Note investing is an uncommon niche to choose in the realm of real estate, which is part of the reason Chris Seveney chose to devote himself to it. Chris is a real estate investor, entrepreneur, and podcast host specializing in note investing. He joins us today to share his insights on the notes business from the scale of the mortgage market to the best time to strike when it comes to note investing. In this episode, we find out how Chris left the W2 world to focus solely on real estate and hear his advice for entering the world of note investing. Tune in to discover Chris’ greatest lessons in the industry thus far, as well as which regions he chooses not to tackle and why.
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[0:00:01] GL: Welcome to the Real Estate Investor Podcast. I'm your host, Gary Lipsky of Break of Day Capital. I talk to leading experts to discuss a wide range of subjects who educate investors on best-in-class practices to build legacy wealth and positively impact communities. Let's jump in.
[0:00:19] GL: Hey, everyone. Welcome to another episode of the Real Estate Investor Podcast. I'm your host, Gary Lipsky, with Break of Day Capital. Be sure to join our Facebook group, Asset Management Mastery, where we have a great community of thousands of like-minded individuals sharing resources and best practices.
Today on the podcast, we have Chris Seveney. Chris has been a real estate professional for more than 25 years. Known for his honesty, tenacity, and professionalism, Chris managed over one billion in real estate and has built his note investing portfolio to over 500 deals valued at around 75 million. Thanks for joining us, Chris. Can you start by telling the listeners a little bit more about yourself and what you do?
[0:00:59] CS: Yeah. Thanks Gary. Last year, I made the decision to leave the W2 world after working in real estate for over 25 years, as you mentioned, and start a real estate fund with co-founder, Lauren Wells, who's out of now, just north of you in Santa Barbara. It was mainly focused on notes. I'd gotten in notes about seven, eight years ago after my wife and I were doing some local real estate in Washington, D.C. area and we have little kids and we just got burnt out from it.
Notes was something that can do anywhere, anytime, and found a love and passion for it. Started doing my own notes, raised some money through some funds. Then last year, like I said, made that leap into the note space. I do look back and reflect upon my career in real estate and having worked for developers and general contractors of managing project management, understanding construction, understanding real estate, really was the crux for really advancing my career once I finally made that decision to leave that W2, which a lot of people sometimes are afraid to do.
[0:02:04] GL: Yeah. Congratulations, by the way.
[0:02:06] CS: Thank you.
[0:02:08] GL: That's what I love about real estate. There are so many great ways to make money in it, but I do feel people do have to focus. When I started out in real estate full-time, there are so many, it was scroll factor and there are so many different ways. It’s like, you have to narrow your focus. Obviously, you have a wide range of experience. Why note investing for you?
[0:02:29] CS: Yeah, great question, because you're right, I see a lot of people who do multifamily, then they shift to the short-term rentals, or commercial. It's okay to do that, but you want to make sure you're an expert in at least one of them. For me, it's interesting, because I love development. I've been done a lot of it. I love construction, but I also remember all the headaches that went along with it, and the headaches of owning a multifamily building, or running a project like that.
With notes, of course, it has its own different headaches, but ever since I got into it, I really just love the passion, the ability to problem solve, because it's a lot of problem-solving where we're buying distressed debt. It's really gamified, because if you and a borrower and you don't know what their move is, but every move they make, you can make a – it's like playing chess, you can make another move to it. Also, I'd say, the competition factor has been another reason why I've wanted to get involved in it, because there's people who are buying one off notes, or smaller portfolios and then you have the giants who are buying hundreds and billions of dollars in this thing. We want to get to between 150 and 250 million, because there's a space that there's not a lot of competition in that realm.
[0:03:52] GL: Yeah, absolutely. With different asset classes comes different times in the cycle to take advantage of opportunity. What's the best time in the cycle for you guys to take advantage of that opportunity?
[0:04:04] CS: Yeah. Typically, in times of distress. When you think about, most people probably listen, own a mortgage and a lot of people think when house prices start to decrease, that could be a note investor's dream. It really isn't, because my house goes down 10%. I don't care. As long as I have a job. Jobs is a big indicator of the note market and it's interesting, because we're at a point in time today with a lot of unknowns, because unemployment is all-time low, distress borrowers is at an all-time low, but the commercial side of things in the regional banks are imploding.
We're starting to see that happen and what it's allowed us to do is as part of our model, we're having a lot of opportunities now with investors who own 10 single-family rentals and have a lot of equity in it, but a bank won't give them five different loans, or portfolio loan to go do that next project. That's an area where we've been able to work, but our primary non-performing stuff is typically when unemployment goes up, that's when we start to see levels of distress. We're still talking about typically, between 300 and 500 billion dollars of distress residential loans at any one point in time. When we look at our size compared to that, we're just a fly on the wall compared to the overall market. For us, it's not as challenging to find product.
[0:05:31] GL: That's a really, really big number. Give me the scope of that, because that's probably a tiny fraction of all the mortgages out there.
[0:05:41] CS: Yeah. There's about, on residential, it's about 13 – It floats. About 13 trillion dollars in mortgages. It's actually stabilized a little bit, because of how rates have gone up. The last several years, people have properties have gone up, bigger mortgages. You're looking at a 13 trillion-dollar industry. At any point in time – Historically, it's usually around 4% to 5% delinquent, which is over 500 billion, but I think we're floating right now between 2% and 3% on the delinquency side of things. Yeah, so to give you a scale of how big the market is, it's humongous.
[0:06:21] GL: Yeah. Yeah. Absolutely. How many notes are you buying at a time? Are you focused on a certain region that you prefer?
[0:06:30] CS: Yeah. Regions, I'll say, are less, or more pessimistic about. Typically, for example, like the North East and the Northwest. Why, is because of foreclosure timeframes on those states are years. As you get to the central part of the country and the Midwest and Southeast, most of those states are what's called non-judicial, so you don't have to go through a lengthy legal process.
Typically, the majority of our assets are in the Midwest and Southeast. We also focus on, I'll call it middle-income homes. That's very different in California than it is in Ohio. When people say, what's your loan size? I'm like, well, in Ohio, it might be 100 to 150,000, in California it might be 600,000, but still a middle-income home. That's what our target is. We've invested in over 40 states. Like I said, there are certain states we like better than others. Yeah.
[0:07:35] GL: What's one of your biggest lessons that you've learned from being in the note business?
[0:07:39] CS: Oh, man. Lots of lessons learned. One of the biggest – I think getting into the space, it is a conflict-oriented business, and you have to manage a lot of vendors. Managing attorneys is a lot harder than I thought it would be. Just like, I'd say, teachers. I put attorneys and even doctors extremely highly educated, 10 times smarter than me. I look at them and basically, think that they would be on top of their game and managing and always doing things on time. They're like your kids. You have to manage them. You have to make sure the room is clean, that they're filing the paperwork in proper time, that the information is correct on it. I'll get information that they'll send me, it's not even my entity. They put the wrong entity on it. I think that's one of the major lessons learned throughout this.
The other that I'll mention is just because a law says one thing, doesn't mean a judge is going to do that. They may have their own interpretation on things. When that does happen, you can't blame anybody. I know some people will blame the attorney, blame the servicer. It happens. You just got to deal with it and keep moving forward.
[0:08:59] GL: Yeah. These are really good lessons, I think, for anyone to apply on whatever they do in real estate, because, I mean, as a business owner and like you, it's hurting cats half the time. Lots of thoughts to follow up and prodding people to get things done and do it right and lots of curveballs. Just because you think, yeah, it should go one way, your life doesn't work out that way. It's not as simple as that and you got to keep problem-solving and problem-solving and problem-solving and working through. Yeah, it's excellent advice.
For someone that wants to just get started in note investing, where should they start? What are some of the best advice that you would give to someone?
[0:09:46] CS: Yeah. I always give and again, some of this advice might be generic, because it can apply across any type of real estate education. I always recommend people to start with the free resources, the Facebook groups, the BiggerPockets, the YouTube places. Start there and start writing down questions that you have. I do this and this is something probably where I make mistakes, too. I get so excited about something new, like most people do. You rush to buy some course, or you rush to get into something and you don't know what you don't know, but you also don't know what is and isn't important.
You may be absorbing a lot of information, but it's stuff that you really don't need to know and you're missing the big picture on a lot of these things. That's where I always recommend people is to start out on those avenues of looking it up in YouTube and you'll find who the people are. We keep a resource compilation that we share for someone says, “Hey, how do I get in?” Here you go. It's 10 places where you can go learn about notes and give some book recommendations, some podcasts, and then places you can go buy notes because that's a question we get a lot of who do you buy from and it's relationship-based, but you can start reaching out to those people before you're even ready just to start building that relationship similar to in real estate. “Hey, I want to buy a quadplex in Houston.” Well, start reaching out to some brokers and just start introducing yourself to them, even though you might not be ready yet, but you got to start somewhere and start warming that relationship.
[0:11:27] GL: Yeah, that's great advice. There are so many free resources. I wish when I started, there were so many of those resources, but there just wasn't. Yes, be careful, but joining courses, masterminds. Everyone, it seems like has a mastermind, whether they've done one deal, or three deals, it's just a rapidly growing business and really vet who you're going to work with.
[0:11:50] CS: Yeah. Now you're seeing people who've been in real estate the last three years, which is like fishing in a barrel, honestly. It's like, buying scratch tickets where everyone's a winner, essentially. They're writing books now about all their successes. I look at someone like yourself, or myself who's been in it an extremely long time. All right, our main focus a lot of times is getting the deals done.
[0:12:13] GL: Yeah. Yup. Yeah. Absolutely. Well, Chris, you’ve brought a ton of great information on note investing. Where can listeners find out more about you and your company?
[0:12:23] CS: Yup. You can go to 7einvestments.com. That's the number seven, the letter E, investments.com. Find out more about the company, if you want to learn a little bit more on note investing, you can listen to our podcast called Creating Wealth Simplified. We rebranded it. It used to be called Good Deeds Note Investing. The first 150-plus episodes is my journey into note investing and basically, talking about all the trials and tribulations that all those gurus and those masterminds don't teach you, that many people probably look for that. Yeah, those are the two. I'm on LinkedIn, Facebook, you'll find me on social media. My last name is pretty unique, so it's pretty easy to find me.
[0:13:00] GL: All right. Awesome. Well, if you want to get into note investing, definitely check out Chris's podcast and his website. Thanks so much for joining us. I'll be back next week with another informative episode on the Real Estate Investor Podcast.
[0:13:13] CS: Thanks for having me, Gary.
[END OF EPISODE]
[0:13:16] GL: To all of our listeners, thanks for joining us. If you like this episode, please head over to iTunes or Stitcher and like, subscribe, and leave a review as it will help us reach more people. If you'd like to learn more about what we do at Break of Day Capital, head over to our website at breakofdaycapital.com and sign up for our newsletter and fill out our investor application. We'll talk to you next week.