How Boring Real Estate Assets Build Long-Term Wealth with Stewart Heath, CPA

Stewart Heath, CPA (00:00)
So June 30th of 2008, all based on appraisals, I had a net worth in excess of $20 million. Okay, I bought property that increased in value and had almost no cash, almost none. So that was an election year. A lot of people remember it. ⁓

John McCain, Barack Obama, all this kind of stuff. The wheels started coming off in early that year. Lehman Brothers went broke. Bear Stearns went broke. July 28th, ⁓ Countrywide Mortgage announces, we can’t fund the mortgages that we’re supposed to close in three days. And everybody’s like, what? Countrywide Mortgage was the largest mortgage provider in the country at

time.

Quentin (02:15)
Hello, everyone. Welcome to the Real Estate Pros podcast. I am your host, Q Edmonds, and I am excited to be here today. I have a phenomenal guest and I know I’m biased, but listen, I have a phenomenal guest. I can identify a phenomenal guest when I have one. This gentleman has years of experience and I think that’s for me excites me about this episode, because if you follow me, you know.

One of my high point is the fact that we get to learn from each other. I don’t care what we’re doing, where we are, we can learn from each other and learn from each other’s experience. And this gentleman has experience. And so I’m excited. I’m excited for him to walk you down the road of what it is that he does, what he’s proficient at. And so I am so excited to introduce you all to Mr. Stewart Heath, Mr. Stewart, how you doing today,

Stewart Heath, CPA (03:03)
I’m doing great, man. Thank you so much for having me on the show.

Quentin (03:06)
Absolutely, my friend. So glad you’re here. Believe it or not, sir, I couldn’t do this episode without you. So I, so so I listen, I appreciate you being here. really do take your time out. I appreciate it. And so, sir, I am the type man. I love to dive right in, Mr. Stewart. So I would love for you to tell the people what’s your main focus these days. If you don’t mind, give us a little bit of an origin story, kind of how you got into the space that you’re in.

And then tell us what part of the world you’re in, man. People love to know what people are geographically. So what you’re up to, or your story, where you are. Mr. Heath, sir, you have the floor.

Stewart Heath, CPA (03:39)
All right, well, my name is Stewart Heath. I’m a certified public accountant and I hail from ⁓ southern middle Tennessee, just close to Alabama. I’ve kind of been here in this area my entire life. My origin story is I became a CPA because my dad was one I had no idea what it was all about. And realized that I was far more entrepreneurial than than your average CPA. So actually

take after my mom a whole lot more than I did my dad. But, you know, I still maintain the license. It’s great, great experience, great learning, and it’s taught me how to think in business terms. But at end of the day, I just found myself being entrepreneurial. I have started ⁓ many, many businesses over my career, and I like to joke that some of them are actually still in business.

Quentin (04:34)
Yeah, yeah.

Stewart Heath, CPA (04:34)
So,

you know, and that’s probably true of most entrepreneurs, but I really just found my business love, if you would, in the world of real estate. Kind of got interested in that when I was just a kid and, you know, the asset that you can walk on and go touch and feel and visit whenever you want

And what was kind of weird is as I was just out of college, and you’ll figure out pretty quickly how old I really am. ⁓ So there was this thing called the 1986 Tax Act. And it sort of destroyed ⁓ several sectors of commercial real estate for many years. They did away with ⁓ the tax shelter limited partnerships where

And it was abusive and it should have gone away. They did it in such a way that it hurt a lot of people.

And I remember, and this was very, very, very early on in my career. So I was a business baby, if you would. And so I was very impressionable and I would hear bankers and people like, ⁓ real estate’s bad, real estate’s bad. You don’t want to do that. And I kind of believe that. And so long story short, I’ll… ⁓

I took a job with a big international accounting firm and then I, entrepreneurial, wanted to go start my own. And all my clients I started picking up were all real estate people. They were contractors, they were real estate agents, they were house flippers and stuff like that. And I’m like, what am I doing with all these real estate people? And so ⁓ in the middle of tax season, probably two o’clock in the morning one time, ⁓ I’m realizing

these people are making all kinds of money and they’re not paying any taxes. And so that’s when I sort of woke up and started thinking for myself and I started to sort of re-fall in love with real estate all over again and started dabbling in rental real estate myself and ⁓ I started building homes and doing development and things of that nature. I’ve always loved it. ⁓

I left public accounting, ⁓ left my own firm in 2010 and took a few C level jobs. when I came back out in 2017, I started consulting again, not really a CPA firm, but I always wanted to go back in to do real estate, but I wanted to do commercial real estate. And I knew I needed to do other people, use other people’s money. So started doing syndications, which is

Quentin (08:08)
Mm-hmm.

Stewart Heath, CPA (08:08)
big fancy word for raising money from other people to go buy property. I’m the operator, I’m the sponsor, we’re also the property manager. And so that was, we closed that first deal in very early 22. Since that time, we’ve done 10 deals, 10 separate syndications. We’ve got 48 and a half million of assets under management. We’ve raised nearly $20 million of equity in that period of time.

And we’re in the middle of raising our first fund. And distinguish a fund. Here’s a syndication that’s going to go buy several properties versus doing them one off at a time. So that’s kind of where we are now. We’re having fun at this point in time. It’s been a hard road, but everything is. so anyway, but we have fun most days.

Quentin (08:51)
Yeah.

Yeah.

Stewart Heath, CPA (09:06)
you know, but when you got real estate, there’s going to be some days that aren’t fun. When you have 10 air conditioning units go out and you know, it’s just a phone call away. But you you hate to see your tenants frustrated and unhappy. So anyway, so that’s my story, Quentin.

Quentin (09:18)
Yeah.

Yeah. yes

sir. Thank you, Mr. Stewart. Thank you for your story, man. I put a premium on people’s stories. And so thank you for your story. Thank you for taking us through the list, through the journey. That’s a word I like to use. And of course, you so you just gave us a summary in maybe like five minutes. But as you know, you’ve been living those moments in years. Those moments have been unfolding in years.

And so Mr. Stewart, always say destiny has no wasted moments. Destiny has no wasted moments. Yeah, right? And that synthesizes it, right? Because you borrow from each leg of the journey. And so I would love to know, sir, what have you learned about yourself within this journey, within these moments? Have you learned discipline, resilience? Like, what have you learned, Mr. Stewart?

Stewart Heath, CPA (09:57)
⁓ I like that. I’m going to use that. yeah.

Yeah, so, you know, I left out a big part of the journey. I figured we would get here anyway. I was I was through the entire decade of the early 2000s, you know, everything was just go, go, go, go, go. And, you know, I got up to about 200 ⁓ residential rental units in my own portfolio and and

great you had it made. I was just going as fast as I can. No real hard cash, no real reserves or anything like that. And frankly did not make it out of the great financial crisis alive, or in home or anything like that. that’s where most of my learning is from. That’s what shapes what I do now.

what I learned from that is, so I speak in numbers, I’m a CPA.

So June 30th of 2008, all based on appraisals, I had a net worth in excess of $20 million. Okay, I bought property that increased in value and had almost no cash, almost none. So that was an election year. A lot of people remember it. ⁓

John McCain, Barack Obama, all this kind of stuff. The wheels started coming off in early that year. Lehman Brothers went broke. Bear Stearns went broke. July 28th, ⁓ Countrywide Mortgage announces, we can’t fund the mortgages that we’re supposed to close in three days. And everybody’s like, what? Countrywide Mortgage was the largest mortgage provider in the country at

time.

And it was just weird times. mean, the wheels were coming off. So everything was just gone. And the value of your real estate is inseparable from the amount of money you can borrow to get it. So credit and real estate, it’s true of all asset values, but much more so real estate, because you can borrow more against real estate than you can any other asset class.

So I figured 90 days later after that, my June 30th personal net worth, I figured I was probably underwater $5 million. So that’s kind of the reversal. And so I spent the next year kind of unwinding things. And all but for the lack of reserves, if I had had reserves of $200,000, $300,000, I could have saved most of my portfolio.

Quentin (13:12)
Mmm.

Stewart Heath, CPA (13:28)
Most of those assets are still assets I would have loved to have had today. So my biggest learning is you don’t know what you don’t know. ⁓ I just didn’t believe in over-leveraging. Well, believe me, it’s a real thing. And you don’t know what you don’t know. Sorry to repeat myself. ⁓

And so in every deal that we do now, and it actually depresses our stated returns, but we build in reserves for 12 to 18 months just to carry the whole property in case the ridiculous happens. You just say you lose all your tenants in a multi-tenant building. It’s not very likely, but let’s just say you do. The only thing you really need

⁓ to stop from losing everything is time. And so those reserves give you time. And so you have to have discipline to be able to do that. So I’ve learned discipline. I’ve learned the value of a cash flowing asset. Our entire portfolio is built around cash flowing assets. And I’ve sort of come to believe that there is, everybody’s got an investment portfolio of some degree or not.

Quentin (14:21)
Yeah.

Yeah.

Stewart Heath, CPA (14:47)
You know, only thing you, if you turn on the financial news, you know, only thing they want to talk about is SpaceX or IPOs or, or whatever. And those are great. I love Elon Musk. He’s a hero. But those people are playing from a foundation of recurring cashflow and assets they already have. And we’ve come to call those boring assets matter. That is our

Quentin (14:59)
Yeah.

Mmm.

Stewart Heath, CPA (15:13)
That is our motto. Boring is beautiful. so that’s what we try to provide to our investors is, hey, if you want the right to go out and play your IPOs or go do a development dealer, says, first get a foundation of cash flow. That could be a cash flowing stock. It could be rental real estate. It could be anything that’s stabilized. And that’s the key.

word of art is stabilization. So that day in and day out, it’s going to throw off excess cashflow. You know, some of the most profitable companies in America, what do they do? They’re food companies. Does anybody, do you ever hear about these companies on CNBC or, no, but they just make money every day, every year, because all of us are eating all the time because we’re all buying food. So, so, you know, reserves,

Quentin (15:56)
more

Stewart Heath, CPA (16:06)
and boring cash flow, those are my two big takeaways from what I’ve learned so far in my career. Do I desire to go do development deals? I sure do. And I will someday, but not until I’m through building my foundation.

Quentin (17:02)
Yeah, Stewart, thank you, man. Thank you for just literally kind of just giving us your experience. You just gave us the gift of your experience. You talked about 1986. You talked about 2008. And so, man, thank you. Thank you for giving us your experience. And partly why I ask that question about what has the journey taught you is because I want people to realize that there’s different legs of the journey. And like I said, you’ve

Stewart Heath, CPA (17:28)
Yes.

Quentin (17:29)
just so eloquently talked about the different legs of your journey. And I want business owners to realize that things are going to change, but that, but at the center of the business is you. And so being able to pull from your experience, pull from, you know, the losses, the gains, I just think is a valuable lesson. So man, thank you so much for that introspective reflection and really giving us, you know, the gift of your experience, really just, I appreciate it. really do.

Stewart Heath, CPA (17:57)
My pleasure.

Quentin (17:59)
What’s next for you, Mr. Stewart, sir? I mean, I know you just talked about some things you want to do, but right now, what’s the next real goal? What do you have lined up? What are you looking to solve at scale next?

Stewart Heath, CPA (18:08)
Yeah, we’ve really been struggling so far this year with quality deal flow. ⁓ when you do what I do, it does seem like, well, I got people who want to invest with us, but I got no deals. then you got deals, and then nobody wants to invest. So I mean, it’s when you find those sweet balances. But that’s what makes it work. ⁓ The sellers are, sellers have been hard.

really since COVID. Sellers never seem to want to realize that what they’re trying to sell is ⁓ completely related to interest rates. less so when it’s a development thing, because that’s a hope and a dream. But when you’ve got a stabilized, a boring piece of property that’s got great tenants, thrown off cash flow,

You’re really just dealing with a piece of financial paper at that point that comes with tax advantages of real estate. So a lot of sellers, they either don’t understand commercial real estate or they’re holding out for a sucker or something like that. And more power to ⁓ them. They should hold out and get the price that they want ⁓ if they can.

Quentin (19:21)
Yeah.

Stewart Heath, CPA (19:33)
But so what happened in COVID, if you remember, ⁓ interest rates were on the floor. And we all know people who won’t sell because they got a 2 % mortgage on their house and stuff like that. And they shouldn’t. The mortgage is worth more than their property at this point. But now interest rates are in the mid-6s. Historically, these are not bad interest rates.

And if you work real hard, you can get one at 590 or 6 % or something like that. Because there’s plenty of lenders out there wanting to make loans. But you boil all that down into the commercial world where we talk about cap rates, a capitalization rate, which is nothing more than the expected rate of return you expect to make in the first year. And so

I’m working a deal right now where I will pay what we call a 10 cap. So it’s going to throw off 10 % profit the first year. But I’m looking at other deals where people are saying, they’re trying to sell it at a five and a half cap. I’m just like, I can do better than that in bonds. But somebody may very well pay that. So what we’re working on right now is good quality deal flow.

I mentioned before, we’ve launched a fund. We won’t do every deal through the fund, but we’re on track to try to double our assets under management in the next 18 to 24 months, either through the fund or outside the fund. And just continue to build that great big snowball of cash flow, if you would, and just grow that and grow that. We’re in the wash, rinse, repeat mode.

Quentin (21:21)
Sir.

Stewart Heath, CPA (21:22)
It’s embarrassing for me to use a reference from a shampoo bottle, which obviously I don’t need, but that’s where we are. We’re having great success with the deals we’ve done, throwing off cash flow. We know how to underwrite them. We know how to capitalize them. We’ve got a stable of lenders that now have confidence in us.

And if you use an appropriate amount of leverage or debt, ⁓ it’s really a pretty safe investment.

Quentin (21:56)
Yeah, yeah, yeah. Well, in all fairness, sir, I do see hair on the side. I just, I’m all about creating confidence in people. I see the hair on the side, so it still applies. It still applies.

Stewart Heath, CPA (22:08)
Next time I

see you, I’ll be doing a comb over.

Quentin (22:12)
Oh,

Mr. Story, man, I appreciate you so much. I do. I’m going get you out of here. I want to ask you one last question because you have so much experience. You work with different people. I got to get your philosophy on this word. So Mr. Story, when you hear the word relationship, what comes to mind to you? I got to get your philosophy on that. What comes to mind when you hear relationship?

Stewart Heath, CPA (22:30)
Yeah.

Indispensable is the word I would use. I have to say that’s something else that I’ve learned the hard way. I’ve always kind of, ⁓ you know, didn’t always want to play well with others, you know, when I was younger, and just, you know, I want to do this. And it’s not necessarily about partnering, although we do that now. But relationships,

with our vendors, certainly with our investors, ⁓ with people that I’ve put on the board and really with colleagues, just, and it’s all about the learning. I mean, we can’t learn it all ourselves. You cannot exist in a bubble. There are some people that are very successful, very early on in life.

But I think most of them, mean, somebody from my generation is Michael Dell, who invented Dell computers from his college dorm room and stuff like that. And he’s still a fabulous figure amongst business, but he would tell you he didn’t do it by himself, but great entrepreneur. But I talk to bankers an awful lot because

Quentin (23:38)
Yeah.

Stewart Heath, CPA (23:57)
you know, they’re not the most creative people in the world, but they do have their perspective in their world. Sorry to my bankers, you might be listening. So, ⁓ I mean, you know, they have a completely different perspective. I’m over here trying to do a deal and make money in the margins and return a 20 % IRR. A good day for them is 4%. That’s all we’re ever going to make.

They don’t need to take the same kind of risks I’m trying to take to make five times that. But they have vast amounts of data that they can consume and are usually willing to share. So talk to bankers. Talk to anybody who will talk to you. ⁓ And really just to get information. We have a weekly newsletter called ⁓ Nerdy Numbers. And it’s all about

consuming data and my take on that data and because from somebody I learned a long time, I’ve just really become a lifelong learner. There’s just no information that I don’t want to consume.

Quentin (25:08)
Mr. Stewart, I’ll tell you,

thank you, thank you.

If someone wanted to reach out to you, connect with you, collaborate with you, learn more about what you’re doing, sir, how can they get in contact with you?

Stewart Heath, CPA (25:20)
Okay, the easiest way, and we’ve tried to make this easy, go to our website, harvardgrace.com. You can find my Calendly link there. You can book some time. I’ll talk to anybody about real estate all day long. So feel free to use that. On the website, there’s free resources. I’ve put a lot of stuff. I wrote a book last year. Don’t do what I did. It’s free.

Quentin (25:46)
I love you.

Stewart Heath, CPA (25:49)
you know, sign up for it and we’ll ship it to you for free. There’s other resources in there. It’s about an anatomy of a syndication. If you don’t know what that means, it’s step-by-step graphical and shows you what that means. ⁓ Questions you should ask your passive activity sponsor. That’s one of my favorites. It’s like a hundred questions. And, you know, if you don’t want to run the investment, that’s fine, but you do.

Oh, yourself the responsibility to check out the person who is going to run it. anyway, lots of stuff there on the website. You can connect with me there. So thank you for

Quentin (26:25)
Yeah. Yeah.

Absolutely, sir. OK. So I want to say three things to you. I want to say them to you sincerely. Thank you for your time. And I mean that. think time is our most precious commodity. So thank you for taking time out to come on the show and to share. I appreciate that. You could have been doing anything you wanted to, but you’re here. So I thank you for that. Secondly, Mr. Stewart, thank you for your story. Thank you for your experience. I believe stories.

Stewart Heath, CPA (26:47)
My pleasure.

Quentin (26:54)
And personally, our stories, when we share them, they have a way of planting seeds in people. Now we may never see the growth. We may never see the return on the seeds that we plant, but the seed is still there. And that seed can take root and grow two years, five years from now. So thank you for the gift of your transparency, the gift of your authenticity and the gift of your vulnerability we’re sharing today. I really know you planted some seeds. And lastly, sir, thank you for your mindset, the way you think.

Developing that mind over years of experience and bringing that mindset to this platform. I truly, truly appreciate you coming on today,

Stewart Heath, CPA (27:30)
My pleasure. I’m happy to do it again, my friend. Enjoy your good interview.

Quentin (27:33)
You listen, don’t throw me one at

Don’t throw me. We’ll talk about that off air. We definitely can talk about it. I would love to do it again. Yeah. I love it. I love it. I love it. Well, listen, y’all heard Mr. Stewart. His information is in the show notes. Please get in contact with him. Reach out to him. Definitely make sure you’re subscribed here because I’m promising you we’re going to continue to bring up amazing people just like Mr. Stewart. So, sir, thank you again.

Stewart Heath, CPA (27:40)
All right, we should do a series.

you

Quentin (28:01)
And everyone else, you have a fantastic day.