Turnkey Cashflow Mastery & Avoiding Pitfalls with Stuart Grazier

Full Transcript

Taylor 0:02 

What's going on guys? This is the passive well strategy for busy professionals podcast. Today our guest is Stuart grazer from storehouse turnkey properties. Today we're talking about turnkey property. Investing in turnkeys is a great opportunity for busy professionals to get into cash flowing real estate. Stewart has a lot of experience as a turnkey provider, providing turnkey properties to his friends, his investors, and really helping them get into cash flow and build their cash flow. We get into some of the experience that his business partner had with a bad turnkey property experience, which is extremely informative. 

For somebody who is getting in. It's something to watch out for. you'll learn about that today. You're gonna learn about what you can expect from a turnkey provider once you're a bit deeper into the process. What it really takes to get into a turnkey investment, it's not quite as straightforward as, hey, go online, find a property, buy it, get the financing in place, and then close on it and move forward. really you shouldn't do it that way. We're going to talk today about a better process to use for getting into turnkey real estate investing. 

Stewart also has an event coming up here at the end of May, that you should definitely check out for anybody out there but it's really targeted at veterans who want to invest in real estate. Veterans live at veteranslive.com, great URL. I'm amazed that he was able to get that but we talked a bit more about that at the end of the episode. So once again, our guest is Stuart grazer from storehouse 310 ventures. 

for those out there who don't know I'm a real estate investor real estate syndicator. I love talking about real estate investing and helping Others grow their wealth by investing in multifamily real estate. Thank you for tuning into the show today. Here we go with Stuart grazer, Stuart, thank you for joining us today.

Stuart Grazier 2:11 

Yeah. Thanks, man. appreciate you having me. This is a great opportunity.

Taylor 2:14 

happy to talk with you when we're talking at 7am my time but you're in Colorado. You've been up for a couple hours already, which is, which is impressive. For the folks out there who don't know about you. Can you tell us about your story real quick?

Stuart Grazier 2:27 

Yeah, I appreciate it. Um, yeah, it's 5am my time. I typically get up at about 4am every day. so I'm an active duty Navy pilot. by trade I've been 18 years in the Navy. That's kind of my full time gig, my two jobs and then I've been a real estate real estate investor for about 12. Now kind of 12 seriously, my first investment was actually just a raw piece of land. When I was in flight school After college, I really didn't know what I was doing. it was just kind of a good idea from friend of mine and jumped in, both feet and it worked out for me and, and that was kind of the aha moment that this could be, a pretty good thing and that the Navy and flight school and going on deployment and stuff like that kind of slowed me down a little bit, but then I really got serious about it, and been kind of going ever since. the goal for me as an active duty guy was, has always been to try to find, the passive type investing, that I can, take take my money and I try I've tried to live below my means for a long time and take any money I get from deployments and stuff like that and then invest that and try to find passive streams of income to to create now those other other income streams for Having that income for on the side. So I've tried private lending, mortgage note investing, turnkey, buying turnkey from turnkey providers I invested in syndications as an LP investor. so, I've kind of dipped my toe into a lot of different niches within real estate. I've just learned tremendously along the way. So it's been a lot of fun.

Taylor 4:29 

Guys, you've done a lot of them passively. From what I understand you're doing some of these actively as well. I think one of the important things is, a lot of high income professionals out there who are not, on the on kind of the tail end of their career, like you're looking you're you're planning my understanding is to be out of the military or out of active duty soon, so you're looking to create that and say that high income folks out there lawyers, doctors and Other folks are not really able probably to create that system where they can get up at 4am and build another business on the side so that you can have that income coming in afterwards. So what's your active income focus? What are you doing in real estate right now to build that income so that once you're no longer active duty, you're gonna have something to do and create prosperity for yourself.

Stuart Grazier 5:28 

Yeah. So recently, my college roommate and I got together and kind of started comparing notes and thinking about what we wanted to do after we transitioned out of the military. We're both 18 years old, he had been investing in real estate for a while, I'd invest in real estate for a while. We both kind of tested the waters and quite a different niche, like the different niches that I was talking about. one of the things that we kind of thought about was which this this term Real Estate model, and we thought it was a really good model as for our network of investors who are, most mostly active duty military people, guys and gals, or, veterans that have just gotten out, the single family home rental property is kind of a, we think is kind of a first step into testing the waters with with investing in real estate. Now, it's not a huge chunk of money for the most part that you're investing, you kind of start to learn, the process of buying real estate. for the most part, it's cash flowing from day one. so it's on the risk level and also the level of activity. It's pretty good for active duty military. So we both bought turnkey products from different turnkey providers throughout our investing career. both of us had just so so experience says, David, my business partner had a really, really bad experience actually, the company that he used was, just they lied about a lot of stuff and their, their model was just really bad. he basically bought the house pre rehab and paid for the rehab up front. Then they lied about a lot of the stuff that they said that they were going to do in rehab, but they never did. Wow. So through that experience, he basically had to fire everybody, find a new property management company, find new contractors, and, and so he kind of had already built out a team, just out of due necessity. So we kind of took that and ran with it and ran with it, we decided, hey, this is a good model, if it's done well, and if it's done with honesty and integrity. so, we started putting that into place and said, this looks like a pretty good transition plan for us. It's also an opportunity to really produce A good product to our network and they can have a good experience with turnkey investing instead of in some of the stuff that we saw. So we took all the lessons learned from what we had had and tried to make a business plan and a model that really worked for other investors.

Taylor 8:18 

That's awesome and I'm sorry to hear about you're not that not your business partners experience but in a way you're you're making up for it on the back end. So you learned a tough experience and you can make a difference for your investors in that regard. something that I'm I'm hearing here as we talk is there's a lot of counterparty risk in all basically all real estate I mean, and we can do certain things to mitigate that as syndication investors obviously, we have counterparty risk with the the general partner may be doing something untoward, which is why I think building a relationship and getting to know them over time is great Critical before you make an investment, you can make a decision all that. But in the turnkey space, there's no obvious counterparty risk like your business partner went through. Now, what can turnkey investors do to mitigate some of that doing due diligence on their, their turnkey operator, what can they tell a turnkey provider? What can they expect from a turnkey provider? After they close the deal, I think there's a lot of gray area in terms of what investors can expect and what happens after the deal is closed. there's probably a lot of Arabic variability to depending on which provider you go with. So let's talk about some of that counterparty risk and what you and your company have done to mitigate some of that and help your investors. feel more comfortable.

Stuart Grazier 9:57 

Yeah, of course. Yeah, I would say It's not so I've been an investor on syndications as well, and, I've been a part of some that have gone really well and some that have just gone. Okay. it's very similar to being an LP restaurant syndication and, putting that trust and faith in the GP, very similar as far as, a lot of a lot of times you're, you're investing in the people, right? I mean, know, the deal itself. It's got to work and the numbers got to make sense, but you're investing in the people you're investing in and putting your trust in the general partner. Same with the turnkey model. I mean, you are investing in the system and the process in the operators, the people themselves that are running the business. for us, that was like, kind of a wake up moment. We invested in companies that we didn't even know the people that ran those businesses, and it kind of Because in the end, so, first, the investors really have to know and trust and get to know us as people as military officers that have the core values behind our business. so, we talked about that a lot when we had our conversations with our investors and the core values for us are honesty and integrity. That's, kind of, it's a, it's a catch all phrase, and, but we and we dig into that quite a bit more. For us, like, we do things in our business that kind of show us investors that we have that we send them as they're getting ready to buy this deal. We send them the full scope of work, so they know exactly what we did in rehab. I don't know of a ton of other turnkey providers that do that. So they basically have a full list of every single thing that they did on our rehabs. then we provide, guarantees is not the best word, but because they have that scope of work and, and they know that what we did if something breaks, after they buy it, they're gonna come back and be like, hey, this wasn't on the scope of work and probably should have been, and we're like, Yep, absolutely. what we'll pay for that, we'll get it fixed. we kind of put a guarantee in place where, if there was something that we should have fixed, we will and if there's something that was fixed, and it broke, we'll repair that too. it's kind of gray right? But we'd stick towards making decisions as best for the investor and their bottom line versus our bottom line is we're always going to make that decision. you can ask any of our clients and investors and They're gonna say, Yep, the storehouse always comes through and pays for that. and, and that's, that's that relationship, that experience is way more important to us than, $1,000 on our bottom line or, whatever that cost is, because what ends up doing is then they tell other people about us and they like, hey, these guys, they have honesty, integrity, they give, another part of our business model is that we give the first 10% of our profits away to charity organizations. Wow. That's super important to us. Our name of our businesses is from that, I don't know if your listeners are we're Christian, Christian, faith based organization and, we came from Malka 310 in the Bible, which is it says give it a tithe to the storehouse. so we just decided to take the first 10% of our profits and give it away to charity. So, not a lot of other companies are doing that. that just shows kind of where our focus is.

Stuart Grazier 14:13 

So, long answer to your question, but really it's the people that run the businesses the most important part of it. Now with a turnkey provider, and really any real estate business in general, property management is super important because all these, most of the investors are out of state investors, and they are going to rely heavily on the property management aspect of it. We don't manage the properties ourselves, we turn it over to a third party, third party property management company, but we're still very heavily involved when we're talking to them on a daily basis. We know, when maintenance calls come in, we know what those issues are because we're talking to them on a regular basis and we have our own contracting crews and our own animals. In, and we can kind of go in and check on things and fix things alongside the property management company, which we feel is pretty important as well.

Taylor 15:10 

Okay, so as a great answer. I mean, we're here for the long answer, right? Because that hopefully will, we'll get to the fullness of the answer with the explanation. So nothing wrong with that. I appreciate that. I think you brought up a great point is the property management after the deal is closed? What can investors expect from the turnkey provider to support them? What can they expect from a property management company? Particularly? Maybe they'll, if they're buying the property from a distance, maybe they'll never see it before they buy it? I mean, what's your opinion about that? Before you buy it, should an investor go check out the property, then how often should they check up on the property manager and that process of managing it after they buy it? I mean, there's so many questions About actually running the property and you're getting you're buying a business, right when you're buying a turnkey property, or buying yourself into managing a business. So there's a lot of question marks here.

Stuart Grazier 16:12 

Yeah. I mean, yeah, you mean you definitely, you definitely can't just buy it and then just like never, never think about it, just expect for the money to come in and no issues to arise ever. You definitely continue to have to manage the manager, if you will. so that, like, the communication piece of that is paramount. and we've had some kind of trials and tribulations with different managers and how good they are or not so good at the communication piece. But that's, I mean, that's the most important piece of it, I think, is just just communicating in general. When owners do have a question, they respond fairly quickly. They have a rule of We're going to respond to you within 48 hours or 72 hours or whatever that is. then they stick to it and they actually do it. They have a system where our first form of communication is through our portal. Next is through email, then follow up texts, so the communication kind of tree, if you will, is really good, I think as well. and then, we try to send emails out to our investors to kind of keep them apprised of what's going on in the market and with our company, which I think is great. a lot of GP investors do that, too. I think that's super important. Then just being there to answer like most of our investors have, like our personal cell phones, and our personal emails, and they can call us text us when they're having issues when they have problems. So that adds a little bit more work on our plate. But at the same time, I think it's super important to have that and to be a good communicator to your investor. So I mean, communication is huge. That's the biggest thing for sure.

Taylor 18:11 

Okay, so what I'm getting here, what I'm getting out of this is, like you said, communication is very important. But, I think it is from reading between the lines a little bit it sounds like or maybe not even reading between the lines. You're really you're you're taking this as a long term type of relationship with your clients, and you said that pretty blatantly earlier. But I think it seems to me from the outside, I've never done a turnkey investment but some turnkey operators and don't ask me who I don't know who people usually don't put them on blast whenever they have a bad experience. Yeah, but some turnkey providers look at it as a very transactional type of thing. once you buy it, hey, our hands are off or, we're not not involved anymore. It's your job to manage it. technically that is the case with all turnkey properties really. But it sounds like you're still being a resource for your investors, your turnkey buyers, because you look at it as a long term type of thing. it's just hard from the outside to tell which turnkey providers have that mentality, and that that process in their business and which don't and are going to leave you high and dry.

Stuart Grazier 19:31 

Yeah, absolutely, man. I would say real estate in general is a relationship business. There are companies out there that look at it as a transactional business and, unfortunately for myself and David, our business partner, we initially had purchased real estate from turnkey providers that looked at it as a transactional business and not a relationship business. I have never spoken to The CEO of the turnkey company that I bought from Wow, I rarely speak to like, they're kind of, second charter third and charge or whatever that is, like, . same I think David did talk to the CEO, but because it went so wrong, and they were talking about, like, lawsuits and stuff like that, but

Unknown Speaker 20:22 

either way,

Stuart Grazier 20:24 

That is incredibly important. We do very little outside marketing for our business. Because, honestly, we don't have to, because it's all just referral based, the people that are buying from us are telling their friends, they're telling, family members, and we have buyers that have bought multiple properties from us, and they keep on coming back and keep on telling my friends and that's, that's what we love to see that the relationship, long term strategy is way more important than, making money on one transaction and never talking to them again, that's just just not a good way to do business.

Taylor 21:14 

No, yeah, absolutely. It's not. From a number standpoint, maintaining or retaining a customer is a lot cheaper than going and finding a new one. So, you can look at it from an ethical standpoint that hey, we don't want to screw people we're doing business with and the numbers standpoint that Alright, we've already got this person in the door, we should keep them happy. So it's better for our business. There's a lot of reasons, right? Why we want to hang on to our current customers, right? We want to keep them happy and keep them around because it's better for our businesses, better for them and, and all that great stuff. you mentioned kind of when we started talking about a turnkey investment and I'm going to impair phrasing here but a turnkey property is low. level of investment than other types of properties. I'm not sure precisely which properties you're talking about. But what are we talking about in terms of dollars? If somebody wants to get invested in real estate, or a turnkey property, turnkey single family? How much money do they need to have in the bank? What should they look out for? when they're first getting started? Yeah,

Stuart Grazier 22:23 

Most most, so we're buying our properties are in Milwaukee, Wisconsin, so kind of a Midwest market, fairly inexpensive in comparison to the United States and in general, typically, the sale of our property is around $100,000. so, we recommend that individuals get 30 year fixed rate financing, most lenders will require a 20% down payment on an investment property. so, you're looking at a pocket for a downpayment of 20,000 dollars plus some closing costs. So we typically say you need to have 20 to $25,000. We also say, you should probably have some reserves, we like to tell them to be conservative have about $5,000 in reserves and just have it in case stuff comes up and stuff breaks. Because stuff does break when you own real estate. It's a crazy thought, but so yeah, anywhere from 20 to $30,000, is what we kind of typically say that they need to have ready to go ready to deploy if they need to. Yeah, so, I think from a large perspective, when you're looking at real estate, if you're going to go buy multifamily deals or invest into a syndication, typically what I've seen is you would need more than that, to go to go do a bigger deal. So, yeah, it's a good like, Kind of stepping, stepping stone to kind of start and test the waters with buying a single family home for a hundred thousand dollars. It's not going to, for most of our veterans not going to break the bank. If they do want one deal and we have like I said, we have multiple deals with multiple investors that have bought multiple deals, we have one guy who just, Hey, I love turnkey. I love the idea of it. I bought 10 I plan on just holding them for long term, let the tenants pay down the mortgage and use the cash flow and then he's gonna retire from the Navy soon and he's just gonna pay off his mortgages and live off the cash flow from 10 houses and it's not a bad strategy.

Taylor 24:41 

Well, yeah, I mean, we're, we're talking here in early April 2020. This is gonna go live in late May and the stock market compares the stock market to where a reasonably acquired single family with a tenant in it. Right now I'd much rather have a single family than, the s&p 500.

Stuart Grazier 25:05 

Yeah, yeah, absolutely. Yeah. as most of you probably know, there's so many more advantages to owning real estate, besides just the cash flow, that you're not going to get in some of those other assets within the stock market.

Taylor 25:21 

Absolutely. you mentioned a little bit earlier, after I asked about how much capital you need to have, most of your investors are going to get 20%, down 30 year amortization type loans. As far as qualifying for those you were, you're not a lender, so you probably don't know that we're not gonna get into the specifics, right. But yeah, what most people do what you need to have? What's a good credit score? Do you need to have more capital in the bank from the lender's perspective? what does that all typically look like?

Stuart Grazier 25:54 

Yeah, so I'm not a lender, we we typically farm we have a few lenders that we recommend, but honestly, they can go and use whatever lender they want to just from experience from my own from buying buying property, I mean, you do need to have a little bit of extra capital in the bank, showing that you have reserves. Now your debt to income ratio needs to be at a certain percentage you do have to have a decent credit score to go buy and use conventional financing. I'm not sure exactly what that number is, but I would guess, you need to have a 650 -700 credit score to probably go in and get a decent loan. those are kind of the big, the big points, the debt to income ratio, you can't have more than 10 Fannie Mae, Freddie Mac, conventional loans on property. I know, I know, for a fact from my personal experience, the higher you get closer to that number, the harder it is to get another loan. They say 10, but really 678 are pretty typical. Wow. So yeah. So, and that just comes down to like, your debt to income ratio and, ,, having those reserves to show that you can, pay for stuff if the worst case scenario hits like Coronavirus or something like that.

Taylor 27:16 

Yeah, absolutely. I mean, we're right now as we talk we are in at least right now we are in a worst case scenario. So yeah, yeah. Especially if

Stuart Grazier 27:26 

it's good to have some cash reserves right now.

Taylor 27:29 

100% yet, The Now is the time when you should have had them built up in the first place, and now it's kind of too late to build them up. But if not, you need to get started.

Unknown Speaker 27:42 

Yep, for sure.

Taylor 27:44 

And I think your answer to that question is great. it goes back to what you said earlier about real estate's all about your network. So, like you said, You're not a lender, you have lenders that you can point people to, they're not obligated but it's just a pay that these couple people can help you out. But that's exactly the point is you get to talk to Stuart and Stuart company. He says, you say, I don't know what I'm going to do alone. Stuart says, Well, here's some people you should go talk to about that. that's real estate in general is who, hey, who should I talk to about this? All right, here's a couple games.

Stuart Grazier 28:19 

Yeah. It's, it's really having that team, having that it's a team mentality, for sure. You cannot, I've tried it, trust me, you can't go and do real estate all on your own, like you have to have, you have to have the professionals that are subject matter experts in their field on your team on your side. that's so important. You can either go and build out your team yourself, which is difficult and it takes a lot of time. Or you can kind of buy into a team that's already existing, and, not as difficult and if you get the right team, it's incredibly profitable for you.

Taylor 29:03 

Absolutely. I have plenty of friends who are turnkey investors, and I know many of them. they're, except for the occasions where they've had a bad experience like your business partner, they're pretty much pleased with how it's gone. that's great. So, thanks for sharing right now we're gonna take a quick break for our sponsor. I've got three questions. I asked every guest on the show. Are you ready?

Unknown Speaker 29:27 

I'm ready.

Taylor 29:28 

All right. First one, what is the best investment you ever made other than in your education?

Stuart Grazier 29:34 

So the best investment I have ever made was, I would say investing into a syndication as a limited partner. I would say that, from a return standpoint, it wasn't the best investment. But kinda it allowed me to really learn The inside of the entire business model. I would say, if you want to go down the road of being a GP on a deal, you absolutely must be an LP on a deal first, that's my personal experience thought process. Because, I saw from start to finish from the paperwork involved, to the communication involved, to the deal structure to all that, and it's kind of a cheat way of saying, You can't talk about education. But just being a part of that and having kind of the inside baseball, if you will, was super important. So it didn't offer a great return. Not the best return I've ever gotten. But for sure, it was a really good experience for me.

Taylor 30:51 

Nice and yeah, I've kind of after being in the syndication world for a few years now. Something I've noticed is that even a lot of the big active city caterers still passively invest in deals with others who they know get to get to know and trust, maybe offer a different asset class exposure to a different asset class than they actively syndicate. So yeah, I totally believe in passive syndication investing. It's what I do so fantastic. On the other side of that coin, what is the worst investment you've ever made?

Stuart Grazier 31:23 

Worst investment I ever made was, early on in my investing career, I jumped in to do private lending with an investor that I didn't know very well. It was, I was kind of young and dumb and just ready to like get after it and jumped in, which I typically do a lot. Just kind of jump in with that all the education there and the knowledge beforehand, and I was lending money to an investor who was flipping houses and he was Offering fantastic returns like way more than what normal, investors offer, which kind of should have been a, a big red light, but ended up kind of long story is he was kind of offering fake promissory notes on properties. he had gone to jail for a Ponzi scheme and I had a lot of money tied up with him and basically lost it all like, I think it was $160,000 in debt invested with him on on some flips and doing private lending, and it was one of those things where like, now you invested and then he's like, Alright, it's a this one's sold, you want to do another one, he would just like roll it over and I would never get my cash back. He'd roll it over again and roll over again. He was just basically creating this big kind of Ponzi scheme and I was kind of a small fish. In comparison to some of his own aggressors, like they were guys that were losing hundreds of thousands of dollars. I think overall he had, he had owed millions of dollars to different investors pulled together so it was a pretty tough experience. They're kind of early on and definitely made me learn better the process what paperwork is truly required what's, what's good paperwork, what's bad paperwork, and kind of that whole process of being a private lender and really doing a lot of due diligence on the operator beforehand, taught me a really good lesson.

Taylor 33:37 

Wow, that is, that is a tough lesson. That's a lot of money to lose. There's a guy who's in court right now in my city for something alleged to have done something very similar with, similarly enormous numbers of dollars lost by investors, and it's out there. people really need to watch out and do that due diligence and don't think that, hey, it can't happen to me. You need to check into these things and learn the lesson from others, others experience. My favorite question at the end of the show is what is the most important lesson that you've learned in business and investing?

Stuart Grazier 34:24 

I think the most important lesson is having the right team and surrounding yourself around people that push you and help you to help you grow. Like I said a little bit earlier, kind of the early stages of my investing career, I tried to do most of it myself. I was just doing private lending by myself. I bought turnkeys by myself without a whole lot of due diligence. Recently I kind of learned the power of a team and brought on a business partner, we've kind of built out a really great Team. So having that having that like, group mentality and then also being a part of another group that forces you to grow and have accountability to each other is super important. I joined a mastermind group and started a mastermind group about a year ago. That has been really powerful for me. We have, five, six guys that meet on a bi monthly basis, that kind of go through our issues and concerns and we hold each other accountable is the stuff that we were told we were going to do and man that has grown me so much. So being a part of a team and surrounding yourself with people that are going to push you and grow you i think is the most important thing.

Taylor 35:47 

Awesome. I love that. Well, Stuart, thank you for everything today. I know you've got an event coming up and if folks want to get in touch with you, and learn more about your turnkey company, where can they do that? Lay it all on us.

Stuart Grazier 36:00 

Yeah, sure. So, our company's called storehouse 310 ventures. We have websites called it's https://storehouse310turnkey.com/. We have a Facebook page and Instagram page. I'm pretty active on LinkedIn. So you could find me on LinkedIn. If you want to do that, connect. I'd love to connect with you and help me when we can. 

As you mentioned, I'm helping put a real estate event together. It was going to be a live event at the end of May 29 and 30 may in St. Louis, Missouri, and we had all set up for that. It's called Ei live and the focus is, the first ever real estate conference for military and veterans. it's not solely for military veterans. 

Anyone can come to it but all the speakers at the at the conference Our military or veterans, and it's really just hitting on all the different topics and niches of real estate to show, these people that are the speakers on stage one of them, Scott Lewis from Spartan investment, he's going to talk about, syndicating and being a GP and finding the right GP. 

it's diving into the different niches of real estate, from a veteran and military perspective, we have decided to make it virtual, instead, it's gonna be the same day, it's 29 and 30. May, and you can go to veterans live.com if you're interested in checking it

Taylor 37:49 

Stuart, thank you for joining us today. Once again, I think turnkey investments are a fantastic opportunity for busy professionals all throughout the income spectrum really again, Gives you a great opportunity to buy cash flow in real estate with an experienced, experienced operator and experienced turnkey property management company. But like we discussed kind of earlier in the episode, you need to make sure you're buying with the right turnkey provider that's not just going to leave you high and dry or set you up with a property that is destined to fail. So thanks for bringing those lessons today. Appreciate your time.

Stuart Grazier 38:30 

And thanks, Taylor. There's a lot of fun.

Taylor 38:32 

Everybody out there. Thank you for tuning in. If you're enjoying the show, please leave us a rating and review on Apple podcasts very much appreciated. If anyone who could use a little bit more passive wealth in their lives. Please share the show with them and bring them into the fold. Thank you for tuning in. Once again. I'm your host, Taylor LOTE, signing off bye bye