7E For Investors – A Live Podcast Recording

October 19, 2022




CWS 222 | 7E For Investors   One of the great things about investing is the variety of ways you can go about it. For many of us who are not doing this full-time, a set-it-and-forget-it set-up can be a dream come true. And many have found that through passive investing. Chris Seveney and Lauren Wells have an offering that can help you invest passively while trusting that you’ll have the right people managing the process and you’ll get the returns you’re expecting! They share with us 7E Investments. In this episode, they dig deep into what 7E investments can do for you and how it operates—from their team to their systems. They then talk about the investor experience, sharing some success stories and their note-vetting process. Join this conversation and learn more about 7E. Allow Chris and Lauren to introduce you to this exciting offer!

Listen to the podcast here


7E For Investors – A Live Podcast Recording

In this episode, we are going to talk about 7e for Investors. What does that mean? We want to talk about what you’re investing in as an investor. Not just the underlying assets but the team, the company and what that investor experience looks like for people. For example, Chris, do you want to take it for a second? I’m like, “I still haven’t had my second cup of coffee.” As you might tell, I am drinking tea because I am losing my voice a little bit. Yes, my voice is going to sound a little froggish. I apologize. As Lauren mentioned about the team, we just had our team retreat that we got back from. I got in late last night from visiting sunny Santa Barbara, California. Thank you for hosting us, Lauren, and this morning it was 45 and rainy here. I looked at my wife and said, “Are you sure you’re along with California?” As Lauren mentioned, what is our focus and what do we like to term the double bottom line, which is providing a return to our investors and attempting to give borrowers a second chance on their property? We’ll talk about how we do that and the investor experience for those investors on the transparency and the communication we provide to them. This is also a special day because what is now, Lauren? This is day dividend day. I’m glad you said that because I made a note to be like, “Happy dividend day.” Anyone who has invested will be receiving or it should hit their bank account if it has not already. I want to talk about when you make a decision to invest with 7e and even to back up a little bit further. If you’re new to the show, we have launched a Regulation A+ offering that aims to provide 8% annually paid in monthly dividends while also trying to keep borrowers in their homes and give them a second chance. Talking about when you make a decision to invest in 7e, you’re making that active decision to start receiving monthly income while also supporting a team that is working to give families that second chance to stay in their homes. Chris, we talked about active and passive a little bit. I say you’re making an active decision, but do you want to talk a little bit about active and passive investing offerings? I know we’ve talked about this in the past, but I want to give our investors or potential investors an insight into how active this is. For investors, it’s considered passive. First, let me start by defining an active investment and then we’ll define passive and what this investment is. Active investment is when you may buy a piece of real estate, like a rental property. Even if you have a property manager on that piece of property, you still have to play an active role. You still have to be made a part of the decision-making process. There are many different forms of real estate or other investments that you can invest in, that you have to partake in that active role. In this fund, we will use the term passive because it’s more of set it and forget it and/or mailbox money. It means an investor invests in the fund and they will be buying shares of our company. All of the work is done by us and the team that we have behind the scenes. The only active role of an investor is reviewing any statements and updates that we provide them and/or information, joining webinars and live podcasts. It is something and we view this as a very passive investment for investors. I think that’s super important to highlight because you talk about mailbox money, which is something you said. There are a lot of people who are saying, “You can invest in short-term rentals or multifamily or long-term buy and holds and that’s passive.” We had someone on the show that we had interviewed that was talking about how he started out doing that and realized that’s not passive. You’re not only collecting a check in the mail. You’re managing properties and people. When you invest in 7e, it is a passive investment. We’re identifying the mortgage notes we will acquire where we feel we can have that impact. When you’re investing, you’re not only investing in a passive way, but you’re investing in social good as well. I want to talk about that component of keeping borrowers in their homes and how we operate a little bit more unique than I’d say most people in the industry. Chris, do you want to talk about that a little? Yeah. We buy distressed debt at a discount because it gives us more flexibility. What I mean by that is it gives us the flexibility to negotiate or redo the terms of the loan. A $100,000 loan that is at a 4% interest rate, one would think, “They’re getting a 4% return.” People ask, “How can you target 8% if a loan is originated at 4%?” If we’re buying that loan for $0.40, $0.50, $0.60 on the dollar and the borrower’s payment were $1,000 per month, we get them on a new payment plan. Even if the payment was $900 a month and they keep paying, that’s $10,000 now coming in the door based on our lesser investment, not the full $100,000 that was still owed to us. It allows us to enhance our return without having to go out also and get leverage which is one thing that I know we get asked about a lot as well, in regards to. It’s an unlevered return in that sense. When we run the financial models on these assets, it’s to the benefit of both parties. Theirs typically and ours, to keep them in their homes. A lot of people think that a bank only wants to go into foreclosure. Banks don’t like owning real estate because it increases risk and they aren’t built to manage real estate. One of the benefits also I’d like to note to us as well is we all have real estate experience. If we do take a property back, we are experienced to know how to manage it and handle it as well. We don’t have the red tape that a large institutional lender will have. We have a team of nine of us at 7e that works together that would go through and manage to exit that asset. Something that I want to clarify because it’s a question I get asked all the time is, “Am I investing in one note or am I investing in the pool of assets?” I know there are some funds or offerings where you’re buying a piece of a property. Can you talk a little bit about how that works and what the investor is investing in? When they buy shares, the investor is investing in the company and will hold a significant portfolio of primarily first-position loans with a mix of performing and non-performing. We do not strictly buy 100% non-performing loans. We balance off our portfolio and by having hundreds or thousands of loans in a portfolio versus one asset, we view that as risk mitigation. People invest in one multifamily deal as an example and I’m not in any way is knocking multifamily deals or any type of asset class. I’m only explaining the difference. It could be 300 apartment units and each one function independently, but at the end of the day, your sole investment is in that one apartment building. If there were issues with either refinancing it or the market in that area or having trouble, all your eggs are in that one basket. Whereas let’s say we have 1,000 loans spread throughout 30 or 40 states as well as buying at a discount. Many of these properties might have equity above the loan balance. For us, we look at that as risk mitigation, especially if there was potential or any softening in the real estate market because it gives us that greater cushion because of buying it at a discount and, again, being unlevered. Something I want to shift to because I feel like this is so important is when you’re investing in any company, any syndication fund, you’re investing, yes, in the underlying asset, but you’re also investing in the company. People do a lot of work on what’s the risk of the investment, but what about the people behind it? We’ve done maybe two episodes on questions to ask your sponsors before investing with them and questions I get as a sponsor, you should be prepared to answer. When investing in any company or syndication fund, it's important to know that you're investing not only in the underlying asset but also in the company. Click To Tweet I feel very passionately about not only taking a look at the assets and the track record of the team but also at who’s the team in place. Once I give you my money, that’s awesome that 8% and you’re helping families stay in their homes, but what is that communication look like? Are you going to go dark on me? What does that look like? I want to talk about the investor experience from my perspective and, having invested in other funds and Chris, going back and forth together on this. When you choose to invest with 7e, you know you’re investing in a company that is going to have a ton of mortgage notes. You’re investing in that entire company and their portfolio that is aiming to keep borrowers in their homes and work out some loss mitigation plan with them. If you do invest, what does that communication look like? We have an investor relations team which is led by Katie and she essentially is the go-to contact for all investors. She is someone that you can email or call. A big part of the investor experience is knowing that if you pick up the phone or send an email, you’re going to get a response within 24 hours. You’re going to get a timely response and it’s going to be from an actual person, not any bot or automated, “Press 1 to speak this, press 2 to speak this.” If you pick up the phone and call, you’re going to speak with a person. As an investor myself, that’s something that I always want to know when I’m speaking with an actual person who has an eye out for the assets and is very involved. I want to add a few things to that because we came back from a conference and one of the things that I think sets us apart completely point blank is our staff is not outsourced. We were talking with other investors and some other funds and they’re outsourcing their staff to other countries and different places, which there’s nothing wrong with that. I’m not knocking it. I’m only comparing ours where our staff is all employees. They’re in the continent of 48 states. Most of them are in California. I’m on the East Coast, but we have that staff and as you said, it’s not automated or it’s not a call center where, you know, they like, “We’ll take your name and number and someone will get back to you.” You’ll speak to somebody who is an employee of 7e and the numbers we give are the people who will know the answers or if they don’t know the answer, they will get back to you in a very quick and timely fashion to answer those questions that they do provide. I do think that is something that is important. Our staff is roughly just under ten people. Everyone is very experienced. As part of our staff, especially on not only asset management side but also that investor relation side that you work with us as well. People understand the process. Our investor relations team also is invested in this offering as well. I want to also experience it from both sides. I think that’s important that we provide. It’s not only how they are performing, but they can almost see and judge themselves by how they’re performing as well. To start, the first thing that you said, we were at a conference and how many times did we mention our team as our superpower and what sets us apart? I’d say every conversation came up because this is unique. We’re open to accredited and unaccredited investors. Also, our minimum is $500. You have people who are like, “How do you manage so many investors?” That sounds like it would be a nightmare. I’m like, “No.” We have a super experienced team that not only has real estate experience but also has systems and processes experience from previous careers. For me, I don’t even bat an eye at this. I’m excited that we have such a great team to support all of our investors. I’m trying to remember all the things that when you were talking, I wanted to highlight. The second thing is we’re always iterating and making things better. For example, right now, when we onboard investors, they go through the investment flow and we notice that there is a role between them making an investment and receiving access to their investor portal.
CWS 222 | 7E For Investors

7E For Investors: We’re always iterating and making things better.

  What we’ve done, we’ve received a few emails and we realize this is probably going to be a common thing that comes up. Now, what Katie and I are working on is once an investor invests and their funds have settled in our escrow account, sending an email that outlines a timeline for what to expect next. They do receive confirmation that their funds have been received and that they’ve invested in 7e, but what now? Katie and I are, again, putting our heads together and working on an email that we’re able to go through and send to investors that says, “Thank you for investing. Within the next seven days, here’s what to expect. Within the next two weeks, here’s what to expect,” and then month even. “Here’s when you’ll be receiving your first dividend.” I’ve invested in other asset classes and other funds, but I’ve never had that level of transparency until like, “Here are the next steps.” You’re not like, “We’re taking your money and then we’ll send you a dividend.” There’s that constant communication that is going on and that openness to feedback as far as what we can do better. Chris, do you have anything to add? I was going to jump in because we’re talking a little bit about our internal team, but I also don’t want to single out them because we also have the external team where we know our expertise. We’ve seen other regulation offerings where people tried to do many things on their own. For example, we brought on the largest broker-dealer involved with Regulation A+ offerings, Dalmore Financial. We brought on a technology company that does the Invest Now button that teamed with Dalmore to get that process of clicking on the button, getting your investment and that process and make that a smooth transition to get invested in the offering. All the way to the end of getting into our system and then issuing the shares where we have a transfer agent as well as part of this whole process. I’ve seen other Regulation A offerings trying to do all of that themselves. That is something that we looked at and you mentioned the number of investors and others may get overwhelmed because they’re trying to take on all that responsibility. We know what we’re good at and we know who the experts are in our fields, so we want to bring them and team with them and create that specialty team. I’ll go back to the football analogy between the special team’s offense and defense. One person can’t do it all and we make sure that we have the right players at all times on the field. One person can't do it all. We make sure that we have the right players on the field at all times. Click To Tweet At this conference, I hosted a panel on the use of technology. Running a fund, how are you utilizing technology? It’s interesting to me because with all of the technology that we have, not just social media, but technology in general and how quickly it’s advancing. Newer investors or people new to alternative investing want more and expect more transparency and communication about what’s going on. “What do I expect? What is my investment doing?” That’s something that we’re ahead of the game on when it comes to providing our investors not only with, “Here’s what to expect in the next few weeks, but then ongoing, quarterly reports as to, “Here’s how the fund is doing,” or maybe some stories. Again, if anyone is listening to this that is an investor right now, what do you want to see? We know what we’ve done in the past, but people are starting to want to see different things. I can talk about we are going to show you how the fund’s doing, your distributions, contributions and where you are financially. One thing we’ve tossed around was, “Would it make sense to show a story of one of the borrowers we’ve worked with? Whether that was a loan modification or would that be something people want to see. I would say yes and maybe it’s something we might try. Having the team that is looking to get that feedback from investors. If you’re an investor, feel free to shoot Katie an email or me. That would be Katie@7eInvestments.com. We did get two questions. One is, can an LLC invest in 7e? Yes. An LLC, a self-directed IRA, any type of entity or individual can invest in the offering. I wanted to mention that. The other question that led right where you said is, do we post quarterly financial reports? We will provide quarterly reports to investors. We also do have to, on public record, provide the SEC, Securities and Exchange Commission, a semi-annual report and annual audited financials. As we always talk, one of the things that I’ve always discussed throughout 200-plus episodes between my notes, offerings and prior funds has been transparency. We do want to maintain that transparency. In the past, I think I’ve done a very good job of keeping people up to speed on what is going on and the goings and happenings within the company. I didn’t even see that question when I was talking about our quarterly reports. You touched on that and then on the SEC financials that we need to post. Chris, is there anything else when it comes to the investor experience that you’ve noticed or that you heard either from the conference or as an investor yourself that you find is important? A lot of the people we talked to were very interested in what we are doing because they’ve had a lot of struggles with some of their offerings and were asking us, “How are you doing this or how are you doing that?” Those are two main questions and the response has been from your team internally and externally. Focus on building that team and having the right people on the team and not only bringing in 25 people to come work for you to say you have 25 employees that don’t have that key experience or bringing a lot of people in who might have been recent grads or only 2 or 3 years experience. Our staff on IR and everywhere else has 10, 15 years of corporate experience, working and understanding business culture and how to function in a business. One of the things from our retreat that we were talking about prior to this call was how well everyone gets together because everyone has a very similar mindset and has that corporate experience. They know what it’s like to work in that corporate environment while working together, but also remote and understand how to communicate internally and externally. Chris, we talked about the double bottom line. The returns for the investors and the second chance for borrowers. Can you talk about some of the second chances for borrowers that we’ve had or some of the success stories, I’ll call them? There are lots of them. We’ve worked out a plan with a borrower. That, we worked out. Now, we have to continue to constantly work with the borrower because there are three components that I’ll mention as part of this process. The first is the default, where a borrower, for some reason, stops making their payments. We will look into what was that cause, especially when we’re going to buy a loan, to determine whether it’s somebody that the loan is rehabilitated. It’s similar to like buying a dilapidated house. People think it has value, but a discounted value, but if you repair it, bring it back up to a livable condition that has a lot more value. A loan is the same way. If a loan is delinquent and you can bring that loan back to current and work with that loan, it enhances its value. We’ll understand what that default was and communication is the key. What happens when most people get in default, when anyone gets in trouble with anything or has some type of embarrassment, what do they do? They are very closed and stop answering phones, calls, whatever the case may be because they don’t have an answer.
CWS 222 | 7E For Investors

7E For Investors: If a loan is delinquent and you can bring that loan back to current and work with that loan, it enhances its value.

  One of the things that we try and do is be proactive with them and treat them in a way of we’re here to work for you. We’re not calling you and having someone scream at you, say, “I need your money.” It’s what can we do to work out this loan? I remember about a few years ago, a borrower called me up and typically, we don’t talk to the borrowers. He asked a question. Something that jumped in there for a second was you said we don’t talk to the borrowers, but I want to clarify why we don’t talk to the borrowers and that’s not because we don’t want to. We use third-party servicing companies because of licensing issues. We hire companies and this is all they do in their experience because every statement has to have certain language that echoes out the door. When you send statements when you can make phone calls, and how many calls you can make. All of that stuff is regulated and it’s state by state. It’s not universal throughout the United States. Each state has different laws. We hire companies that are licensed specifically in that state to do that. In this instance, a borrower did call me and I was having a conversation with him. I asked him, “What are you proposing? What can you afford or what can you work with?” I told him this. I could throw out numbers and you can yes me to death, but it’s not going to get either one of us where we want to be at the end of the day. Can you fill out a financial package? We’ll see what you can afford and we’re going to try and work with you on a payment plan that is reasonable and affordable. What happens in many instances and I’m not sure if a lot of people notice. This was something that was very evident back during the downturn and it’s changed slightly by larger banks because I think the government pushed them on this. In the past, if you missed the payment, the bank would say, “Nope, I’m not accepting one. Now, you got to make both.” You’re like, “I don’t have both.” Another month goes by. Now you need three. Another month goes by, now you need four. The borrower might be like, “I can afford two.” They’d be like, “Nope, all or none.” To me, it seems a little bit ridiculous, but for us as lenders, we can work with people in regards to, “Let’s take the two and d then what we’ll do is maybe we’ll extend the loan by two months in the end. Some loans might be 15, 18, or 3 years behind. We can push those loans or re-amortize the loan with the same payment to get those fees pushed or moved back to a different position in the loan. That is a common practice. What we try and do is, get these borrowers. First, we do a trial payment plan, which is, “Let’s try this for 3 months or 6 months.” If we can get them on for a six-month plan after that, then yes, we would then go to modify their loan, which is essentially giving them a new loan. It’s the existing loan, but we are restructuring the terms. This ties into and I know we did a whole episode on this. If you’re interested in this, feel free to read that. It’s called the Three-Dimensional Approach to Note Investing. We look at the 3Ps, the property, the person and the position and the person, I feel like I’d say most funds, and again, I’m not talking bad about other funds. I’m only saying that based on my experience, most people look at the property and the position and the person is the last thing that’s looked at, but we emphasize looking at all three pretty equally to come up with a solution to help them stay in their homes maybe they don’t want to stay in their homes. That’s happened too and I think sometimes people look at that as a bad thing, but we’ve had borrowers. Chris, you can probably give an example where people are like, “No, it doesn’t make sense, especially over the last two years. I have all this equity. I can sell the home.” That’s a win-win for both us as investors and our investors and them as well. Do you have any examples like that? The home needs a lot of repairs. Unfortunately, the borrower will say, “I’ve only been able to afford the mortgage payments and I’ve been able to make them. I’ve missed some on occasion and so forth and I’ve fallen behind. I can’t afford the upkeep of the house. I can’t afford to maintain it. What can we do to try and liquidate this?” In some instances, if there was upside-down equity, we might even approve a short sale on a property that is sold for a little less than the legal balance. I want to be clear. We’d still make sure we’re making profits on those deals because we’re buying it at a discount, but if a borrower owed $150,000, we paid $100,000 for that. Instead of spending $10,000 in legal costs and waiting a year, if they can turn around and sell that for $130,000 in 60 days, there are two things. One is we make a return, but also we’re minimizing our risk because we’re going back to that other P of the property where we don’t see the inside of these properties and the potential risk that could be involved by holding onto this for a long period of time. That’s another avenue that we’ve seen in the past. Sometimes, it might be a rental property where they’ve had tenant issues and they don’t want to own it. They’ll turn around and sell it. There are other issues where there’s a death in the family. We have one right now where unfortunately, the borrower passed away. The family is like, “We don’t want this house. We can’t afford it. What do we do?” We’re working with the family on a way to liquidate. We have another question. If a borrower defaults to 7e and sells the home, do you renovate it first? Do you hold the property and rent it? We talked a lot about this or I know Chi, who is on our asset management team, talked a lot about it. Speaker of our other asset manager, Delaney, we had been working. We updated one of our financial models to incorporate what is in our best interest. If the borrower defaults and we get the property back, do we renovate it? Do we hold it for rent? We run all of this through a risk-adjusted model to determine what is our best course or avenue. I will say, the financial model says sell it at it is because if anyone’s tried to sell a property, even ones that needed renovation, fix and flippers have a hard time finding a property. Investors are finding a hard time finding a property. There’s been low inventory on the market. Construction costs, labor and materials have gone through the roof. What we would’ve done last year might not be the same this year, is what you’re saying. What we’ve done in the past is we’ve liquidated, but if all of a sudden prices start to soften and the private money gets a little more difficult to get, we might renovate it first. It could be in an area we want to hold as a rental because our basis makes it very appealing, especially in major metropolitan areas, which typically do have that continued appreciation. It’s not a one size fits all. It’s like with notes. When we buy a pool of notes and I want to mention this because this question comes up too. If we’re buying 500 notes, do we look at every single one and the answer is yes? We will analyze and there’s some that we may throw out as you get to very large funds and we’re talking hundreds of millions of billions of dollars. They’re buying thousands of loans and they’re analyzing it as an overall number and portfolio and not looking at every single loan. We look at every single loan. Every single loan gets run through a financial model, not only when we acquire it but also we run it through models. When we are trying to do modifications or workouts with the borrower and then if we take it back, it’s running through another model of the liquidation strategy. Every single loan gets run through a financial model not only when we acquire it but also when we're trying to do modifications or workouts with the borrower. Click To Tweet Something that you touched upon is there’s no like one size fits for what we do both on the acquisition and the disposition. That’s what’s unique about what we do is we look at the 3Ps, the person, the property and the position. We don’t say, “If it is X, then Y.” Chris, you brought up Delaney and he built a lot of processes. I’m the one that usually builds most of the models because I love geeking out on Excel. We were talking about it and it’s not always as easy as if the A then B because there could be some other factor that we need to consider. As Chris said, “We are always looking at every single loan. We’re not looking at the pool of loans as a singular asset. Not only that, but even two loans may look similar. This goes back to that first P of people. I’ll take two loans in Florida and a loan where a borrower may have a history of filing multiple bankruptcies versus a borrower who hasn’t versus a borrower who may have had a recent death in the family. It could be the same loan amounts and the same origination. Everything else is the same. It could even be the same property and community. House A, B, and C are right next to each other. Using that as an example, each one would still be looked at differently because of that P of people and I think that one thing that separates us from others is people look at the position of where the note is, but also the property. Again, Florida, California and some of these places where they build a lot of these track homes, as an example, if they’re all track homes in the same community. We would look at every single one individually because of that other P, which I do think is a differentiator. To tie it all back, do you have any final thoughts? We covered a lot. We started with what you’re investing in. Not only do you know that 8%, but also what is your money going towards? Is this company going and taking back homes? No. We are working with borrowers to find a solution that allows us both to pay investors and give them a second chance. I think we went from that and then we talked about the investor experience and all that goes into that. Also, our team and the systems behind that are important and some case studies. Do you have any final thoughts for people?
CWS 222 | 7E For Investors

7E For Investors: We are really working with borrowers to find a solution that allows us both to pay investors and give them a second chance.

  If people do have questions, make sure to reach out to our investor relations team. For investors, one of the things that we enjoy is investors who are educated in what we do and understand this process. I have been in real estate for 25-plus years and with note investing, it took me several years through my career to even knew this type of thing existed and we knew it was private money. A lot of people don’t understand note investing or don’t know that it’s out there. We have shows out there. We have the show, which was previously the Good Deeds Note Investing show. That was me sharing a lot of the stories in history and lessons learned, the bumps in the road that we’ve taken. Every investor goes through the good, the bad and the ugly and you learn the most from some of those situations that are harder. We share that with people. We’re transparent on all of these things and that’s something that we continue to share with all investors. Now, I feel like I have a whole other episode we could talk about now because of where you went. We’ll save it for another episode, but I will riff off of that for a second. You said it. Educating investors and I think that’s something that anyone who’s reading now or interested in investing but wants to know more about us, the team and how we work with borrowers. There are over 200 plus episodes prior to me even joining the show that is specifically about note investing and stories of things that went well. Things that were unexpected. One of the reasons that we started this specific type of offering was to make an alternative investment open and available to pretty much anyone. Something I’ve realized along this journey is that it’s great that we want to do that, but I also think a big part of what makes us different is we have all this education available for people who may not have invested in any sort of alternative investment but might be interested but don’t know it’s a possibility. One of the reasons we started this specific type of offering was to make an alternative investment open and available to pretty much anyone. Click To Tweet As Chris said, we have the show. We have our Facebook group, which is all about notes and people are asking questions and looking for support in their note investing journey. We have our YouTube channel. We host monthly webinars. If you’re interested in learning more about this space or about us and what we do, yes, we have a fund and we raise money for that fund, but also, a big passion of both of ours is providing that education, so people have access. On that note, if you do have any questions or you know you are interested in investing in a company that works towards that double bottom line of returning the returns for the investors and the second chance for borrowers, feel free to reach out to me directly at Lauren@7eInvestments.com. I’d be happy to jump on a call to answer questions you might have and see if it makes sense for you. Thank you again for joining us on this episode. If you enjoyed the show, share it with a friend, subscribe to the show or leave us a review. Until next time. Thanks. Thank you, all.  

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