J Darrin Gross 0:21
Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today my guest is Feras Moussa. Feras is an entrepreneur at heart with a tech background. Feras worked with Microsoft. And he later left Microsoft to bring tech to industries that lack it, where he later found his passion for real estate. He founded Disrupt Equity. It’s a commercial real estate acquisition firm that works to provide investors with strong passive income by leveraging multifamily syndications. At Disrupt Equity they focus on identifying B and C class multifamily assets with 90 units or more in key markets, including Texas, Florida, Georgia and Tennessee. Their goal is to provide investors with strategic tax incentivized investment opportunities that create the highest potential returns.
And in just a minute, we’re going to talk with Feras, about investing in multifamily real estate. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can subscribe, like and share. And as always we love to receive comments. So if you would, please let us know what you think. And also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And that’s Commercial Real Estate Pro Network. While you’re there, please subscribe. With that, I want to welcome my guest, Feras, welcome to CRE PN Radio.
Feras Moussa 2:22
Thanks for having me, Darrin . Glad to be here..
J Darrin Gross 2:25
Yeah, well, I’m really looking forward to our talk today. Before we get started, if you could just take a minute and share with listeners a little bit about your background.
Feras Moussa 2:35
No, absolutely. So I mean, I, I kind of have almost with my worlds become the traditional thing where you have a lot of people in real estate that came from kind of a tech or an engineering background. So you know, I fit that mold. But you know, me personally, you know, I was always been kind of an entrepreneur, I always knew I’d go off and do my own thing. And so from high school, I had my own little web company that did really well and then, you know, kind of went off to Microsoft, right? Kind of accidentally really fell into that I did an internship there. Love the people, I worked with a team and I’m like, Alright, I’m gonna stay here, do this for two, three years, get this on my resume, get the experience and move on. And so I ended up staying, you know, three and a half years, I wanted to make sure I left not in the middle over release, but at the end of a cycle. So kind of time that well and, you know, went off and did my own software company after that and kind of had that going for several years. And like a lot of probably your guests, you know, start looking at Okay, what else can I invest in? Besides the stock market? Right?
Being from tech stocks is the thing everyone does. But, you know, to me, I wanted to diversify a little bit more and started educating myself on real estate right listen to a lot of podcasts such as this, I read a lot of books, and you know, kind of learned all I needed to know and then it kind of hopped in and figured out so before I even moved back to Houston, I had a four Plex under contract that you know, is now coincidentally about a mile away from our office but uh, you know, bought a four Plex bought a bunch of houses and kind of, you know, got into real estate before I then transitioned into multifamily. So, you know, love real estate, fun business fun space, and so I’m glad to kind of be able to share that.
J Darrin Gross 4:03
Awesome. So the attraction of real estate, what was the attraction for you to invest in real estate?
Feras Moussa 4:11
I mean, for me, so I’ve been there’s a book that I highly recommend called The Millionaire Real Estate Investor, Gary Keller, the guy that started Keller Williams. It kind of does a good job positioning really just what I like to call the pillars of real estate, right, you know, what does it mean to make money from you know, real estate investment, whether it’s cashflow, appreciation, depreciation, leverage, right? All of these things compounded really turns into actually a very powerful investment vehicle. And I think a lot of people, and again, coming from Tech, a lot of my friends are sipping the stock Kool Aid and you know, you tell them about real estate and what do they do, right, everyone thinks they’re a genius. They search Google, you know, they go Google it and say real estate versus stock market. The thing that you see is, oh, well, the stocks of you know, the past 50 years have averaged, you know, 10% a year, right real estate prices. It’s only two and a half percent. So clearly real estate a terrible investment, right?
But they’re not really factoring in the other pieces of that. Like I said, appreciation, depreciation, leverage cash loss, I mean, all of those things combined is actually a much more powerful. So to me, the math made sense, right? And then you know, it is a real asset, right? It is always there. And if you buy it, right, where, you know, you get it, you be pretty resilient, right? Because, you know, rents, you know, will fluctuate, but they’re not going to fall 100, you know, at 80% in at night, right? We’re certain stocks have done that, right? individual stocks, so you’re not beholden to some CEO somewhere not doing something they shouldn’t do kind of thing. And so, you know, for me, it was just another opportunity to get into a different asset class. And as I got more and more into it kind of started to really learn the power of it, you know, kind of run with it.
J Darrin Gross 5:48
So you said you had a four Plex, and some single families? Did you buy the four Plex first? Or did you buy some single?
Feras Moussa 5:54
So everyone talks about in all the podcasts, you know, four plexes is much better? Right? Well, the problem is, I knew I was in Seattle at the time, I knew us moving back to Houston and get into real estate. And there’s not a lot of for plexes in Houston. For those that don’t know, Houston is one of the largest cities in the world in terms of landmass. So in Houston, we don’t build up, we just build out, right. So there’s a lot of houses, there’s not a lot of for plexes. And so I know and I still do Houston pretty well, and most of the one for plexes that existed in areas that I would want to buy. And so luckily, I did find one, and I’ve you know, bought that. And then from that, you know, bought a bunch more houses, right? Which made more sense. And then, you know, after that point in time, okay, I saw the power of the four Plex all the power of the houses. And again, you can make money in real estate a million different ways. There’s no right or wrong. For me, the residential side didn’t really scale very well. And that’s kind of what led me into learning more about apartments and then kind of hopping all in.
J Darrin Gross 6:49
Let’s talk about that. Because I think that like, like a lot of people, myself included, I was, there was an lewer of real estate, I saw people that were investing in real estate. And I remember one guy was telling me, he goes, Yeah, make $100 a month off that $100 a month off that $100 I’ve gone, man, you know, you can add up, you know, pretty fast, you can have a couple thousand bucks extra cash coming in kind of thing. Mm hmm. And so that was kind of my allure. Yours? Was it the the Gary Keller book, kind of the big picture and the math or was there anything more?
Feras Moussa 7:25
It was the big picture in the math for me. I mean, it’s the numbers made sense. Right? And, you know, and then I could see that there is a path to scale that right. You know, I since didn’t realize some of the pain points of the residential side, right, I have 12 different properties, 12 different insurance policies, you probably know that, well, 12 different loans. I mean, all that becomes a pain because they’re all different. They’re all different times, right, etc, etc. And so, for me, I didn’t even have the headaches that people have in our tenants. Luckily, I had pretty good tenants for the most part, right? But it was some of the other stuff that led me to kind of realize, okay, this works, but it’s not gonna scale to where I want to scale to so.
J Darrin Gross 8:02
So you started off, you got the taste, you realize you need to scale? What, what were some of the hurdles going from Single Family to multifamily for you?
Feras Moussa 8:15
Um, hurdles? Honestly, I don’t want me to, I’m getting educated. Right. So once I kind of realized I wanted to make that transition, I was, you know, I was looking at doing my own smaller apartment complex, right, as a 32 unit in Conroe. And I’m glad I did not win that, because I was going to do that on my own. You know, no syndication, no nothing. And I didn’t win that one. And I was doing 32, because I was about the size that I could comfortably do right in terms of cash. And I didn’t win that and instead started learning, you know, again, educating myself more and started learning more about syndication, right. And syndication. For those that don’t know, it’s really the concept of, you know, let’s say, Darrin, you had $100,000 to invest in a property right. But hundred thousand dollars will let you buy a $400,000 property roughly. Right? Great if $100,000 property, that’s not enough meat on the bone to have full time staff or system size or anything like that. But now let’s say me, you and eight of our friends have $100,000 to invest right? together, that’s a million dollars, we can buy $4 million property right? So syndication is the concept of pulling together, you know, equity to go do something bigger and better together. And so luckily, I learned about that. And you know, I was gonna go off and go do my own syndication. Right. And, you know, also met my partner and, you know, we did count our first deal went really well then started to kind of continue to do more from there. And so it’s funny because that broker who, you know, that toward that 32 unit, I stayed in touch with him, right. And, you know, I remember I offered it and when we had a coffee and then about a couple months ago, I was asking him about a big deal that they had a for sale recently, right. And A class I think was like a $50 million deal. And his message back to me is like, man, how do you go from you know, asking me about a 32 unit asked me about this massive deal and it’s kind funny jokes, I told him the same thing like, Well, how do you go from touring me a 32 unit thats for me, this kind of large deal? And so, yeah, I mean, hopefully that answers your question. I kind of got a little bit long winded, but it’s education. And I think that’s the biggest thing, you know, people need to get educated. And for me, that barrier was cash, right, not having enough to have a bigger thing, but then I learned about a way to solve that.
J Darrin Gross 10:19
Right? I think you illustrated Well, the just the power of of, you know, leverage is really kind of what we’re talking about, because you could only leverage 400,000 with 100,000. But if you got a million, you can leverage 4 million. Right? And with that, the the the economies of scale, how, how large was the property? Or tell me about the property that you did syndicate? Or where are you at in the syndication?
Feras Moussa 10:47
So right now, I mean, so we, you know, we’re very, so we’ve done nine deals, three, two and a half days gone full cycle. The very first one was a deal that we did in Atlanta, that we bought for, man is about 3.9 million. So it actually wasn’t that big of a deal. We got a very good price point on it, though. And we know we sold that deal last year. And last year that I think is laser sales last year. And, you know, we’ve since actually about a year ago sold and, you know, our investors did really well on that deal, right? I mean, they made more than 40% annualized. So it’s, you know, your whole deal that we knew that we can get in and, you know, we can’t go wrong on that deal. Right. It’s a deal that we had, it’s hard to have, it was a very challenging deal for a lot reasons, because it’s a complete turnaround for kind of, you know, clean out, deferred maintenance, you name it, we saw it kind of situation. But when you as long as that we did our part, meaning our business plan is purely built around me and my partner needed to perform making sure things got done. It wasn’t needing to bet on the market. It wasn’t needing to bet on big rent pops or anything crazy like that. I like those kind of deals, because the deals and I always know for sure I can get done. Right. So right, that was our first deal. And, you know, investors see that they make before you know, they perform, they start getting excited about making money, and they start telling their friends, so it kind of grows from there.
J Darrin Gross 12:09
Right? How long did you hold that property?
Feras Moussa 12:12
That deal was a little less than two years?
J Darrin Gross 12:16
Wow. That’s great. That’s great. So now now that you are in, in multifamily what when you’re out, I mean, not multifamily, just, you’ve gone from the the singles and the more of kind of residential stuff where they look at you, the borrower, the banks, looking more at you to where now you’re looking more at the the banks looking at the property. And the operators? What I’m trying to think so the clearly the power of the numbers is kind of like the compelling theme here that I’m picking up on, or there. What else about the property? I mean, how many numbers was the the first property that you bought?
Feras Moussa 13:05
I think it was 99 units? We bought it for? 38,000? A door? You know, we sold it for 71,000? Right? But if you go if you just do that math in your head, right, it’s about a $4 million purchase price sold for about 7 million. Right? So you know, we profit wise, right? From kind of the purchase price itself about $3 million, right?
J Darrin Gross 13:27
Well, you’re mature improvements, how much were you in exactly as
Feras Moussa 13:31
I say? So we spent about a million a little over a million dollars in improvements, right. But on the deal, we also only raised, you know, one and a half million. So you know that one and a half million dollars allowed us to buy a $4 million property, right? And allowed us to make $3 million, right or two, you know, depending on how you how you size it up $2 million.
J Darrin Gross 13:51
So on that first deal, what were some of the lessons you learned,
Feras Moussa 13:54
Man, choose your lender wisely. That’s the biggest, you know, that was a deal. Again, not most lenders would do that deal. But we did have a professional lender that would have said we have to go into the company that is kind of known to be a loan to own type of lender and they said for verbatim one of the best one of the best turnarounds they’ve ever seen. But they wouldn’t approve the release of all of our CAP EX money. It was just such a circus. So, you know, we ended up actually funding it more out of pocket just because you know, whenever you’re running 40% occupancy, you need to get units online, right. I mean, you’re running in the red and so yeah, that lender was just they made they single handedly made a deal twice as much more than it should have been. So that’s the biggest lesson of that deal.
J Darrin Gross 14:38
No, it’s that’s a you know, it’s a lesson worth worth learning. Hopefully we learn from others rather than learning yourself. Yeah. kind of tight when you’re in the know
Feras Moussa 14:49
No, I like I say we’ve we’ve grineded our teeth on all the hard stuff. So you know, we were probably we know more than we should know about most things in terms of like lending all that. I mean, we just we just seen all the things that go wrong. So,
J Darrin Gross 15:02
Gotcha. So now now you’re a syndicator you guys are finding deals, you’re sponsoring deals, you’re raising capital. What’s the the most challenging thing that you’re, you’re faced you face today from a syndication model?
Feras Moussa 15:20
Um, I mean, I’d say just it’s hard to find good deals, right or last deal we bought was a year ago, and it just hard to find a deal. That makes sense, right? We’re, you know, we’re patient, we’re, you know, we don’t want to get a deal that we can’t perform on for our investors, right. So we’ve since really spent our time you know, we’re vertically integrated now. So we have our own management company. So brought that in house, and now that company is doing third party management as well, for other friends and people to kind of grow on that. Because, you know, going back to the reason I left Microsoft was really to bring tech to industries that don’t have it, right. And issues that are really dated. And property management is about the oldest thing, you know, out there. I mean, it’s just, it’s very notorious for, you know, really being built in the 90s. It just kind of stuck there. Right, not enough companies have modernized or rethought property management. So we’ve been really reimagining that and, you know, it’s since worked out, right. People are, you know, they see kind of what we’re doing, they’re excited, they, you know, there when we start managing other people’s assets, you know, who kind of gain their trust, right, on that sense. So.
J Darrin Gross 16:19
So in the property management space, what what are some of the things that you can you share some specifics with the tech that you, that you?
Feras Moussa 16:27
Oh, absolutely, I mean, you know, let’s just start with the most basic right, most people didn’t know what slack or Microsoft Teams was, until a year ago, right? We’ve been using Slack for like, five years, right? I mean, I’m bringing, you know, that was the norm in tech, right. And again, that just helps streamline things, right, you get people communicating consistently, and you know, kind of moving the conversation rather than being one infinite thread to being more conversation specific topics. So that’s a simple one, right? moving to an actual proper task management system, right? And solution that everyone can see what’s being worked on, people can get updates, etc, right? The biggest problem in property management is get on these weekly calls with a property manager. And we all agree on the things that should get done. But no one really documented it, no one really tracked it. And the following week, it’s like, oh, did you do that? Oh, no, I forgot about that. Right. So really, right now, I mean, you know, another thing too, is just, you know, we have BI dashboards, right? Business & sales dashboards, where we have visualizations of all of our properties, and you know, all real time data, right? Who are their managers, we have five different management companies, no one has given us that right. And so I mean, the list goes on and on and on, right, we make our maintenance, people take pictures of every single move out, and every single make ready. So we can see what it looked like before how much money was spent? And what does it look like whenever the tenants gonna move in, and doesn’t meet our standard, right. And so really kind of cranking up that visibility and transparency piece.
J Darrin Gross 17:52
It’s interesting, you mentioned that because I do feel like there’s a kind of an old school that we don’t do that kind of thing. But But the reality is, I think that the, with all of the the pressure from new laws that are protecting tenants to that kind of thing, it’s almost more of a tool to protect the landlord as well, if you do some of these things like the before and after pictures. And you know, more of a documentation type thing to where you don’t open yourself up to any kind of a nuisance, kind of an exposure or a situation. So it is, I mean, I applaud you guys for doing that. Because it seems like it’s a, it makes complete sense. I question why others don’t, you know, don’t do that.
Feras Moussa 18:45
Property Management is Hard. That’s why. I mean it’s a hard business. And so we have a rock star who kind of leads that part of the business and we’ve been just, you know, building the systems and the processes around her.
J Darrin Gross 18:57
Yeah. That’s, that’s great. Tell me about some of your capital raising. Have you? Is it been friends and family have you have you got about raising capital?
Feras Moussa 19:10
Friends and family and yeah, as we’ve grown, we start attracting more and more people writing for, you know, across the board, friends and family, friends or friends to, you know, people we meet at events and conferences, and now private equity, quasi institutional as well, right. We’ve had, you know, multiple conversations with those people and trying to, you know, I like to say we’ve kind of transitioned to be really glorified matchmakers match deals to equity, right. And so, you know, it’s really kind of up and down the spectrum. And because of that, we also look at deals up and down the spectrum. Right, we kind of got our start with that CB value add play, but we’re absolutely looking at A class properties. We’re looking at B’s we’re looking at C’s we’re looking at it all. So
J Darrin Gross 19:51
Right. No that the in your hold time on the one being two years, I think one of the things that I’ve always found interesting about commercials estate is it, especially with syndication, there’s a there is an exit plan for every property. I mean that just based on the makeup of the investors, they want their money back kind of thing. So there’s constantly I don’t say churn, but there’s there’s turning of properties and opportunities for coming up. And I suppose, you know, being patient right now is key. You know, make sure you find a good deal, not just a deal, kind of thing. That’s great. So, so on the on the tech side of things. Primarily, you’ve applied that to the property management, have you have you had any tech applications for any of the other? Whether it be raising or? Or?
Feras Moussa 20:49
I mean we do use a lot of different tools across the board, right. I mean, even just documenting and streamlining how we do every step of the way matters, right. We also have a team of VA that we leverage to kind of help really systematize and help keep everything kind of greased and everyone accountable. Right. And so I mean, we I’m always very open to looking at Tech and options and kind of how to do things. And so yeah, I mean, we, I’m trying to try to, you know, we do use a system called the IMS investor management system, it’s piece of software that I pay a lot of money for, I’m not really happy with it. But I’ll leave it at that it is acquired, did get acquired by a Real Page. But you know, it’s helpful for investors. Right, I think it’s just overly complex for what it is. But, um, you know, that’s helpful we use. I mean, we it’s really more about systematizing. And making sure you kind of have a plan for all of the common things that happen, right.
J Darrin Gross 21:47
Gotcha. Yeah. If it’s repeatable if it’s, something’s going to happen again. And again, and again, it’s kind of nice to have some sort of system as opposed to handcrafted solutions for every, you know, little situation I get you. Well, so today, you’ve got how many properties?
Feras Moussa 22:06
We’ve done nine total.
J Darrin Gross 22:08
So okay, it should two had gone full cycle
Feras Moussa 22:11
Two. And then we have another third one that’s gonna go for sale here soon. It’s for sale. I mean, we’re about we’re, we’re going to sign a contract very, very soon.
J Darrin Gross 22:19
So gotcha. And have the investors that got their capital back. were they saying, Hey, where’s the next one? Are they?
Feras Moussa 22:29
Sorry, I’m wrong. Three have gone full cycle. We have another one that’s coming up. Sorry for. But yeah, I mean, investors have gotten their capital back, they are chomping at the bit for another deal, right? I mean, especially the deal that we’re looking at selling right now those guys are like, man, can we get into a deal by the end of the year? Right, you’re gonna make a lot of money on that. And they’d rather get into another deal so they can get the write offs from the next one. So
J Darrin Gross 22:48
Right, right, plus a bonus depreciation right now. That’s absolutely, that’s kind of a key thing. And on your deals, are you guys, are you doing cost segregation?
Feras Moussa 22:59
Yeah we do cost segregation and bonus depreciation on every single deal. Okay. So I mean, our investor, I literally had to go back to the pillars that I mentioned the beginning, right? Some people invest for appreciation, some people just depreciation, right, those almost seem like contradictory things for someone that doesn’t know but you know, a little have investors that will invest only for doing the depreciation, because they’re looking at, you know, they have so much in gains, and they’re looking to basically write off, right, and so that literally makes more money for them, quote, unquote, than the investment itself.
J Darrin Gross 23:29
Feras Moussa 23:30
Because you have to figure I mean, taxes, you know, 30%, right. So you can write off, you know, let’s say you have $100,000, right off and you write off 100,000 you just save $30,000. Right? So,
J Darrin Gross 23:42
Right, right media in that hundred thousand dollar write off from the depreciation is it didn’t actually, quote cost you it was a more of a, an accounting,
Feras Moussa 23:53
accounting thing. And, you know, there’s a lot of tricks to you know, you do owe that at some point in the future. And there’s right, you know, but really, if you’re savvy enough, you can basically avoid ever paying that. So there’s my plan. So,
J Darrin Gross 24:07
Right. With your sale of your properties, have you had any? Have you guys done the 1031’s as far as like, goodness, sometimes? The GPS and I’ve heard of it?
Feras Moussa 24:17
It’s complicated with syndication.
J Darrin Gross 24:18
Feras Moussa 24:18
Yeah. Something that we should have just made way too much. Right, maybe I’m not
J Darrin Gross 24:26
know and I think that’s kind of one thing I’ve come to the conclusion of is if you’re an individual investor, or you you control the deal, and you have the entity that that’s in place, that’s that’s an option. But syndication is more kind of like it’s very comparable to stock markets for the in and out I mean, you get in you get out you could return, pay your tax move on to the next deal, kind of thing, but when the returns are, you know, 40% annualised. I don’t know that anybody’s gonna get too upset about that. I mean, that’s, you know, pay a little tax and move on.
Feras if we could, I’d like to shift gears for a second. Before we started recording I mentioned to you I’m a an insurance broker. And one of the things we do in insurance is we try and manage risk. And there’s a couple of different strategies we typically employ, we look to see if first we can avoid the risk. If that’s not an option, we look to see if we can minimize the risk. And when that’s not an option, then we look to see if we can transfer the risk. And that’s what insurance is it’s a risk transfer vehicle. And I like to ask my guests if they can take a look at their situation. Be your your properties, you know your customers, your tenants, your, your partners, whatever however you want to frame. But if you can take a look at the situation and identify what you consider to be the biggest risk. And, again, for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you Feras Moussa, what is the biggest risk?
Feras Moussa 26:17
Yeah, I’ll say there’s two I’m gonna answer to two risks. Right? For me, personally, I’m one of them is just kind of really seeing what happens with COVID. And the government stimulus, right? Or deals of you know, I mean, our we’ve collected a lot of money, these properties, but that’s been because of the stimulus. Right? So really seeing, you know, what happens around that situation around evictions, all of that, right? And is the government to help kind of, you know, bail out tenants or not? Right, that was definitely something top of mind. And, you know, that kind of segues to my second risk, which is cash is king, you know, and all these properties cash is king and, you know, we make sure we have significant reserves, right. And even at the company level, I mean, we’ve been doubling down and just, you know, investing back in the company, right, we’re in growth mode and doubling down and reinvesting reinvesting, but just again, making sure there’s enough cash for everything. Right. So, I’d say those are my two biggest risks and some things I’m you know, just kind of very conscious of and, you know, continue to think about so.
J Darrin Gross 27:13
Yeah, I think it’s, you know, for all of the the COVID relief that’s been granted, there’s been a fair amount of challenges presented to landlords as far as you know, the no evictions and, and all that so yeah, it’ll be definitely interesting. See out all plays out and hopefully, there’s a soft landing and we all drive any major crash. But with that, Feras, Where can the listeners go? If they’d like to learn more connect with you?
Feras Moussa 27:47
Yeah, wwwt.disruptequity.com or they can send me an email at feras firstname.lastname@example.org or you can find me on LinkedIn or Facebook. So
J Darrin Gross 27:58
Got it. Alright, I’ll list that in the show notes. And with that, Feras I want to say thanks, I’ve enjoyed our time and learned a lot, and I look forward to doing it again soon.
Unknown Speaker 28:14
Sounds good, Darrin. Thanks for having me. Appreciate it.
J Darrin Gross 28:17
All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.