As a full time service member, Stuart can only commit so much time to his real estate investing ventures. Even with that, he has been able to grow and scale his business through partnerships and raising money with private investors. To make this even more difficult,neither Stuart or his partner live in their main investing market. Hear how they grow their business with full time jobs and from another state. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Stuart Grazier Real Estate Background:
- Active duty Navy pilot who has served 16 years in the military
- Stuart has built a $600k portfolio of performing mortgage notes, a portfolio of 5 rental properties, is a passive investor in two separate multi-family syndications, and recently started a turnkey rental property company
- Based in Aurora, CO
- Say hi to him at http://www.militaryinvestornetwork.com/
- Best Ever Book: The Go Giver by Bob Burg
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Do you need debt, equity, or a loan guarantor for your deals?
Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Stuart Grazier. How are you doing, Stuart?
Stuart Grazier: I’m doing great, Joe. Thanks for having me, it’s an honor to be here.
Joe Fairless: Yeah, my pleasure. Looking forward to our conversation. A little bit about Stuart – he’s an active duty Navy pilot who has served 16 years in the military. Thank you for doing what you do. He has also built a $600,000 portfolio of performing notes, and a portfolio of five rental properties, and is a passive investor in two separate multifamily syndications. He recently started a turnkey rental property company – holy cow, you’ve got a lot going on. He’s based in Aurora, Colorado. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Stuart Grazier: Absolutely. Like you said, I’m active duty Navy, currently stationed in Aurora, Colorado at Buckley Air Force Base. Although I’m in the Navy, I’m stationed at an air force base, so go figure… So I’ve been dabbling in real estate for about ten years now, and kind of done a little bit of everything; I primarily just tried to find different investments where I could be as passive as possible. Being in active duty military, I’ve got a full-time job and a family, so for the most part over the last ten years I’ve been trying to do private lending, and got into mortgage notes, and investing in some syndications… But over the last couple years, my taxes have gone up significantly, after kind of building on that portfolio… And getting some advice from other investors, they really just said “Hey, you need to start buying actual physical property”, so my focus has been over the last year or so to get and acquire some more physical property, so I can have some more tax write-offs.
I bought some turnkey properties from a turnkey company in Birmingham, Alabama, and although not a terrible investment, there were definitely some things that I didn’t like about it… And kind of doing some of my own research and learning from all the investing, I kind of decided to go out on my own and try to start my own turnkey company with my best friend from college. He kind of had a similar experience, having some issues, probably way worse than I did, with a turnkey company, so the two of us decided that we were gonna start on our own and make it better, and do right by our network of investors within the military, and try to start really providing value to our own network, and providing a really good, cash-flowing asset to some of our network.
So that’s what we’ve been focused on over the past 4-5 months. We’ve done 10 properties now, so we’re on average about 2-3/month, and we are focused in Milwaukee, Wisconsin. We find single-family homes, we’re buying them, rehabbing them, putting renters in place, turning it over to property management, and then selling them to other military guys that are wanting to buy cash-flowing real estate.
Joe Fairless: What were some of the areas that you are focused on improving on based on your experience and your business partner’s experience?
Stuart Grazier: One of them is communication. Both my partner and I really had some major communication issues with the companies that we had invested in, and just days/weeks go by if we had questions about our investment; it would take forever for them to get back to us… So we really wanted to improve on that. And then just honesty and transparency with our investors; not as much my experience, but my partner’s experience – he had some really poor stuff going on, some really major honesty issues. He had been told that for some of these houses every major component was rehabbed, and then going through videos, he’d find that they didn’t put a water heater in it, but he had paid for a new water heater… And just lots of issues like that. So we really just wanted to be open and transparent and honest as much as possible with our investors.
Joe Fairless: So what’s your approach with communication?
Stuart Grazier: We do weekly walkthrough videos of our properties, and we have an acquisition manager that’s boots on the ground in Milwaukee, Wisconsin… And by the way, neither of us are in Milwaukee; like I said, I’m in Aurora, Colorado, and my business partner lives in Annapolis, Maryland… But we have a really good team in place there in Milwaukee, so we acquire weekly videos and we send those videos to our investors once we’ve identified them to buy the property; take pictures, send them our scope of work to let them know what is being rehabbed on the property, and then at the end of it we get a full inspection done, and if there are issues that come up on the inspection, we tell them about them, and then once they’re fixed, take pictures of it… Just constant communication and constant transparency with everything. Then if something comes up that we didn’t plan for, and we feel that it was on us, then we would pay for it out of pocket.
Joe Fairless: You’ve got a turnkey rental property company… Are you also managing them once they buy them?
Stuart Grazier: No. We’ve found a really good property management company that we like in Milwaukee, that’s been in the business and doing it for a lot longer than we have, so we figured we would allow for the professionals to take on managing the property. As soon as the rehab is complete, we turn it over to the property management company and they take it over.
Joe Fairless: You don’t live there, your business partner doesn’t live there, but you picked Milwaukee. How did you pick Milwaukee?
Stuart Grazier: Again, my business partner – that’s where he initially invested with a turnkey company, and his wife is from that area, so he has family there… So we have some ties to the area anyways… But we tried to decide on different markets and we had done quite a bit of research, and we saw some economic indicators that we really liked about Milwaukee. One of the biggest ones we saw was that there is a company called Foxconn Technology, and they’re building a 13 billion dollar plant in Southern Milwaukee… And they just broke ground last summer, and it’s supposed to open in 2019. It’s supposed to bring about 15,000 new jobs to the area. We really liked the idea of getting into the front end of that, to where there’s gonna be a lot of business growth and a lot of people moving to the area to take some of those jobs. And there’s quite a few other mid-level Fortune 500 companies that are there as well, so we liked some of those drivers that we saw.
Joe Fairless: You have five rental properties yourself, and also you have a $600,000 portfolio of performing mortgage notes, and you’re also in two separate apartment syndications… How active are you in growing any of those areas of your investing?
Stuart Grazier: The mortgage notes – very little activity on my part. I really just sit back and watch the checks come in on a monthly basis.
Joe Fairless: How much do you make on a $600,000 worth of performing mortgage notes?
Stuart Grazier: I average about 10%, so about $60,000/year.
Joe Fairless: That’s pretty good.
Stuart Grazier: Yeah, it’s not bad. One of the lessons and why I kind of started getting into trying to buy more physical property was I bought all of those outside of a self-directed IRA; it was just in an LLC… So I talked with CPA, and doing some more research, there wasn’t really many tax advantages to having paper outside of an IRA, so it really was just increased income to my end of year taxes… So that’s kind of why I started trying to get into more physical property over the last couple of years.
Joe Fairless: So you’re not actively growing the performing mortgage notes…
Stuart Grazier: Not outside of my IRA. I did open up a self-directed IRA a couple years ago, so I’ve started buying mortgage notes inside of my IRA when I have enough capital to do so. Right now I’ve pretty much used all the capital inside of my IRA, so I’ll have to allow it to kind of built up again until I buy another one.
Joe Fairless: What about your portfolio of five rental properties? Do you focus on buying more of those?
Stuart Grazier: I am. We’re doing the turnkey business, and I’ve kept one of the properties since, and added it to my portfolio, and I’ll continue to do so as we build capital through selling properties off. That’s kind of one of the goals, is just to grow our capital to where eventually we can buy more real estate ourselves. We’d really like to start getting into more multifamily deals as we have more capital.
Joe Fairless: And you are in two multifamily deals as a passive investor… What’s your experience been there?
Stuart Grazier: Good. One of them is in an apartment complex that a fellow Navy pilot, retired veteran syndicated, and it’s in Albuquerque, New Mexico. It’s gone pretty well. They’re actually on the tail end of it. They have a buyer and trying to exit by the end of the year, so hopefully we’ll get a nice return on that investment.
Then I invested a really small amount of capital into a mobile home park community in Florida, and that’s gone pretty well as well.
Joe Fairless: Do you see some tax benefits as a result of depreciation being taken on those two deals that helps you with those tax position?
Stuart Grazier: Absolutely. It definitely helps quite a bit.
Joe Fairless: What have you learned from investing passively in deals – if anything – that you’ve applied towards your approach when you’re working with investors on the turnkey rental property?
Stuart Grazier: Very similar as far as having really good communication. I think as an investor, providing opportunities to other investors, keeping that open honesty, transparency and open communication as much as possible really helps. As a passive investor in those deals, I love it when I get the monthly newsletters from them telling me how my investment is doing, so I’ve tried to transfer that to my turnkey business, doing that same thing for the investors that I’m providing that opportunity to. I think really having that communication is paramount.
Joe Fairless: What’s a story of something that hasn’t gone well for you from an investing standpoint?
Stuart Grazier: Very early on in my career of investing, when I was kind of first starting out, I was trying to find those passive ways to invest, and I started down the path of doing private lending deals. I was lending to an investor that I didn’t really know very well, and probably put — not probably, I did put too much trust in the individual, and over the span of about two years I collectively lost about $130,000 from investing in him. He ended up actually going to jail, because he was basically doing a Ponzi scheme.
Joe Fairless: Oh, wow…
Stuart Grazier: I didn’t know enough about what I was doing to really be investing with him, so… Huge personal growth experience there, really. Primarily I needed to educate myself first before I go invest in something that I don’t know much about, and then build a team around me that has my best interest at heart.
Joe Fairless: Let’s assume that you are interested in still doing private lending, and an individual approaches you… First, quick question – what type of deals was this person doing? Fix and flips?
Stuart Grazier: Yeah, they were all fix and flips, short-term deals.
Joe Fairless: Alright, so let’s pretend you still wanna do private lending. A fix and flipper approaches you and says “Hey, Stuart, I’ve got some deals; I need some private money to do these.” What due diligence would you do on this new person now, that you didn’t do on the previous person?
Stuart Grazier: I think now, after having quite a few years of experience under my belt, I’m not gonna really invest with someone that I don’t know fairly well, and have had quite a bit of time and opportunity to know the individual. Looking back on it, I should have never invested with someone that I barely knew.
And once that has been established for a while and I really know the individual and I can trust the individual… I wanna know some background about him, and other referrals I think is really good, and seeing what kind of deals they’ve done in the past, and knowing how successful they have been. And then, again, just being knowledgeable about what you’re investing in.
From a lending perspective, you need to know the paperwork involved in it, and the process for doing the paperwork correctly, making sure you have the right people on your team to back you up and to make sure it’s being done correctly.
Joe Fairless: You said 130k is what you lost?
Stuart Grazier: Yeah, $130,000.
Joe Fairless: 130k over the course of two years… How did you end up finding out that it was a Ponzi scheme?
Stuart Grazier: I got a letter in the mail from an attorney, basically saying that the individual had been sued by another investor who had way more money investing with him than I did, and basically asked for all of my information and what I had invested in, and if I had any paperwork to show for what I’ve done with him.
Joe Fairless: And then from your standpoint, what did you do?
Stuart Grazier: First I kind of freaked out…
Joe Fairless: Yeah, I imagine. Did you call this person?
Stuart Grazier: Absolutely. I called him…
Joe Fairless: What did they say?
Stuart Grazier: …texted him, e-mailed him… They didn’t reply. They kind of went silent on the net.
Joe Fairless: Did they live close by, or flying distance at least?
Stuart Grazier: They did. I didn’t have his home address… But I reached out to a local real estate attorney in the area. I’m from Dallas, Texas, and the investor was in Dallas, so I reached out to an attorney in Dallas and just started asking questions. He was a real estate attorney, and fortunately for me, he was an investor as well, and that was actually helpful in the end, because he kind of took me under his wing and showed me how to do it right, showed me the proper paperwork, what to look for, and he really taught me a lot about being a lender in the mortgage note business. It actually helped me kind of boost my career, if you will, and doing more lending deals down the road.
Joe Fairless: Was there any hope of receiving your $130,000 through some sort of litigation that you attempted to do?
Stuart Grazier: I ended up really not taking any more action, because I knew that there were some other investors that have millions of dollars invested with him, that they had sued him, and I kind of just jumped on the bandwagon and put my name in the hat as far as all the other investors… It was a big court case, it went to trial, and he ended up going to jail. It went to a litigation, and I’ve received some money back over time, but nowhere close to a full payback.
Joe Fairless: What was the proper paperwork that the attorney said “Hey, you should have had this in place.”
Stuart Grazier: If you’re doing a deal like that, you wanna make sure you have either an actual recorded mortgage note, a first lien position or a second lien position that’s recorded by the County Courthouse; make sure it’s stamped, filed in the county files, and make sure you have a copy of it. Or, if you’re gonna do like a promissory note, make sure that it’s done through a lawyer and make sure that’s all done properly. The paperwork that he was doing was basically — I think he was just taking a Word document and writing some stuff down; he was making up fake addresses, and I didn’t really do much of a due diligence on making sure it was all done properly. None of it was recorded, so… Instead of trying to go at it yourself, I would definitely try to get an attorney to double-check all the work.
Joe Fairless: What have you made the most money on?
Stuart Grazier: The most money… I would say probably the best deal I ever did was I tried to start getting into some wholesaling and some flipping, and the plan was to flip a house in Fort Worth, Texas. I bought it at a really good discount, and through some networking I found another investor and basically sold it to him three days later for $15,000 profit.
Joe Fairless: Without touching it?
Stuart Grazier: Without touching it, yeah. I wouldn’t say it’s probably the most money I’ve ever made, but it was definitely the most money for the amount of work.
Joe Fairless: And since it was the most money for amount of work, but I didn’t hear you talk about wholesaling until I asked that question, why isn’t that a focus?
Stuart Grazier: It’s too much work, honestly.
Joe Fairless: [laughs] That kind of happens once every so often, those types of deals…?
Stuart Grazier: Yeah, and I decided very quickly that it wasn’t for me. I tried it, and again, as an active duty military guy, with a full-time job, the amount of work involved in doing wholesaling deals was way more than really I had time to do.
Joe Fairless: How is that less time than having a turnkey property management? Or not a property management company, excuse me… A turnkey company where you’re overseeing a general contractor and you’re sending weekly updates and videos… It seems similar.
Stuart Grazier: Well, you probably have a very good point, Joe. I think I’m at a different stage in my career, and probably a lot more knowledgeable now than what I was when I tried to do wholesaling a long time ago. I’ve learned how to put some systems and processes in place, and put teams in place that I can trust, and allow for them to do quite a bit of the work, that I wouldn’t probably have been able to do – put those processes and teams in place – five or ten years ago.
Joe Fairless: The big risk as far as what I perceive it to be with your business and how you have it set up – the turnkey rental business – is the renovation process, since you’re not there and your business partner is not there. So how do you have checks and balances for the work getting done – not for reporting to investors, but to actually make sure that you’re overseeing the general contractor the right way.
Stuart Grazier: We have that acquisition project manager that we’ve hired. She is a local real estate agent, she’s been doing it for 28 years, and she’s always kind of been on the investor side of the house, instead of just retail… And her husband is actually one of the contractors that we use, as well. So between the two of them, they have a very large knowledge base of both construction, contracting, and just the real estate in general.
So we’ve hired her to be our project manager, and she is the one that lives there and does the weekly walkthroughs and the videos, and checks on things and reports to us as the owners of the company. So we’ve put a lot of trust and faith in her and her knowledge base to report to us on a weekly basis… And really it’s probably even more than a weekly basis. She does walkthroughs every day or two.
Joe Fairless: And have you had her from the beginning?
Stuart Grazier: We have, yeah. We’ve been really fortunate to find her early on in the startup.
Joe Fairless: How did the business support her expense, or the investment in an employee, when you hadn’t done a deal yet?
Stuart Grazier: We just added that into our numbers when we were evaluating deals. Really we treated it almost like a realtor fee. We just added that into the expenses at the beginning of a purchase. So we just made sure that that was included into our acquisition costs, and it’s worked out so far.
Joe Fairless: What’s your best real estate investing advice ever?
Stuart Grazier: I had to think about this for a while… I recently read a book called Tribes, by Seth Godin, and it kind of resonated with me quite a bit. I think first and foremost you have to invest in your tribe, and then second, invest within your tribe. And what I mean by that is I think it’s really important to first spend the time and the effort to grow and add value to the people that are within your network. And then as that network grows, I think your investment opportunities will come, and you should invest then within that network that you’ve built and added value to.
Joe Fairless: Powerful concepts. Very powerful. I know of Seth Godin and I’m familiar with his work, but I have not read that book, and you have inspired me to read that book, so thank you for sharing that, certainly. It reminds me of the quote that Robert Kiyosaki said whenever I interviewed him – I think it was when I interviewed him… He said, “The richest people in the world build networks, and everyone else looks for work.”
Stuart Grazier: That’s huge. I think your network is very powerful.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Stuart Grazier: Ready.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Break: [00:23:28].15] to [00:24:18].01]
Joe Fairless: Best ever book you’ve recently read, besides that Seth Godin book?
Stuart Grazier: I’m gonna say The Go-Giver, by Bob Burg and John David Mann.
Joe Fairless: Best ever deal you’ve done that we have not talked about already?
Stuart Grazier: I was gonna say that wholesale deal, but another one just recently – we did a turnkey real estate deal and we made $35,000 on it.
Joe Fairless: Well, that’s pretty good, too.
Stuart Grazier: Yeah. It was a little bit more work than that wholesale deal, but yeah, it was pretty solid.
Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about? …and I know clearly the 130k is what you’ll probably initially think, but something else, maybe more tactical?
Stuart Grazier: I went to a real estate conference just recently, and one of the advices that another investor said was “Fire fast and hire slow.” We kind of recently went through that, and I’m really kicking myself for not firing one of the contractors that we had hired a long time ago. They had done three properties for us, and every single one of them had some issues; we either found some stuff that they weren’t honest about, they were late, they were asking for more money when our contract didn’t require it… And we gave them one more shot on a recent deal and it failed miserably. We actually ended up having to fire them mid-project, and they walked on the job… It was kind of a real hassle. So I would say hire slow, and fire fast.
Joe Fairless: Best ever way you like to give back?
Stuart Grazier: Part of our business model is we have a non-profit organization with a goal to buy a house, buy a property to use as a refuge for wounded veterans that are going through treatment at a VA hospital. So our business model is we take 10% of all of our profits from the sales of our homes to go towards that non-profit organization, to hopefully within a year or two buy a house through the non-profit organization to use as a veteran refuge.
Joe Fairless: What percent are you there in order to accomplish the first purchase?
Stuart Grazier: We still have quite a ways to go. Our goal is to raise $200,000, and we’re at about $20,000, so… Long ways.
Joe Fairless: You’re doing all cash, you’re not getting financing or anything?
Stuart Grazier: Yeah, that’s our goal.
Joe Fairless: Cool. Well, lastly, and important – how can the Best Ever listeners learn more about what you’ve got going on?
Stuart Grazier: I have a website, it’s called MilitaryInvestorNetwork.com. They can go to the website, and it’s free for any active duty or veteran, or their family member. They can e-mail me at stuart@militaryinvestornetwork.com. I’m also on LinkedIn as well, Stuart Grazier.
Joe Fairless: Stuart, thank you so much for being on the show, sharing lessons learned along the way; certainly, the Ponzi scheme would check that box… And as important, the wonderful things that have taken place, and that is the company that you’ve got right now, turnkey company, as well as the different types of investing that you’ve done, and what you learned and then applied towards what you’re doing now.
One last question that I have, and this might sound like a stupid question or a weird question, but I’m just gonna ask it…
Stuart Grazier: There’s no stupid question…
Joe Fairless: Are you glad that you got involved in the Ponzi scheme and you lost $130,000?
Stuart Grazier: That’s really funny you ask that… I’ve thought a lot about that in the past, and it has really made me grow as a person and as an investor. I learned so much from that… A lot of people say that you learned from your mistakes and grow from them – it’s so true. Going through it, when it was happening, it was absolutely terrible, and I thought that it was pretty much gonna ruin me… But I just picked up from it, learned from it, tried to grow from it, and it’s really helped me grow myself as an investor.
Joe Fairless: Best experience you never wanna happen again, right?
Stuart Grazier: That’s right. [laughter]
Joe Fairless: I have not been involved in one of those, fortunately that hasn’t happened to me, but I have my fourth house – it was not what I thought it was, and in lessons learned along the way and experiences that when people on the show who have deals that go sideways or really south, I like to ask that question just to get their thought process about after the fact, and if they’re glad… And nine times out of ten — and perhaps “glad” isn’t the way to describe it, but nine times out of ten they learned a lot more from that experience than what they lost, and I think that’s really the key there, so… Best experience you never wanna happen again.
I really enjoyed our conversation. Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Stuart Grazier: Thanks, Joe. You too.
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