning. My roommate opened the door and she said, “I’m here to talk to Troy.” I was horizontal on the couch because I couldn’t move.
She saw me laying on the couch and handed the paperwork to my roommate. I told her that I would look it over that weekend and get back with her. I ended up getting back with her Monday and on Tuesday got the deal under contract. It was something that her husband actually created when he sold one of his fix and flip properties. They were looking to cash out on the note to do another house.
That was the first deal I ever did as a broker and I brokered the deal to the Associates Financial Services. They gave me a price and I took my fee out of the deal.
Wish I could remember what I told her over the phone that day!
My next deal was on a house in Lotus, Texas. It was a little $35,000 note where they had put down less than 5%. It was a big trend back then when people were putting minimums downs. The interest rate on their loan was 14%.
This particular couple, married with two children, went out and refinanced the loan at a local bank in the area. It was very common with those small-town communities where there’s always one or two local banks that would finance those smaller balanced loans. They lowered their interest rate down to about 7%, which put more money in their pocket and obviously paid off their loan in a shorter period of time.
This may sound like it was a bad thing for me because I wasn’t getting 14% interest, but I like loans that have that no prepayment penalty. On the plus side, they would come in and pay this off sooner, which means that that interest that I yield on that loan actually skyrockets. In that particular case, it was 14% for 30 years. When they paid off the loan, which was two and a half years later, our interest rate was running around 32% yield on that particular deal.
When we bought it, the face rate of the loan was 14%. We bought it at 70% UPB, which put the yield on that particular deal. We came in and bought this at a 22% yield. When they sold it, it jumped up to 33%. The reason it did that was because we no longer have that term that goes out 30 years. We now have condensed it down to two and a half years, but we still bought it at the yield, which meant that we got that spread. We earned that back sooner versus later. In other words, it coincided with the time value of money.
I want to stress to people that I have a 14% interest rate face amount, or that’s written into the note of the mortgage. I didn’t give the seller of that note the full value. I only gave him $24,000 for that note, and that’s what raised the yield to 22%, spread over 30 years. When they shortened up the period, it actually raised my yield because of the original discount.
It’s interesting, because at the beginning of my career in this industry, it was very common place that notes were created with interest rates anywhere from 12% to the highest I ever saw 23%. In some states, like Arizona and Texas, there’s no usury law.
It’s interesting when you compare the industry 21 years ago to the industry today. How much it’s evolved, but also, what used to be standard then is “out of this world” type ideas. What’s standard today is something of a whole different matter. Meaning that people become much more educated and much more in-tune financially, which is wonderful. You don’t see people buying houses with 14% interest anymore. Even what I call the subprime market, people think that’s always been a 4% or 5% market. Actually, subprime used to be 12% money, even from the banks.
