SCF 1 | Note Investing

 

In this show, you will be introduced to a lot of options where you can put your money in and start generating passive income. Note investing is one of those options and contrary to what many believe, it’s not really that hard to get started in this space. While the note space is a relatively small part of the real estate investing community, it certainly has unique attributes and advantages that you may find to your liking. Joining Dale Corpus in the show’s inaugural episode, full-time note investor Chris Seveney breaks down the basics of what note investing is, the types of notes, and the various exit strategies that note investors can choose from. Chris also talks about his qualifications for passive investors who wish to work with him and what they can expect when it comes to transparency about their investments.

Listen to the podcast here:

Generating Passive Income Through Note Investing In The First Position With Chris Seveney

Welcome to The School of Cash Flow. I’m the host, Dale Corpus. This is my first episode and my new show career. I’m so excited to launch this new venture. I’ve always wanted to do this because I get to share things that I invested in the real estate space to build cashflow, equity, and generational wealth. They’ve always been important goals of mine. With this show, I have the platform to highlight different syndicators, operators, and specialists in different areas of real estate investing to empower you to invest in real estate passively as you’re busy doing your day-to-day thing. I’m a huge fan of passive real estate investing. For those of you that may or may not know, I’m already busy running a real estate sales business and a real estate sales team. I stay in my own lane growing that. Also, being a good father and husband for my wife and kids.

I do what I do best which is stay in my lane, making enough money in real estate sales to create enough income so that I can invest passively with other experienced operators that are best in class with what they do to create this passive income cashflow. If you want to grow your portfolio and cashflow through real estate investing, you’ve come to the right place. Speaking of asset classes and invested partners that I already work with, on this inaugural episode, my guest is Chris Seveney from 7E Investments. His specialty is note investing, which happens to be one of the investment types that I have a good amount of my retirement account portfolio. It’s an exciting topic. It might be new to some of you as well, which is fine.

Chris is someone I invest in as well as he operates his own mortgage note funds. I’ve invested in a few of them already. A little bit more about him is that Chris shares his note investing knowledge in first position performing and nonperforming notes with his peers. He has an intimate understanding of this niche industry from his continued effort for self-improvement. Chris received his Bachelor’s Degree in Civil Engineering from Manchester Polytechnic Institute and now furthering his studies by being enrolled in the Master’s in Real Estate Finance from Georgetown University. Chris has been able to build his note investing portfolio to over $5 million and his overall real estate portfolio to over $7 million.

Chris, what an honor to have you on my first episode. How are you?

I’m good, Dale. Thanks for having me on your first episode. I’m excited to be here. As you know, I could talk for weeks about notes or other types of real estate investing. I come from a real estate background. I enjoy these types of conversations. I’m happy to be here. I thoroughly enjoy working with you in the past and continuing that venture here on your show.

Thank you so much. I know that you’re a busy guy. I did mention a little bit about you in that intro. Is there anything else that I missed or you wanted to add?

I’ll add a little different. You stay in the lane with your full-time job and family. I swerve outside the lanes because I do have a full-time job in commercial real estate in the Washington, DC area, where I oversee development construction for a local DC-based developer. I’ve been in commercial real estate for years after I got my Civil Engineering Degree. Years ago, I started getting a note. I started building my own personal portfolio with some rentals and other types of real estate asset classes. It was impossible to scale that business, especially in the DC area, similar to where you are out in Northern California. It is extremely cost-prohibitive to try and scale. You need to have very deep pockets similar to DC. Note investing was something I stumbled upon, honestly. People don’t even know about this. Most people don’t know about this investment avenue that people can take. Once I got into it, I got hooked. I’ve got a portfolio of close to 300 notes that I manage through several different funds and I love it.

Let’s start about that. I know a lot of people that are reading might not even know what notes are. I’ve been involved in it for a couple of years myself. Let’s get to the chase and cover that. What is note investing?

With note investing, we invest in first position residential liens. People who buy houses get a mortgage. Most people don’t understand is there is a difference between a note and a mortgage. The note is the IOU. Meaning you’re borrowing $500,000 from the bank. You’ll sign a note that says you owe $500,000. The mortgage is a document that attaches to note that says, “If you don’t pay on your loan, it securitized by that piece of property.” The mortgage is the ball and chain that takes the property and connects it to the note. What happens in note investing is if ours might be slow-paying or they default, banks don’t like to hold that paper.

What they’ll do is they’ll sell it off to funds, which make their way down to investors like myself and it gets sold at discounts. You can buy notes at a discount anywhere, on average, between $0.40 and $0.60 on the dollar on something that’s not paying. Sometimes, you might pay higher or lower but that’s somewhere in that price point. That’s what note investing is. You’re buying a bad mortgage similar to real estate investing, where you’re buying a fix and flipper. You’re trying to fix it up where we’re trying to fix the borrower to get them paying again and then eventually turn around, sell it, or collect that cashflow.

You don’t own the house but you’re investing in the debt.

The first thing people think of is you’re buying the house. You’re not. I’ll use these banknotes for reference. Everyone knows PNC or Wells Fargo. Instead of you borrowing the money from Wells Fargo, you may have borrowed it from them but they sold your debt to me. Now, I am the bank in that instance where you owe me the money. When you go to every major city, who typically owns the tallest building in that city? It’s a bank or an insurance company.

You can do note investing from anywhere and anytime as long as you have an internet connection. Click To Tweet

How did you get started in note investing?

I stumbled upon it. We were trying to scale real estate in our area. We’d get come on the off-market listing. I’ve got a wife, kids with sports, and everything else. If you’re not there to look at it and putting in offers, it’s gone. There was no way to scale. I’m not going to be driving around the state of Virginia, Maryland, or DC trying to find these properties. I found on BiggerPockets a note investing. You can do this from anywhere as long as you have an internet connection anytime during the day. If you have strong management skills, which I have from my construction management background and my commercial real estate, you can thrive in this business. Pretty much what we do is we manage vendors. That’s how I stumbled upon it. It took me six months of education in this space. I pulled the trigger with some of my retirement funds to buy some of my first assets.

You talked about performing notes and nonperforming notes. Nonperforming notes are the ones where someone is not paying on the mortgage. How do you make money off alone where someone is not paying?

I’ll go back to the analogy of buying a vacant property that’s dilapidated. You got to put work into it, try and get it fixed up, and rehab in that sense. It’s like you’re rehabbing a property. The first thing we always try and do is try and work with the borrower. We try and rehab that borrower to get them on some type of payment plan that makes sense for all parties. What we found in a lot of instances is people who are in that property and been there a long time do want to stay. It’s coming to some agreement. What happens a lot of times is if you miss a payment and all of a sudden, you’re three payments behind, the bank will want all three of those payments at once. They keep accumulating fees. It’s exponentially growing for what is owed. If the people get so far behind, the banks don’t want to deal with these people. They’ll ignore them.

It’s almost like if you’ve ever dealt with short sales. I’m sure you want to rip your hair out trying to deal with a bank on a short sale. With delinquent debts, it’s the same thing. When we buy it, we can put more attention to it. We try and first modify the borrower or get them on a modification where they give us some type of down payment. We may move payments to the end of the loan. We can shuffle and work the numbers to make the numbers work as long as they can afford it. If they don’t want the property or they’re nonresponsive, then we may have to go down that path of foreclosing on the property. That’s where when you’re buying it at a discount, you want to make sure there’s enough meat on the bone, as they say. If you have to foreclose, there’s still a spread in there that you’re buying it, plus all your legal costs still give you ample opportunity to sell it at foreclosure if you have to and make a profit.

What are the challenges in this space?

The biggest challenge that I’ve had or I see is communication, like in any business, in setting expectations. What I mean by that is you deal a lot with attorneys. Attorneys are not all the same. There are some good attorneys and there are some attorneys that are not as good. For somebody like me, I’m not a major player. It’s like any business, with an attorney and they have a big client, they’re probably going to have preference over you. Sometimes, your stuff may slide a little bit. You have to understand that. A lot of people think it’s a me-world. “I want to be first. There are no other investors or nobody else that you should be taken care of.” That’s the first. Dealing with attorneys and making sure you vet them. I’ve done some work with attorneys who honestly were not a pleasant experience.

The other is you also have loan servicers. I don’t physically pick up the phone, call the borrowers, and collect the money. We use a licensed third-party company that does that. They’re a debt collection call center. They have a script that they follow and they don’t think outside the box. It’s very challenging to get them to like, “Why didn’t you ask this question when you had the borrower on the phone?” Sometimes, there’s a lot of frustration there because you’re almost left with them as the middleman trying to relay the information and things that seem like they could take a few hours but they take several days to have that work done. It’s a lot of juggling, a lot of management, and dealing with people. In any business, doing your work isn’t the hard part or getting things done. Managing people is always the most challenging part of any business.

It sounds like you’ve got a good grasp of what to expect of who you’re working with. You worked with many vendors in multiple services.

It’s communication, understanding the contracts, setting the expectations, and letting them know what you expect of them and what they expect of you. It’s not one way. It’s a two-way street where you got to work together.

How do you personally find assets to acquire?

Fortunately, I’ve been around for years, so I’ve built a lot of good relationships with some of the larger funds who sell assets. I’ve built a good reputation. This is a small industry. If you don’t have a good reputation, people will know. There are some people in this space who do not have a good reputation and well-known. That is one. To get that, do what you say you’re going to do. You don’t ghost people. If you’re working on a deal and something happened where maybe you had some funding that you lost, you call the person and say, “I lost my funding. I’m sorry. Give me another week if somebody else jumps in mind.” Sometimes, that stuff happens. Communicate with these people.

SCF 1 | Note Investing

Note Investing: You can read everything about notes in a book but the moment you have to deal with people and go through the process, there’s no book that can teach you every single trick or what goes on.

 

Getting started in this space for people who do get started, there are websites like Paperstac and some of these other brokers or servicing companies who put out assets for sale that you can buy from. That’s where I typically recommend people. Start to get your feet wet so you can start building up that reputation. If you haven’t bought notes before trying to buy them from somebody who usually is selling $1 million at a time, they’re going to want to know you’re legit and not wasting their time. They’re going to call around and talk to some other people. “Who is this person?” It’s a small business where they’ll ask you a few questions. They can tell just by asking the questions how long you’ve been around in the space.

When you first started off, did you start with individual notes or funds?

I started off with notes using my money. That’s what I always recommend. Put your skin in the game first before taking someone else’s money. You make mistakes with your money, not someone else’s. I bought four notes in my first go-around. Typically, most people buy 1 or 2. I bought four. They’re very low-balanced. These have balances of $5,000 to $10,000 on them. I paid $20,000, $25,000 for these four assets. One was performing. 1 or 2 were in bankruptcy and 1 or 2 were nonperforming. I wanted to get a flavor of how it was like.

It was a huge learning curve and experience. It’s similar to you selling real estate. They can teach you everything in a book but the moment you have to deal with people, interact, and go through the process, there’s no book that can teach you every single, little insight, trick, or what goes on. It’s the same thing with notes. If there was one recommendation with somebody starting out, what I would tell them is, “I have a small performing loan with equity in it to learn the processes and the steps of going through, getting it to the servicer, buying that loan, and managing it.”

What type of background do you need to start doing this stuff?

People from all facets of life get involved in note investing. I know some people who come from backgrounds of auto mechanics truck drivers who are successful note investors. I come from the real estate side of things and I feel like I’ve done well. I find people from the finance or real estate side do better. One of the key aspects of it is understanding how to value an asset but also understanding the time value of money which is a finance component and also, portfolio management. A lot of finance people have that portfolio management. Buying 1 note versus 50 is a very different aspect of things. It’s like buying 1 stock versus trying to buy 50 stocks. You want to make sure from a correlation standpoint what’s correlated, what’s not, try and give you a blended portfolio, try and maximize your profits while also minimizing your risk. That’s the most challenging thing with funds. Understanding that mix to try and maximize profit and minimizing that risk.

When you first started off in notes, you were dabbling with your retirement account. Regarding that, are you mainly buying these notes inside or outside your retirement account?

For my own personal notes, most of them I buy with my retirement account. Note investing, unfortunately, compared to traditional real estate doesn’t have tax benefits. You are not owning the property, so there is no depreciation. If you are using after-tax money, you are paying ordinary income on those funds. That’s one of the downsides of note investing with some legislation that they’re proposing about getting rid of capital gains. For me, I saw that. That opens up a lot more investors for me. Most of my investors use passive money for note investing.

They’re after cash for other syndications in real estate, which honestly I do too. I can’t blame people for that. That’s one of the reasons why you see a lot of IRA and solo 401(k) investors. When you’re using that retirement account, if you’re investing in a regular traditional called multifamily syndication, you don’t get the benefits of the appreciation in those benefits. Whereas in notes, if you’ve got two buckets of money, I would tell people after tax for syndications of multifamily or other real estate, “With your IRA money, I put that bucket into notes from how the taxes work.”

The only way I know about notes is when I was learning about self-directed IRAs. I realized that notes could be purchased with them. It made sense to buy in with them because of the fact that it didn’t have tax advantages buying outside my IRA. That’s why I stumble upon note investing myself. It’s been an amazing ride. What’s been your biggest mistake in note investing so far?

I’m from the Northeast. We are very aggressive and passionate. We make our decisions based on how we feel at the moment versus common sense or stepping back and thinking about it logically. That’s when I found if I make a mistake. When you’re dealing with a borrower who hasn’t paid in years, do you cut off your nose to spite your face? Sometimes, you have to pay them money to exit the steel in some fashion. That benefits you but in the same token, you spent countless hours and dollars with attorneys trying to get to some conclusion. At the end, you got to pay them. It’s like, “Are you kidding me?” When you look at it, that lowers your risk and gives you the most profitable exit strategy. Sometimes, I’ve made decisions based on emotion versus making them based on stepping back and common sense.

Can you talk a little bit about the different types of exit strategies that are available?

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This is one of the things and another reason why I love notes. From a risk perspective, I view it as having lower risks than buying a property to rehab and then trying to sell it. In those instances, a lot of times, people may get hard money. They go rehab it and then they’re forced to sell it or they may have to refinance and turn it into rental but that’s very challenging process. As a note holder, you’re at the top of the food chain. If it’s nonperforming loan, you have the foreclosure route. You could foreclose on the property. If you do foreclose, you have the option of selling it. You could rent it but you could also sell it with owner financing because that’s what you do. I do that a lot as well. I’ll sell it with owner financing because some of these houses might be houses in areas where it’s a $50,000 or $75,000 house, which where you are from and I’m from, you can’t get a parking space for that price.

Banks won’t lend on that. Again, we’re still a bank and we’ll be the bank and lend on that. That’s one option strategy. If the borrower doesn’t want the house, we’ll try and short sell it with them. It’s not all that red tape when they ask. It’s like, “If you call me, I can make a decision in ten minutes on a short sale, not ten months.” You can try and work it out with that borrower to get them on a repayment plan as well. That’s a strategy that if you do get them paying, you can sell it as a performing note. You can also do what’s called sell a partial, which is an advanced strategy. If a borrower has 100 payments left, and because it was nonperforming, I got a discount.

They’d been paying a few years, “Dale, you’ll buy 50 payments. You’re giving me back what I have into it. I deferred. Years from now, I’m going to get cashflow that costs me nothing because I got my business back.” There are so many different aspects. You could sell the note. I’ve done things where I’ve sold the property and carried a second note on the property in some instances. People talk about eight exit strategies. I can come up with about twenty. When you think of conventional real estate and you’ve got a loan, you’re either renting it or selling it from that perspective. As a lender, it opens you up to so many more opportunities.

It puts you in a better position where you can balance out that risk.

It’s a lot more flexibility even in a market. Years ago, the market was heading South quickly and you’re the lender. If you took it back, your cost basis is pretty low. You turn it into a rental to wait until the market turns. With your financing criteria, your ability to repay can be a little different than Fannie and Freddie or a traditional bank, you could still have certain requirements that you have to meet but you could also turn around and owner finance it to somebody that may have already had to short sell a house. It was more because of job relocation and the housing price stock dropped or something along those lines. Credit scores or something we can push aside. It is more, can you afford the house or not?

Are there certain states that are better than others to invest notes?

Yes but also, like anything, you’re going to pay for those states as well. I’d say the premier state that people put on their number one list is Texas. First, because of the size of the state. Second is a very wide range of house pricing in Texas. Last is it’s non-judicial. Meaning, you don’t have to go through the courts of foreclose. You can foreclose in Texas in 75 days, whereas if you look at New York, you’re more at 75 months. It’s very state-specific. In the same token, if you took two notes that were exactly the same, let’s say they were exact same home price, number of months passed to everything, one was in Texas, and the other one was in New York, that New York asset you would pay 30% to 50% of what you would pay on it if it was in Texas. You’re buying it at a much lower price. Some people would say, “You’re getting it so low. Your risk profile is lower.” It’s more of a discount on that asset compared to paying a premium in Texas where if something goes wrong, your risk profile is higher in some instances.

In terms of the loan sizes that you tend to go for, what do you look for when you’re looking for notes investing?

Most of my balances are under $100,000 to $150,000. It’s been a sweet spot I found. The reason why is a lot of these funds that I buy from, they’ll buy say 1,000 loans at a time. They only have staff to manage, say 500 of them. It costs the same to manage and foreclose on $1 million note as it does $100,000 note. If you’re trying to pick a 20% profit on each one, with $1 million note, you’re trying to profit $200,000 on where the other one you’re profiting $20,000. Which one do you think they’re going to hold and spend their time on? Which one do you think they’re going to want to sell? They’re holding the big ones selling the lower value ones.

Part of their problem is like a large company, they have too much overhead to manage those. In a smaller company where I manage very well, I have lower overhead. I can take on those loans and manage them. I’m not opposed to making $20,000 on an asset versus them. $20,000 might great. They made that but it pays for their office space for the month. It’s a niche that I have found that price point of those loans under $150,000. I find a good supply of those. I can still make decent returns on them because I’m taking ones that don’t fit their profile.

What advice do you have for someone that wants to enter into this space?

SCF 1 | Note Investing

Note Investing: As a note holder, you’re at the top of the food chain when it comes to exit strategy options.

 

An advice I’ll give to anybody entering into any type of real estate space is do your due diligence on everything in the space, from training courses, meet-up groups, and the people who you associate with. What I found is people would refer to people and be like, “Go to this person or that person.” What I found is they’ve never used them. They heard them from somebody else who heard them from somebody else because the person put a Facebook ad up about something. That’s how people hear their name. Just because somebody is an absolute awesome marketing genius doesn’t mean they know how to run a business. Like other aspects of real estate, I’m sure you’ve seen it. You read about it all the time in newspapers of this person went out, raised all this money, ran off with it, and people are left holding the bag.

That’s the one thing I tell people, even when people look to invest in my funds. I’m like, “Do skip trace on me. Do background check.” The reason I tell that is I know it’s coming back clean but I want them doing it on every single person. You’re training them too. When you’re giving somebody $100 million or $250 million, that’s a lot of money. I don’t care how much money you have. I tell people, “If I had to go to my wife, go walk up those stairs and say, I invested $100,000 with somebody. It wasn’t because the deal went bad. It was because they went bad.” I might as well go out into the shed, put an inflatable mattress out there and put an air conditioning in it because I’m going to be there for a long time.

What are the biggest mistakes that you see people in general make?

The two biggest mistakes I see people in this space are buying too early. I’ve got a Civil Engineering Degree. I went to college to design concrete bridges and stuff. After my first three months, I took a course on how to design a bridge. I knew enough to get myself in trouble but could I go build that bridge or design a bridge? No. It’s the same thing with a note business. You spent a few months training on something, you know stuff, but do you know enough to run a business? Not at that time. It takes time, effort, and networking. I always tell people, “You’ll want to spend six months learning the ropes and understanding things. If you jump in, buy that performing note.” It’s one thing I see people do. They jump in too early and then they realized they overpaid.

I was on Facebook. Somebody posted a note that they want for sale. They wanted $0.85 on the dollar on a nonperforming loan in a tough state. I joked and I said, “That loan is worth about 1/3 of what you want.” She’s like, “I know but I paid a lot more for it. I don’t know what to do.” I’m like, “You got to take the loss.” That’s one. The second thing I see is people trying to inflate what they know to raise money too early. It’s okay to use some of your funds to test things out and run with it if you want to start a little earlier with your funds, great. When I see people taking a course over a weekend or a weeklong session out there trying to raise money for people and say, “I’ll invest it for you,” that scares me. From that perspective, it goes back about doing the due diligence on people. How many deals have you done? How many deals have you closed? Who do you have for references that you’ve done deals with?

How did you gain that competence? What was that path from when you started doing individual notes and managing funds?

It was a long road. I’ll briefly talk about things because I set some expectations too. I bought my first note in late 2016. It was those four assets. Early in 2017, I lost my father. I had a lot going on. I was working those four notes. I bought another 6 to 10 notes that year. I started working out in somewhat closed out. Towards the end of that year, I started doing a few JV deals with people where they would fund the deal. It was one-on-one. One asset, fund the deal, I will manage it. For my first year, I didn’t make any money. A note takes about eighteen months to work everything out. I started doing these JV deals.

In 2018, I started doing a few more. I started making some money and started building credibility for myself. I know what I’m doing. I started getting more investors involved. The funny thing is early 2019, I had at that time twenty JV partners and it becomes each JV partners like a business. You have to do reporting and everything. It’s challenging. I told my attorney, “Bite the bullet. Start putting fund documents together.” He put them together. An opportunity came where a seller had 90 assets for sale at a killer price. We paid $0.40 on the dollar for the entire pool, which should have sold for $0.60 on a dollar. All of a sudden, it was an $800,000 acquisition. I’m like, “I have to put these in a fund.”

I had the fund already drawn. I went out and raised with Gail Greenberg. We went out and we raised the money in a week. It was crazy. Back in college, I crammed them for finals. That’s what I felt like. We did it. The reason I got into the funds is because if you have twenty investors in a fund, it’s one reporting. It’s the same reports to twenty people versus twenty deals. It’s a level of how much you can scale. What I started to do was for my funds, I kept them low dollar, around $1 million range. On my first fund, it went very well, wrapping it up.

There are still things you’d like to improve upon. Every time I open a new fund, I would tweak things and improve them. I try some things that were a little different on my end about what types of returns I give to see what is that sweet spot that keeps me happy, keeps the investors happy. In one fund, honestly, I gave out too much to the investors. That investor comes to me in my other funds like, “Why aren’t you giving this out?” I’m like, “Being honest with you, I gave you too much in that other fund. Look at these five other note funds where people have. You’ll know that I was very kind to you in this one.”

That’s one thing I do want to mention too about note funds. You can’t compare them to multifamily syndication. In multifamily, you’ve got property management fees, all these other fees and stuff, sponsor fees, and acquisition fees. When people look at note funds for the returns and so forth, especially any excess distribution profit split, it’s very different from multifamily. People think that it’s low. On a multifamily deal, you’re seven years out. These are in three years out. At the end of the day, the returns on the yield perspective are pretty similar. They might be a few points lower but from a risk perspective, I view it as less risk.

Moving forward, do you prefer the fund model or are you still seeking out individual notes at all?

When you’re investing in notes, you’re not investing in a black hole. Transparency is a big thing in the industry. Click To Tweet

I do not do any more joint ventures. I bought out probably 95% of my joint ventures. I have 2 or 3 left. One of them is somebody who was my first investor. It was almost like, “I’m not going to buy out because you helped me get started.” I started buying them out or selling the assets. Some of them I sold back to that investor and said, “You can keep all the profit.” I just didn’t have the time. My model is strictly running everything through multiple different funds. What I’ve found is there are different types of investors from a risk profile perspective. I’ve created products that fit every single type of investor in my mind.

Let’s talk about that. What’s your typical investor profile? What’s your ideal investor avatar?

I find most of the investors are IRA fund investors. I’m using funds from their IRAs for 80% of the investors. Most of them are people like yourself, Dale. Hardworking, high-earning career, and spend a lot of time in the 9:00 to 5:00 but also family. They don’t have time to take on another avenue or another venture in that sense. That’s where I see investors start invests in notes, diversified, understand real estate, try and understand a little bit about the note space. My preference is they understand a little bit. The more they understand, the better it is. It’s easier for me to communicate and make sure they understand everything. Most investors, honestly like any syndication, start off with a lower amount in the first fund. Once they realize this is pretty cool, they start to open more. Next time the fund that they may have had $50,000 for, magically $100,000 appears in their back pocket that they can invest them. They realize it is an interesting investment strategy if you’re good at what you do.

How does somebody invest with you, by the way?

The way I’ve structured it is like the avatars. I view there are three different avatars from the risk profile. We’ll sell partials to investors. You’re going to buy 50 payments and have a loan. There are no more out-of-pocket expenses for you. It’s a performing loan that afforded the fault I manage. It comes out of my pocket. You get 50 payments of principal and interest over the next months. It’s very simple. You’re getting your principal and interest back. Every month your risk continues to get lower. With your investment, the value is typically about 30%. From a risk perspective, this is in my mind. From looking at it on paper, it would be lowest risk. Next is I have a performing note fund, which is only performing notes. Investors can invest twelve months. It’s the minimum. After twelve months, you can take your money out. Sometimes, people would be like, “I’m skeptical of the stock market. I want to put money away for twelve months.”

Collect a return where you got interest payments every month or you can reinvest those dividends. There’s another option for investors as well. That would move next up on the food chain from risk because you’re only getting interest back every month compared to the partial where you’re getting some principal. The third option is our nonperforming note funds, which is where we invest in performing and nonperforming. It’s lean more towards nonperforming course that provides a proposed highest return projected, highest return to investors where we try and target 11% to 15%. We’ll give a preface and mid to high single digits with excess distributions on top to get them to that level. We run those for about 36 months.

With what you described, was there a minimum investment amount?

It’s $25,000. It’s what we have. Other syndications you’ll see people want $100,000 or $250,000. We try and keep it a little lower for people. Most people are newer to notes and don’t understand notes. If our minimum was $250 million, we’d be pushing a lot of people outside that comfortability level. That’s the biggest thing with us. We want to make sure you, as the investor, is comfortable. We’re completely transparent. One of the things that separates us from other funds, especially note funds, is you’re not investing in a black hole. We provide people a portal where they can see every note that’s in that fund and what’s going on with that note. They get to see my comments that I put in when I manage these loans or our partners are managing these loans. People get to feel more involved from that perspective. This isn’t a knock about any other funds but a lot of other funds is like you put your money in. It’s like, “I get a return statement,” but what are you investing in?

I invest with you already. I love the transparency, the open communication, and the fact that you’re accessible. That’s a huge thing for me. You give people that comfort level.

I’ll be honest to you. I’m busy. At times, people reach out to me and it will take me a week to get back. I feel guilty sometimes that it takes me that long. Usually, what I do is at least try and shoot them an email. One of the things I tell people is I have a Calendly link with a calendar that I give every investor. I’m like, “The best thing to do if you want to get me is schedule it. If you call me, I’m probably in the middle of something.” I’m a David Allen, GTD, getting things done type of person where I’m laser-focused on what my tasks are. I like to stay on that path. If people are calling me and disrupting me, it’s like, “I’m sorry, I’m busy but I’ll get back to you. Schedule an appointment with me.” I make it a purpose or intention to try and get back to people, answer the questions and be as transparent as possible.

Does somebody have to be an accredited investor to invest with you?

SCF 1 | Note Investing

Note Investing: It is highly preferred that passive investors try to understand a little bit about the note space. The more they understand, the better it is for their active partners to communicate with them.

 

In my funds, yes. Once in a while, we open funds for not accredited investors, which we can’t advertise. That’s where you build relationships and network with people when the opportunity exists. With our partials, you don’t have to be accredited. That’s the one difference with our partial investment. That’s where I left that open as well for investors from that perspective. Those are also from a $1 perspective. We have partials that starts with a $10,000 minimum as well. It’s another avenue to try and fill that profile. There are investors out there who want to get into notes, be involved but also not have to manage that perspective of it. We put them in that partial program.

How can someone learn about you and your company?

They can go to our website, which is 7EInvestments.com. I’ll do little self-promote. I have a show called the Good Deeds Note Investing Podcast. It’s interesting. We share our stories of all the crazy stuff that goes on in this business. It started with conversations I had with another note investor when I was driving out from my office on my full-time job. I was leaving work and I was calling them. We were venting about these crazy stories. We joked and we’re like, “We got to start recording this because this is gold.” People latch on. One of the things about me is I’m a horrible marketer in some. I’m not a sales guy. I don’t sell anything. I’m more of the anti-sales guy. I try and tell people what it’s like. You sell home. What it’s like to buy a home or something. It’s not all rainbows and unicorns sometimes, especially in certain houses. The same thing with notes, I try and tell people to be real.

There are a lot of people out there who sell a dream or sell a story that is so far-fetched. “You can make six figures in your first year in note investing. You can if you got $5 million.” People starting out with $50,000, it’s not happening. Many investments you can put $50,000 and make $100,000 unless you hit Bitcoin at the right time or some crypto. Look at the risk you’re playing with that. The same thing about learning in this business is it takes time. It’s not something you can learn over the weekend. That’s one thing where I’ve built a little bit of a reputation as being somebody who helps investors from that standpoint as well. I digress and talk a lot but I apologize for that.

You bought a wealth of knowledge to all these readers. I appreciate you, Chris, for coming on this episode. Thank you for your time and providing all this value. To my readers, thank you for checking out this episode. You got to check out Chris’s show as well. Thanks, Chris. Until next time. Live life abundantly.

Thanks again, Dale.

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About Chris Seveney

SCF 1 | Note InvestingSeveney Mortgage Note Investments is led by Chris Seveney. A real estate professional of over 20 years, Chris has developed over $750M in real estate and is known for honesty, integrity, professionalism, passion, and tenacity in all his dealings.

Since entering the real estate business, he has strived to be an industry leader with whom his partners and colleagues can put their trust and faith in. He has been the leader of multiple teams that have won numerous industry awards in excellence and innovation.

As the son of a life-long educator, Chris now shares his knowledge of first position performing and non-performing notes to his peers. Chris has an intimate understanding of this niche industry from his continued effort for self-improvement. Chris received his bachelor’s degree in Civil Engineering from Worcester Polytechnic Institute and is completing a Masters in Real Estate Finance from Georgetown University. Through this education and experience, Chris has been able to build his Note Investing portfolio to over 250+ deals valued at over $12M.

Along with investing in first position performing and non-performing mortgage notes, Chris enjoys his full-time job as a Director of Construction for a Washington DC-based development firm who is an industry leader in sustainable design and construction. In his free-time, Chris enjoys spending time with his family and is an avid Boston sports fan having spent much of his life living in Massachusetts.

Chris hosts the podcast Good Deeds Note Investing and is a top-ranked contributor on the site Bigger Pockets.