The School Of Cash Flow

Delving into passive real estate offers a huge number of benefits. For one, it produces a steady amount of cash flow – but only if done correctly. If you want to make it big in this field, you must understand the ins and outs of building relationships. Dale Corpus sits down with Tait Duryea to discuss his work as the CEO of Turbine Capital. He shares how his team helps high-income professionals find the best real estate opportunities by tapping the right connections. He talks about the differences between investing with an operator and a syndicator, as well as the many asset classes out there today. Tait also explains how storage spaces turned out to be a gold mine during the pandemic and the importance of getting proper investing education.

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Tait Duryea On Winning At Passive Real Estate Through Strong Connections

I’m excited about my guest. His name is Tait Duryea. He’s both a pilot who flies around the world and is the Founder and CEO of Turbine Capital which is dedicated not only to investing in real estate but also to educating other investors about passive investing. As a 12,000-hour airline pilot, he understands the lifestyle needs and wants of a professional aviator. On a personal crusade to replace his income with cashflowing real estate, Tait founded Turbine Capital to provide his colleagues and others the same direct access to professionally manage real estate opportunities he worked so hard to find. With over a decade of residential and commercial investing experience, he began passively investing in self-storage, multifamily and development syndications in 2017 and has since accrued significant experience in the analysis and due diligence of these offerings. Without further ado, thanks Tait for being a guest on this episode.

Thanks, Dale. I appreciate the intro.

How are you?

I’m doing great. It’s a beautiful day.

Are you based out of Honolulu?

Yes.

What a perfect place to be stuck out during COVID. Is there anything else you’d like to say about yourself to the readers that I may have missed?

I’m an Airline Pilot by trade and fell in love with flying at an early age but also had a passion for real estate and financial freedom. I read that beautiful purple book by Robert Kiyosaki when I was 12 or 13. I couldn’t get it out of my head. Now I get to do both, and it’s a blast.

Rich Dad Poor Dad changed a lot of people’s lives about understanding the financial world because it’s not taught in schools. Tell me more about Turbine Capital. Why did you start it? How did you start?

Turbine was an idea that hit me like a lightning bolt while I was at a real estate investing conference a number of years ago. I was hanging out with some physicians that had private equity groups that they led. Doctor networks of guys and girls that would invest together. I thought, “I wonder if anybody’s doing that for airline pilots because we’re a professional demographic that does very well and like doctors, most of us have a reputation of not being so good with our money.” I thought, “What an amazing opportunity to bring some incredible risk-adjusted deals and investment knowledge to a professional cohort that could use it.” I sat on the idea for a year and I said, “This is something I want to bring to life.” Coincided with COVID and lockdown, I was very fortunate in terms of the flying schedule lightening up and having the time to dig into it. It’s been taken off like a rocket ship and we’re having a blast. By no means, we’re restricted to airline pilots that our demographic, niche and that’s who our audiences are but anyone is absolutely more than welcome to participate with us.

I know you’re mainly passively investing versus active investing. Is that correct?

I follow the same path as a lot of real estate investors that they want to get into it. They buy a single-family house, bought another single-family house, condo and renting those out. Just like the typical path of the real estate investor, you realize that doesn’t scale, so you make the jump into multifamily and realized, “This is a lot of work. I already have a full-time W-2 job.” Then you stumbled on passive investing. You always hear this term, “Use other people’s money to invest.” OPM in a lot of these business books. It’s an opportunity to be the money partner. We have a great W-2 job. Why not be the partner? Link up in arms with some great operators and invest passively.

I started investing in syndications back in about 201 and enjoying the experience of being able to do some due diligence on the front end but as soon as you wire the money you’re done. You literally are getting mailbox money in ACH deposits monthly or quarterly into your bank account. To me, it’s a much more scalable way to build a real estate portfolio than going out and doing it myself. That’s not to say that I don’t ever want to get a little bit more involved. I did buy a sixplex in South Carolina years ago. I did BRRRR, which is Buy, Rehab, Rent, Refinance, Repeat method on that. I did a cash-out refinance after the renovations. I am planning to buy some more multifamily for my personal portfolio but that’s because I’m a real estate nerd and I like it.

For most people, especially if you have kids and a busy job, it’s not something that is easy to go out and do. It’s easy once you have gotten started in real estate, got all the momentum and the network. It’s easy to kick your feet up and talk about how great it is but it’s hard to get started. It took me years to build that foundational knowledge, get the network, go out there and find good deals, know how to analyze and renovate them. It’s a wonderful thing for people that don’t necessarily have that drive and interest in going out and learning how to do all that stuff. They can simply be the money partner, diversify into commercial real estate and have that as part of their portfolio without having to go and become an expert in buying, repositioning and managing real estate.

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

I know a lot of people in this audience are high-income earning professionals that are very good at their jobs. They all want to dabble into investing in real estate. The problem is a lot of people don’t know where to start or they feel paralyzed in the sense that they feel like they have to have so much knowledge and do everything themselves. Nowadays, that’s not the case. You’re mainly investing in things like syndications. That being said, when you first started, how did you even find your first syndications? Which operators to partner up with?

That’s part of the genesis of why I started my company because they’re hard to find. You would think that they would be easier but they’re not. If we can back up to unpack that question, we got to go back to how syndications were originally formed. It was in 1933, as part of the formation of the SEC. Rule 506(b) which provided an exemption so that you could pull capital to syndicate real estate has been around since 1933. The caveat is you were not allowed to generally solicit. You couldn’t do any general solicitation. You couldn’t advertise. It had to be people with who you had a pre-existing relationship with. It was a country club deal.

People who weren’t familiar with the model or didn’t personally know someone who was syndicating real estate was essentially barred from investing. It had to be a one-on-one deal. That’s the reason why people haven’t heard of it. In 2012, as part of the Obama JOBS Act, that’s what allowed for crowdfunding. In 2012, there was a lot of media attention and hoopla about, “This is going to revolutionize the way that people invest in real estate,” which crowdfunding and micro-funding. It never materialized. What it did was create another exemption called 506(c), where you could generally solicit to the public. All of a sudden, these syndicators could now use a separate exemption, solicit to the general public, advertise about their deals. However, we now could only accept accredited investors if you did that model.

What ended up not materializing was this big wave of capital. When people are investing $50,000 or $100,000 in a deal, they want to know who they’re working with. That model of crowdfunding and industry being disrupted by online portals where you could sign up and invest in real estate never caught traction. The business model has still been definitely maturing and growing but not in this big, “Everyone’s doing it,” thing. The way that I found that the syndicators that I work with and the ones that were courting to get into more marriage, partnerships with is face-to-face, one-on-one conferences, referrals. They’re hard to find. They’re even harder to vet. It takes a long time to go into their track record, dig into the track record. A big part of what we do. Finding those operators, vetting out their track record and their current deals to see if that’s something that we want to bring to our investor group.

I’m a realtor, and my readers know that too. Real estate is much a relationship-based business. The same thing goes for investing. It’s about who knows who, and that reputation is everything. Getting those really good solid referrals. People potentially aren’t as comfortable with sending their money to an online portal to invest in syndication because it’s more of a black hole. They can’t necessarily talk to an actual person and have that relationship and even meet them.

People want to want to work with people that they know, like and trust. At the end of the day, real estate is a relationship business. It’s a team sport.

They feel that when you meet that person or operator after you do all the due diligence on your part, you get that gut check where you can feel if it’s right or not. I’m assuming you know what I’m talking about before you get into business with any of the operators that you do business with. Talking about the types of asset classes that you invest in, can we talk about that? Are you mainly focused on one type or is it several?

For anybody that’s familiar with what asset classes are out there. A real quick recap of what falls under the commercial umbrella. First of all, anything over four units in multifamily. If you have more than four units on one tax parcel, you can go duplex, triplex, quad. The moment you go five units, it’s a commercial property. Commercial multifamily, that’s one. There’s multifamily, storage, industrial, hospitality, senior living, all great asset classes for different reasons. We launched in the pandemic. We wanted to focus on recession-resistant asset classes. There are mobile home parks and storage are the two asset classes that are famous for being very resilient during downturns.

We’ll focus on storage because that’s the one that we’re primarily focused on. We have an excellent relationship with an amazing operating partner that we couldn’t speak highly enough about. We’re in five deals with them. They’re fantastic. We’re focused on the storage sector. The reason why storage is so resilient during downturns is because when things go wrong, people need storage. You look at during COVID, all those restaurants that all the furniture was gone. Where does that stuff go? It goes into storage.

We narrowly avoided with the Fed action, massive recession because there was so much liquidity pumped into the market but had there been a big recession and there would have been more job loss without the safety net of the triple P and the stimulus checks. We would see negative household formation and people moving in with friends and parents. Their furniture has to go somewhere. Storage performs very well during uncertain times. That’s why we went into that because we could know with a level of certainty that no matter what happened with the economy, our investments would perform well.

Going back, we were talking about due diligence. Do you have a process on how you conduct due diligence on your deals?

Definitely. We have our CFO, Jim Morales. He does the financial due diligence and I’m more of the operational side. You want to start at the top and then work your way down. We start with the operator. We look at their internal mechanics. What team do they employ? What’s their track record? We want to see what happens when things go wrong. This particular operating partner, for example, had a tornado go through an RV park that they had closed on a month prior. This tornado tore apart the entire park. Within four months, they had the entire thing back running like clockwork.

A few months later it was cashflowing positive for their investors. That’s the experience that we want to see. People want to see an experienced pilot in the cockpit. Anyone can fly a plane when the weather’s good, things are nice and prices are increasing. One of the dangers is when you look at the landscape, there’s a lot of operators that look like geniuses that have only been in the business for the last ten years because the rising tide has lifted all ships. You want to dig into their operations and how they handle issues when things go wrong.

From there, digging down to the deal specifics. That’s where we always go and conduct site visits. We have a portfolio deal open as we speak on a nine property, a storage portfolio down in the Southeast with them. I flew out and site visited all nine of those properties with them. I talked to the onsite managers, got a sense of the surrounding areas, asked the managers, “What does it look like when it rains around here? Does it flood? What’s the demographic? What are customers asking for?” Getting a deeper sense.

Passive Real Estate: It’s a much more scalable way to build a real estate portfolio than going out and doing the work yourself.

That’s not something you can do as an individual investor. If I was just investing $50,000, I don’t know if I would take that time out of my life to go and spend a week looking at storage units but because we run this fund, we’re digging into it. Jim handles the underwriting. He’s been in the financial industry for many years. His day job is for a real estate operator that has about 9,000 units and 2 billion under management. He’s the one that shreds apart the underwriting and make sure that he likes it from the financial side.

For clarification purposes for the readers that may not even be familiar with some of these terms, you’re not an operator but you’re the syndicator. What would be the difference to an investor then between investing directly with the operator versus investing with you as a syndicator?

There are a number of differences between investing directly with an operator and with fund like ours. First off, let me explain why we pull money in the first place. We’re building out the largest network of airline pilot investors in the world. Anybody else that wants to come along and join our group are more than welcome to. It’s a group of airline pilots. We’ve got strengthened numbers. We have more teeth to do and a larger budget for due diligence. Because we’re pulling money and investing a larger sum, we can command better terms for the investor group.

That’s how we can make money on that Delta. My company, instead of doing, let’s say, a 50/50 split, we get a 60/40 split. We return the investors to their original economics that they would get, how they gone directly to the sponsor and done all the due diligence, all that work on their own? From the sponsor side, the benefit of working with a group like ours is that it’s a certainty of raising capital. If they know that as they grow, their capital needs are going to grow so developing a relationship with a group like ours is important to them because they know that if they bring a good deal, they’re not going to have any problem funding it.

This particular operating partner has a very robust list of direct investors. As they grow, it helps them to know that we have a large group and that if we run it through the wringer and we like it, we can bring in a large piece of equity. To answer your question, for the retail investors, the difference between investing directly with an operator and a group like ours financially shouldn’t be much different, if at all. As far as the experience that you’re getting, you’re going to get a streamlined and as smooth user experience as possible because we want to take good care of our investors. You’re also going to get the benefit of our relationships, deal flow and due diligence process.

What I personally like about also investing with syndicators is they have that extra level of that due diligence that I wouldn’t necessarily do myself if I went directly to that operator too. They’ve vetted even more so.

We don’t love every deal that they bring around. We dig into each one, let every few go under the bridge then pick the ones that we like.

Speaking of self-storage, do you see any challenges in that space?

Quite the opposite. We do already touched on why we like it in downturns. In good times, there’s so much money searching for yield in the world. Storage is an asset class that has caught the attention of institutions. Bill Gates became a large owner of one of the largest storage REITs in the country. There are billions of dollars flowing in from Blackstone and Cascade. To put it in perspective, if you wanted to place $100 million worth of capital in the multifamily space, it’s very easy to do that. You can do that with a couple of apartment complexes in Texas. If you want to place $100 million in storage, that’s very difficult to do. If Blackstone could buy every single storage facility that trades in the US in the entire year and it would only account for 0.2% of their entire platform.

These REITs are pushing money into space because it yields very well. There’s a common misconception that they’re easy to build and pop up. It’s a very localized business. It has to be in the right location. It can be very tricky to get cities to sign off on it. They’re a little bit like mobile home parks where it’s not in my backyard thing. They’re a little trickier to build in the right spot than people might think. With the amount of capital inflows that we’re seeing, we underwrite for cap rate expansion. We are seeing a massive cap rate compression with the money flowing in that searching for yield there. There’s a lot of money that’s searching for these opportunities with very aggressive pricing. We think it’s a good time to enter this space.

For a typical self-storage fund, for those that haven’t even invested in a syndication group for that matter, what is the time frame for that investment from the beginning of it to the end of it usually?

In any syndication deal, you have to project something and put a projected hold period. It comes down to the business plan. What are you planning to do with it? Our projected hold times on most of the deals that we’ve seen come across our desk are five years. That’s a conservative estimate of how long the operator thinks it will take to complete the business plan. Meaning, get in there, professionalize operations, renovate the offices, put everybody on auto-pay because a lot of times we come in from mom-and-pop operators that people are still bringing down cash to the office.

Put in modern security systems. All of the value-add stuff that needs to go on. In addition to the physical stuff, which is expansions, reselling drive aisles, making the place look good with paint and staff. It goes on and on. How long is it going to take to complete that business plan to add the value that we’re looking to add and then exit? The specific deal that we’re looking at is a five-year hold but that would give us about an 18 to 36-month buffer on what we think internally it will take to complete that business plan.

I’m curious to even know more about that fund that you got going on. Can you tell me more about that? Where is it geographically located?

Passive Real Estate: Once you start in real estate, you’ve got all the momentum and the network that it’s easy to kick your feet up and talk about how great it is. However, it’s hard to get started.

This is a nine-property self-storage portfolio in Florida, Georgia and Tennessee. We’ve got 5 properties in Georgia, 3 in Florida and 1 in Tennessee. There was a tenth property that was put under the contract that’s going to be added to it right across the street from one of the facilities in Warner Robins. It’s a $30 million purchase. The total project cost is about $42 million after the expansions and initial improvements. Repositioning it to the operator’s national brand standard. There are multiple exit strategies. We could sell off one and return capital to investors. We could sell a couple of them or sell a Florida portfolio. The preferred exit would be to add value into the largest portfolio that we possibly could across the operator’s national portfolio and sell them to a publicly-traded Reed or a Blackstone.

In terms of value-added strategy, what kinds of value adds are you doing to an actual facility? Is it because it was managed poorly before?

These were aggregated by a couple of brothers down in Florida. They’ve been piecemealed together over the past years and done a good job. They’ve done some expansion. They’ve got some great onsite managers that we were able to speak to. A lot of those will be staying after the transition. It’s lacking a level of sophistication that our operating partner brings to the table. For example, there a number of things on the table that we can add ancillary revenue to the projects with, such as tenant insurance. This is a huge one. A lot of mom-and-pops don’t require tenant insurance.

For example, on a typical storage unit be about $8 a month. When they sign up for a unit, they use our insurance then we get half of it. You multiply that across thousands of units. That’s a very easy way to add ancillary revenue. They don’t have to go through ours, but most people do because it’s like checking a box on the form. “You have to have it, you want to use ours or you want to go and mess around with your insurance company.” Most people don’t do that. There are propane sales and U-Haul truck rentals. U-Haul is a ground lease program.

We don’t do anything with the trucks. We clean them and hand out the keys. There’s the ice, vending and merchandise, boxes, tape. We could do PO boxes, FedEx and UPS drop-off locations at all these locations. Those things aren’t the things that are going to move the needle on revenue. They’re going to make your facility that much more attractive to customers that are shopping around. It’s like, “This one’s got all that stuff. We’re going to go there.” It helps with the overall pricing of the facility when you’re renting a unit.

That, in addition to the physical improvements which we immediately go in there and seal drive aisles, make it that fresh blacktop that looks real nice paint. We make sure that the rooms are all fixed and leak-free. Taking care of any deferred maintenance on the structure. Making sure that the drainage is working properly. That’s also something that we look at very thoroughly during our due diligence process. When we say value, what is a property value at? It’s a multiple of income. We’re just looking for ways to increase revenue and decrease expenses. We do that via all those things. Plus, most of these facilities have vacant land to expand, and there’s good demand in the market. Once we get in there and stabilize the facilities, we finalize the expansion plans and start building a new climate-controlled adjunct to the existing facilities.

Is the fund only open to accredited investors?

Yes, it is. That’s the only reason why I can talk about it.

Going back to the topic of passive investing in general. Besides passive investing being super simple and easy. What else do you like about it?

Cashflow. The whole reason I got into real estate was to replace my income. I’m on a personal crusade to replace my W-2 income with passive cashflow. The best way I see to do that is through real estate. I know that you’ve got some note investments which are also a fantastic way to have cashflow to your portfolio. I always say cashflow is like airspeed. To give an aviation example. Income is your thrust, expenses and drag. The difference is how fast you can accelerate. Every time that you invest in something that cashflows, retirement accounts are fantastic and you can invest in syndications as well through self-directed retirement accounts. Your W-2 401(k) is great but that’s a later bucket. That’s for me in 30 years. That’s not for me today. I want to build my today bucket because that will ultimately help me build my tomorrow bucket even faster if I can fill up my today bucket. I’m all about the cashflow.

For people that are thinking about becoming passive investors, do you have any advice for them?

Get educated. There are some great podcasts out there to get familiar with the terms. There are good and not so great syndications out there. I’ve invested in some not-so-great ones when I was first getting started. They have underperformed pretty nicely. Getting educated, getting together with a network of people who know what they’re doing that you can share knowledge and network with. There are some great books out there, Brian Burke from Praxis Capital has a book that’s published. It’s a fantastic book that talks all through on how to run due diligence on a syndication deal. The advice I would have is do your homework, get a little bit of baseline knowledge and if you don’t have the time, the desire to go out there and find a bunch of operators and run your own DD, due diligence on their deals, link up with one of the many companies that pool funds together. Dale, I know you’re working on one that you’re starting?

Soon to be working on one. I’m eventually going to be a general partner and myself on syndication. The answer is yes.

You’re going to be an operator. We’re not an operator. We’re not buying our own real estate.

Passive Real Estate: Storage spaces perform very well during uncertain times. During COVID, all those unused furniture goes into these places.

Me partnering up as a general partner but I’m not going to handle the day-to-day per se but I run a team.

You’ll be part of the GP.

How does somebody invest with you?

The best way is to go to our website TurbineCap.com. Sign up for our list. You can go right to our investor portal. If you click on the investor login and create an account, we’ve got that storage deal open as we speak. You can also reach out to me directly Tait@Turbinecap.Com and feel free to shoot me an email. I’ll be happy to walk you through the process, have a conversation and talk more about what we do.

Those are all questions that I had for this episode. If any of you readers have any more questions for Tait, reach out to him directly. Thanks, Tait for coming on this episode.

Thanks for letting me talk about everything that we’re doing. I appreciate it, Dale.

You’re welcome. I appreciate your time and the value you brought to the readers. To all the readers, thank you for checking out this episode. Until next time. Live your life abundantly.

Important Links

• Turbine Capital
• Rich Dad Poor Dad
• Tait@Turbinecap.Com

About Tait Duryea

As a 12,000-hour Airline Pilot, Tait Duryea understands the lifestyle, needs and wants of the professional aviator.

On a personal crusade to replace his income with cash-flowing real estate, Tait Duryea founded Turbine Capital to provide his colleagues and others the same direct access to professionally managed real estate opportunities he worked so hard to find.

With over a decade of residential and commercial investing experience, Tait began passively investing in self-storage, multifamily and development syndications in 2017, and has since accrued significant experience in the analysis and due diligence of these offerings.

Tait is a captain and check airman on the Airbus A321 for a U.S. major airline.