Listen to Feras Moussa as he explains that each passive investor should ask sponsors about their track record before investing. Feras discusses how he and his business partner achieved investor returns of 75-100% in less than two years. Feras is about way more than just working to provide superior returns. He and his business partner are looking to build a vertically integrated company, create a company culture of transparency and accountability and he looks to give back to the community and those coming up the ranks in the industry.
Table of Contents
- Going Full Cycle
- A Complete Turnaround
- What Is a Capital Call
- Double Your Money Like More Experienced Investors Do
- Growing Little Businesses
- Avoiding Car Crashes
- The Gap Will Squeeze
- To Double Your Money, You’ve Got to Hustle
- Double Your Money and Bet on People to Scale
- How to Reach Feras
Going Full Cycle
Darin: A little background on Feras Moussa before we start. Feras grew up in Houston, where he currently lives. He worked for Microsoft after college. Then he started his own tech company. He chose to get into real estate, and he and his business partner have closed on eight multifamily deals.
Several of them have already gone full cycle. He and his business partner are focused on growing their company, Disrupt Equity, into a vertically integrated company. And growing the number of units from 1,700 units currently, to over 4,000 units over the next three years.
Feras: Thanks, Darin, for having me. Appreciate it.
Darin: Feras and I, we've come in contact a number of times. The first time, I didn't actually personally meet Feras. Feras and his business partner, Ben Suttles, they both live in the Houston area.
They came up to the Dallas area and attended a meetup group that was hosted by Kenny Wolfe. I attended that meetup and listened to their story. I was impressed with just their demeanor and what they've been able to accomplish.
And a few weeks ago, they came up to Dallas, and we sat down for lunch with both Feras and Ben and had a great conversation.
So I'm really excited to have him on. These guys have a ton of experience and are interested to hear what they have to say. Ben's not on the line, but Feras, can you just give us a high-level view as to how many deals have you guys done? What's the total unit count?
What About Performance
Feras: First off, I'm very disappointed you didn't come up to say hi the first time we were in Dallas.
Darin: There was a long line of people that were waiting to talk to you.
Feras: There was a line, but it was at a Mexican restaurant too. You could've just hung around and enjoyed the chips. We could have made this happen a year sooner, but glad you finally made that happen.
Feras: Going back to your question, so for us, we've done eight deals.
Darin: Eight deals, wow! I didn't even realize it was that many.
Feras: Yes, continuously, and several of those deals have gone full cycle. We have another one that's about to go full cycle. Hopefully, in the next week or two, we'll have an actual offer on it, and probably get that deal into contract.
Darin: So eight deals, total units?
Feras: 1700 units all in. Hoping to buy another couple hundred here before the end of the year, so we'll see what happens.
Darin: You mentioned that you have a few deals that have gone full cycle. I had somebody that reached out to me today that's been a listener of a lot of the prior episodes.
This listener came to me and said, "Hey, Darin, you've talked a lot about all these people getting deals. All the challenges of getting the deals, and the struggles, and the sacrifices, but what about performance? What about performance and whether there's been any capital calls?"
So let's just start out by getting a feel from you as to the deals that did go full cycle. What type of performance did you see? So what was the turn for investors?
What Matters Is What Happens After Closing
Feras: I'll make a comment really quick and to the question. That person's asking the right question. Because honestly, as difficult as it is, it's the sexy thing that everyone really focuses on and hones in on. How do I raise the money?
And how do I find the deal? How do I get that deal to closing? While yes, that's the hard, stressful thing to most people, what really matters is what happens after closing. And a lot of people don't realize that.
You just bought a multimillion dollar business. Do you know how to operate a multimillion dollar business? You've done deals yourself, Darin. And you've seen there's just a lot more behind the scenes that have to happen. For a passive investor, it's great. It's passive. The involvement is very minimal. But for the operator, the person buying, that's where you live and die. So it's critical to really go in with that mindset.
For newer people, I tell people to really do exactly what we did in Atlanta. Maybe go through a real deal that went full cycle. We knew we wanted to break into Atlanta because Texas price points weren't making sense.
Atlanta was a market that we liked in terms of job growth, population growth, and the price points were reasonable. We knew that there was good cash flow out there because fundamentally, we're cash flow investors.
So we went out to Atlanta and found the ugliest deal that we knew we could. But we knew we could not screw up as long as we did what we said we were going to do. We didn't have to bet on the market and we didn't have to bet on anything besides working the deal operationally.
Picking the Right Team to Double Your Money
Darin: You're picking the right team. You still have to pick a good property management team and rehab team.
Feras: We knew someone that was in that market. So that did help give us a little bit of a Rolodex to tap into. But we picked a deal out there that we bought at the time for 39 a door deal.
It was not even that big of a deal, 99 units. It had nine down units. But all said and done, we took over that deal, cleaned it out from drug dealers, prostitution, you name it, it had it all. We got the occupancy down to 40%, thought we'd get to 50. It went probably a little bit more than what we expected.
Darin: So what was the occupancy when you took it over?
Feras: 80% on paper.
Darin: That was not an agency loan then. You guys did a bridge loan on that deal.
Feras: I'm just going to say it was the bridge loan from hell, and I'll leave it at that. So for anyone that's looking to do bridge loans, bridge loans are fantastic tools. We have three of them right now, but you've got to make sure you have the right bridge loan.
I like to say that agency debt, the sexy debt that we all talk about, that's regulated. It's very regulated, government-backed, etc. Bridge loans are the Wild West of lending, and some lenders are loaning to own shops.
Darin: We talked about that at lunch.
Feras: The lender is literally what made that deal three times harder than it should have been. But the fundamentals of the deal were going to be fine.
A Complete Turnaround
Feras: So that was a deal like I said, we took it from 80% on paper. Within the first two, three months, we were down to 40. It was a heads in beds situation. People weren't paying.
Darin: Did you know you were going to go down that low?
Feras: We knew it'd get low. The number we pegged was 50, but it did get to 40. That's where Ben starts to get stressful. We react to stress differently, but that's where it was like, "Oh, man," because you're operating in the red. And you know that, and you plan for it, but it's never fun to be in the trenches.
Darin: Right, it's not comfortable.
Feras: But we very quickly did our part, worked the deal hard. We had all the challenges anyone experiences, from lending to GCs, to everything in between. But three, four months later, we're at 75%, a month later, 85%, a month later 95% and we got that deal.
Darin: So to get into the 90%, how long did it take?
Feras: To go from 40 to 90, that probably took us six months.
Darin: So complete turnaround.
Feras: Yes, and your tenants, it's fun to see that, as an owner. Because you really are taking this rough deal and turning it into the diamond. And with people, that 40% that stayed on, those people were happy to renew at a higher rent. They were happy we took it and made it a community.
The property was not a community. It was a place where people were living, which is very different than building a community. Whereas once we got that cleaned out, got rid of all the bad elements of that, then you start to make it a community.
How to Work the Tenant Base
Feras: Working on getting the pool online, adding playgrounds, creating events. Doing things that are going to help people want to renew, and stay at that property moving forward.
Darin: And refer to their friends and family.
Feras: I remember, that was actually the greatest thing, really. The people that liked it there, "Hey, do you have a friend, mom, sister?" They were doing absolutely that. Luckily, we had a really good onsite manager that knew how to work that tenant base to really position that property, and help get that. So very quickly got that deal leased up, stabilized. Whenever we look back at it, we tripled the amount of rent we collect at that property.
Feras: From the low point.
Darin: So one bedroom was going for what?
Feras: I don't know. I'm not going to remember, but I just remember the total collection. At our lowest, our total collection was about 30, and we got it up to 90. I think it's what we ended up doing.
Darin: So when it was down to 40%, you were at 30K collections, and you got it up to 90K? Monthly?
Feras: Absolutely. That's a process. Luckily, for our investors, we positioned that deal as pretty much almost no cash flow on year one. Then we'd figure out a refi or a sell. Luckily, we were able to get a good price on that deal, and we knew it made sense to make an exit.
Darin: So how long did you wait to put it up for sale?
Feras: I want to say 12 months into it, and we had exited that deal, I think, by the 17th or 18th month, all in.
Double Your Money in 18 Months
Darin: What was the return?
Feras: About 75% return to investors on that deal.
Darin: In 17 months? I was not offered a piece of that deal.
Feras: Well, I have another deal. I'll give you a different deal we have. We have a deal that we bought last April that we really have a BOV. This is the one that probably can do a full cycle on. For that deal, we were running the numbers. We will double your money on that deal as well in 18 months.
So it's about finding the right deal, and the deal that everyone would pass up on because it's harder. Those are the deals that honestly, we make the most money on. For anyone that's newer that's listening.
It's about picking a deal that you're not having to bet on too many things that are out of your control. There are a lot of things out of your control.
The airport shutting down is out of our control. We can't do anything about that. That's going to lead to less people wanting to rent, less income, blah, blah, blah. But guess what? Taking a unit that's offline that's making zero dollars. Then I can turn it online and make it make some money, whether that's $600 or $900, that's more market.
But again, I can control taking it from zero to something. Those are the easiest deals in terms of if you're serious about this business and want to get in. Those are good deals to get into. But they're harder, so you have to make sure you have that acumen and know-how to work through them.
Understand Who You’re Investing With
Darin: The way we started this was talking about performance on deals. You said, "Look, that's the number one thing people should be looking at. The past performance, and their background, and their experience level as a sponsor. Passive investors should be asking that upfront."
Feras: I tell every passive investor, "Understand who you're investing with." It's not a short-term relationship. You're positioned as a five to seven year relationship, and learn what they've done. There's nothing wrong with investing with a new sponsor. Just understand what they're positioning and how they're going to do it. See if that aligns with what you think they can pull off.
Darin: If you're looking at a new sponsor, you may look at, what's the background on this sponsor? Was the sponsor successful in prior career paths? Who is that sponsor partnering with? If they're partnering with somebody that has a ton of experience, well, that could mitigate some of the risk.
All good things to consider going in. In this world, a lot of people talk about how many units they've done, and not necessarily about their performance.
Feras: I know that's what the audience really stresses about. But honestly, once a person's done one or two deals, it's really not hard to go do three more. But more importantly, don't worry about what they've bought. But understanding what they've also done with what they've bought.
Darin: The other comment that was brought up by this listener, I just want to define it to people that are listening is the term capital call. Feras, can you explain what a capital call is for people that may not understand what that is?
What Is a Capital Call
Feras: Fundamentally, a capital call is a situation where an investment does not have enough cash to complete what it needs to complete.
So the owners, the operators, the sponsors, whatever you want to call them. They are doing a cash call, saying, "Hey, we're out of cash. We need to inject more cash into this investment."
Typically, everyone should read their operating agreement. Every operating agreement can be different, and this is not a one size fits all approach. But high level, it's a vehicle for the deal to get reliquidated, or recapitalized with investor money.
It can dilute people that do not put in that cash. So let's say you're invested in a deal that you know is doing well, they're doing a cash call because maybe they have a real reason.
Maybe, "Hey, we thought we can only get $100.00 rent pops, but we're getting $150.00 and all we have to do is, put in another thousand dollars." Well, maybe that's a good reason. And "Hey, we want to raise another $500,000 because that's going to really triple our money on that $500,000"
That's a deal that if I was an investor, I'd put in that money. I know the deal is doing well. Maybe it's a deal that's not doing well, and they're struggling. Now they want to bring more money in. But as an investor, read your operating agreement.
It's different, but you may opt to not put in that extra raise. You're going to get diluted a little bit. So that's high level what a cash call is. Thankfully, we've never done a cash call on the deal.
A Loan to Own Lender
Feras: To tell a story on that deal that I mentioned, the Atlanta one with that lender. That lender was what we called a loan-to-own lender. They were essentially trying to see if we'd default on that deal, delaying everything. Whenever you're at 40% occupancy, you are not making money. You are losing money each month.
Darin: That lender was probably licking their chops, thinking they were going to get that property.
Feras: Yes, they knew that. They told us word for word one of the best turnarounds they've ever seen. Yet they were not approving any of our loans because that’s the way it works in the bridge world.
A lot of times, in our case, that lender was holding onto a million dollars, that we were supposed to do some work. They review it, they approve it, and they give us that money, we could do the next chunk of work.
In that deal, we did work, and we needed cash to keep going. They were just stalling, making up everything under the sun. We're losing money each month, and we know that. So our path forward is we either wait for the lender, continue to lose money. Which is just throwing away money, we do a cash call, or we just fronted the money.
In our case, we put in $200,000.00 of cash amongst the GP just to get it unblocked. Because we knew that deal was going to kill it. But we needed to get it capitalized. Maybe one other bit of feedback for any of the listeners is if they're doing a deeper value-add deal. Think of how much CapEx you need. Just make sure you have a ton more of just cash because cash is king just sitting there.
Finding Opportunity With Deeper Value-Add
Feras: Even though we had plenty of reserves, that was sitting with the lender, if you have a lender that doesn't want to release the money, that's a problem. So on that deal whenever we sold it, literally the lender was holding on to $600,000.00 of our CapEx dollars. We were basically done with CapEx.
Darin: You would say one of the learning points from that was to come in with more capital that you can actually put aside that's not going to be held in reserves, that you have access to.
Feras: Absolutely. So as a buyer, I'm starting to look at deals where I have less with the lender. On our side, the most painful part is actually working these draws and dealing with the lenders. It’s just a cumbersome process. We're looking at deals where I'd rather we make a little bit less money. But it's a lot easier of a deal we can move a lot more quickly.
Darin: Because the return to capital investors is going to be higher than the interest rate you're paying on the loan. So your cost would be a little higher raising the money. But it gives you the flexibility to use that money when you want to use it. You mentioned that you love these deals. You have experience doing it.
To the listeners, the majority of the syndicators I've talked to focus on agency non-recourse lending with Fannie Mae and Freddie Mac. In order to get those types of loans, the property has to be 90% occupied for the past 90 days. Finding an opportunity where it's deeper value-add like what Feras is talking about in his deal in Atlanta.
Different Strokes for Different Folks
Darin: These deals come across a lot, but there are not as many syndicators that focus in on those deals. It's a more difficult turnaround. The syndicator that's buying a property that's 90% to 95% occupied, they're going to rehab the external or the internal, or both.
But they're not having to kick out 30%, 40%, 50%, and then re-tenant that big of a property. It may be a better opportunity, but I would say look for sponsors that have experience doing that because it is a heavier lift.
Feras: It's a lot more work, and it's not that I love those deals. Those are the most frustrating deals, too, because it's just you're dealing with a lot. I love those deals from the perspective that if that deal doesn't perform, it's 100% my fault. Meaning that we have control, and we know what we need to do. It's a clear path.
We also like our stabilized deals. We've had several of those too where nicer, easier, traditional, let's upgrade the interior, just push the rent, continue on. But it's just the returns are very different. These deep value-adds, those are the deals that we home run. We're making these quick exits, year and a half, year, year and a half into them and it fundamentally boils down to did we pull it off?
The other deals are longer-term plays. You're betting a little bit more on the market, a lot less return. Different strokes for different folks. And I like to say, as syndicators, we are glorified matchmakers. And as a passive investor, you're also looking for a match. So does this deal match this equity? We have some investors that maybe they're skeptical. They're looking for deals that are going to have quick returns.
Double Your Money Like More Experienced Investors Do
Feras: They don't want to do a deal that has no cash flow for a year plus, even if it's going to double their money. We'll find a deal that's a better fit for those people versus our more experienced investors. They are patient, they understand the way it works. They're looking at it just to maximize returns, and they'll wait it out for the year and a half.
Darin: That makes sense. You've built up relationships with a pool of potential passive investors. Within that group of passive investors, they've already made a decision, "Yeah, I like Feras. I like Ben, I like their company. Their company's name is Disrupt Equity. I want to do business with them. But maybe some of the deals don't really fit their style, and some deals do." So that's a great point that you're able to segment that off.
The other thing I heard you say, which is extremely important for anybody that is a sponsor, is accountability. You were like, "Look, I like to have the opportunity where I know it's on me." That's what you said that you like to have that and that says a lot. You're taking ownership for it, and it looks like, so far, you've had some pretty stellar returns.
Feras: The buck stops with us, even with management. That's why we're glad to bring management in-house. As a syndicator, the easiest person in the world to blame is management. Management didn't do this, management didn't do that. Yes, there are some problems with management. It's a very hard business for a lot of reasons, that's why I was glad to bring it in-house. Now there's that extra pressure that, hey, we have to perform.
We Can Make That Change Today
Feras: In the end, it's our management company. I also like having that kind of control because I can get in there and make quick changes, address issues, and we move on. Something is not working the way I'd like it to.
I'm not getting enough visibility, enough feedback, well guess what? We can make that change today. I'm not having to go sell some owner of a management company that has 20 other owners in their portfolio to talk to. That's it.
Darin: That's a great point. When we met for lunch a few weeks ago, you guys were getting me up to speed as to all the changes you were doing. It's pretty amazing. There's a lot of people, as they scale up in this multifamily world they start to talk about vertical integration and becoming a vertically integrated company.
Typically, the first step would be to take property management and bring that in-house. So you guys mentioned that you did that for your own portfolio, and now you're starting to do that for other third parties.
But then you went on to talk to me about all these other different facets of the business. That you guys are also bringing in-house. So you've got financing. You've got insurance. What other facets do you have to bring in?
Feras: Still a lot more. Maybe to talk through that a little bit, I'm a big believer that each business needs to stand on its own. For management, it's a really hard business. Now that we've done it, I see why management companies struggle. More importantly, a lot of owners that try to self-manage really struggle. For us, we have the right chief that has that experience.
A Segue to Other Businesses
Feras: She knows what's going on. She's done that company multiple times.
Darin: So you guys are not managing the property management business.
Feras: We're involved, and this is where I'm going to segue into the other businesses. So she's the chief, and I look at it as really like the CEO. From the beginning, we designed it to really be third-party. Because I didn't want it to be where we're all in the same family. I want it to be where it's got to have its own process, its own standalone. I want to make sure that things don't get murky. It goes back to your point about accountability.
Hey, this is a function of property management. This is a function of asset management. There need to be weeklies delivered. It's not just, "Hey, pay attention to what's going on." No, there needs to be that separation distinction because I knew we'd want to also do third-party and it helps us build that out.
More importantly, we can make sure we have the best product. We're designed in a way because we need more scale, even with our portfolio. For property management companies, the more scale you have, the more effective everything can be from having to shuffle resources around when needed, etc. Now, that's the management side.
Now, you mentioned the financing and insurance. Really, what we've realized is, I left Microsoft 10 years ago, the vision of building software for dated industries like real estate that don't have it. I had a software company for three, four, I don't remember, five years. I've since realized that the opportunities about using what I already know from tech and applying it to be just a lot more effective than everyone.
Double Your Money With the Right Expert
Feras: Fast forward to the present, with these other industries, what we've found is that we have the right chief, the right expert that knows that business. But they struggle with the other parts of building a business. From the marketing, the sales, the systematization, the visibility, all of that. So really, we're almost doing the same thing with each of these. It just so happens to be, we already have our ecosystem to help it.
It's really about how you help build-up more of the systems, more of the processes, introduce VAs, introduce task management. Really tie it all together. Do almost the boring stuff of entrepreneurialism around the business where you have the right expert that is driving that.
Darin: Well, I mean, that's a huge value to a syndicator to be able to come to you and get the property management. But also get these other pieces that are so important as well.
Feras: Yes, it's syndication in a box. That's the analogy.
Darin: So where's your focus in terms of the property management company?
Feras: Texas and Georgia. Realistically, we want to take on deals with owners that are realistic. We will show the visibility, transparency, and tools that they'll never see at any other management company. But we also need to show, "Hey, here's where, realistically, what we think is achievable."
We're not going to make up numbers and say, "This is possible." And then six months down the road say, "Sorry, man, it wasn't possible." We're going to set our expectations. If they align and they mesh, great, we're happy to explore that.
Growing Little Businesses
Darin: You mentioned that you worked for Microsoft, that you started a software company. Give us a little on your background, and how you got into real estate.
Feras: Let's rewind to high school. So in high school, I had my own web development company. At the time, I had learned how to develop stuff, and I started making some stuff for myself. Then, I started making stuff for other people. They came to me for help.
Darin: Where'd you grow up?
Feras: Houston. About five miles from my office. We're in the energy corridor here in Houston right now. I had basically started developing for people, then developing for myself. Keeping it within my control and growing those little businesses. I was a high schooler that had this business, and then I got so far as hiring on people. I had a guy in South America, three guys in India.
Darin: While you were in high school, you were hiring all these people?
Feras: Absolutely. But the funny part of it is college happened, and I wanted to go be a doctor. My dad's a doctor, and I think I would like medicine. So I did that for a year and a half, sold off everything that I had at the time. I realized that I don't like memorization. I'm a problem-solving kind of guy. So I quickly jumped ship back to computer science, which was the natural fit.
I’d never really planned to go work at a big company. I always thought I was going to go entrepreneurial and do my own thing. Career fair happened. My friends talked me into just putting together a resume. I was the only one that had anything to talk about at the career fair.
Another Story for Another Day
Feras: So I did really well. I interviewed with all the companies, I interviewed, and I did an internship with Microsoft, loved it. Then I had an offer from Microsoft and an offer from Amazon. My Amazon stock would have been worth a ton, but I'm proud I didn't do it. I was at Microsoft whenever the stock did not move the entire time I was there.
Darin: It was still for a while.
Feras: After I left, the new CEO came in, and the whole thing took off. That's another story for another day.
Darin: Were you in California?
Darin: You were with them for 10 years.
Feras: No, I told myself two and a half years, and I was going to leave. That was my personal requirement whenever I started. It took me three years because I wanted to leave mid-release but still left on very good terms. I have a great relationship with everyone I worked with.
Even my old manager will, from time to time, say, "Do you know anyone that wants to come work at Microsoft?" I did really well there. And I love tech. I still love tech, and I think it's the foundation to really accelerating a lot of these other industries.
Darin: You left there, and then you started your own company?
Feras: Yes, I had a software company, and I was remote then, so I was city hopping. It was me, and I had a friend here, and we were the main two running it. I was doing two-month stints in different cities across the country and enjoying life. Then we moved back to Houston, we doubled down, got an office, and built that out.
Got a Taste for Multifamily
Feras: Hired our own staff, and had that going for, I don't even know. I need to go back and look, but that probably went on for four or five years all in.
At the time, I had extra money. I was looking to invest, and so I started learning a lot more about real estate.
I read The Millionaire Real Estate Investor by Gary Keller. For your listeners, I highly recommend that book. In my mind, it's one of the best books that talks about the fundamental pillars of real estate.
It really just does a good job talking through what is appreciation, what is deprecation. What is paying down on the loan, what is cash flow, really understanding the basics. I was still in Seattle at the time, actually, and there was a fourplex. It's about a mile down that way from our office coincidentally.
I had already run all the numbers, and I needed someone to buy it. And I just found a random agent off of Bigger Pockets. I was like, "Hey, I saw your info on Bigger Pockets. I've already run all the numbers. I just need you to transact this for me. Can you do it?" and I bought that fourplex.
At the time, my friends thought I was nuts. I'd never bought any real estate in my life. I wish I had bought something in Seattle. But again, that's the appreciation play where I was looking for cash flow. I bought that fourplex and got a taste for multifamily, so to speak, and then bought a lot of houses. Houston doesn't really have a lot of fourplexes and the land is so cheap.
Taking a Leap of Faith
Feras: I bought a bunch of houses and saw the lack of efficiencies within that. It doesn't really scale very well, and accidentally, I guess, made my way over to multifamily, which I love.
Darin: When you bought that fourplex, were you nervous at all? I know you had the money.
Feras: Was I nervous? I'd done my homework. I was comfortable, and I'm like, "I can't really screw this up. Worst case scenario, I could sell it for what I bought it for." I wasn't too nervous in that deal. That deal did very well. I sold it this past October.
Darin: You're unique in that situation. Most people I talk to, their first real estate transaction, they were nervous. Whether it's a duplex, a fourplex, or going right into big-time, multifamily, taking that leap of faith and buying. It's still an expensive asset, and you're trying to get a big loan and whatnot. For a lot of people, it's very hard for them to make that leap of faith.
Feras: I'm a big believer in not trying to get into analysis paralysis. That's where a lot of people get into. I'm a big believer in going off, learning all I can, read the book. And I was plowing through podcasts like you wouldn't believe. I remember I was in really good shape, I was exercising, I was doing all the mountain climbing.
Darin: You're not in good shape now?
Feras: Not anymore, not like I was, but I was summiting all the mountains back then. I was at the gym every night, plowing through 100 podcasts, learned all I could, soaked it up. Get comfortable enough that you're going to avoid the big mistakes.
Avoiding Car Crashes
Feras: You're going to always learn. Even today, no matter what we do, I'm still learning. It's important to realize that you've got to go in realizing that there's always going to be mistakes. It's more about avoiding the car crashes. It's okay if you hit the occasional pothole.
Darin: Look, you guys, on that Atlanta deal, you still crushed it with a 75% return in, I think you said like 16, 17 months. But you learned like, "Next time I have a bridge loan situation, I want to have more control of my funds." So you still killed it, but you learned something. Talk about your childhood a little bit. You grew up in Houston, and were your parents entrepreneurs?
Feras: No. My dad, a complete opposite, doctor. Really conservative in terms of playing it safe. He always wants to play it safe. Even whenever I bought the fourplex, I remember he was like, "Sure you know what you're doing?" Almost trying to talk me out of it, but supportive. Then in buying more houses, "You sure you don't want to slow down? You really should slow down."
Because I did nine transactions the first year, but again I saw the writing on the wall. I saw it working and it's more about moving quick and just avoiding those car crashes. But they're always very supportive, and it helped. In middle school, high school, just having that business that really taught me a lot of entrepreneurialism.
I was like a high schooler that was wheeling and dealing and doing stuff under my mom's social. Because I was too young to have a big account or anything else. No one knew that I was this 15, 14-year-old that they were wiring all this money to.
At Some Point, You Got to Take a Risk
Darin: That's huge. My son started a little business when he was 16. He's a sophomore in college now, but reselling sneakers. I couldn't believe it. The first time he went to sell it, I was like, "You're going to get a lesson here."
Feras: I don't understand that business because my brother has a friend that does the same thing.
Darin: He paid like $265 for these sneakers, Nike sneakers. I was like, "You are going to lose your shirt." And he sold them for like $575. It didn't make any sense to me, but he went and educated himself. He found these websites that would tell him when the limited drops were coming.
Feras: Was it like the Discord groups, that thing?
Darin: All the brands now, they do these limited drops. They only release a certain amount of these shoes to keep them rare. People like my son will find out about them and buy them, and then resell them.
Feras: My brother had a friend that did it, and yes, that's a crazy business.
Darin: It's different. But the point is that you owned a business, and he owned a business. I told him, "Look, when you're in your classes, you're going to see things so differently. You're going to understand profit margin, you're going to understand distribution cost, you're going to understand shipping and handling. And you're going to understand warehousing cost, all these factors that, other people, it's just theory too." So at some point, you got to take a risk.
Feras: It's important to have a business if you can. My very first business was actually a lawn mowing company that me, my brother, and two other friends started.
Double Your Money and Learn How It Can Add Value to People
Feras: We called it Kid Pro. We’re like little seventh-graders pushing around lawnmowers. We had our own little flyer, I wish I still had one of them. I have the image ingrained in my head. We built that business, and I learned a lot, even the lack of people working.
I remember one of our friends, who's still a good friend and we joke about it to this day. We fired him at the time. He didn't do a good job. For middle-schoolers, we did really well at the end of the month. We had all the money just saved up in the cash register that I had upstairs at the end of that summer, we counted it.
You learn a lot about people, people's behavior. Whether it's employees, customers, and again, back to profit margin. You also learn how slow you cut grass if you're not very good at it.
Darin: That's funny. I know you from a few interactions, but just knowing that you had those businesses as a kid tells me you were a go-getter. That you wanted to succeed, that you learned how to provide value to others. People are not going to do business with you as a kid if you don't have a good demeanor. You don't present yourself well, and you don't sell the value of what you're trying to offer.
You mentioned that you guys are focused in Atlanta and Texas. Why those two markets?
Feras: We look for markets that are landlord-friendly, first and foremost. Everything we do is about reducing risk in an investment. So first of all, landlord-friendly. Investing in California scares me. I don't know if the law is going to change tomorrow.
Feras: Next thing you know, I'm on the hook for who knows what. So landlord-friendly is the first one. The next one, really we're looking for job growth, population growth. We like those kinds of markets. That's not to say if you gave me a great deal for a fantastic price point in the heart of Detroit, would I do it? Absolutely.
Everything is about being risk-adjusted returns. I just expect a different type of good return profile than I do elsewhere. But macro-wise, we're looking for job growth, population growth that reduces risk.
The population growth means that there are more people looking to rent today than there was yesterday than there was the previous day. Job growth, same thing, those people can pay rent, they can pay higher rents even. The other hidden side of operations that no one talks about is delinquency. How you really manage that, and what that looks like from C to B to A deals. Job growth helps with that.
Fundamentally, the last piece is really price points. Do these markets have those things that we're looking for, and pricing isn't up crazy? New York has a lot of job growth and population growth, but the price point is insane. It doesn't make sense.
Those are the things that we look for because we're cash flow investors. We don't bet big on appreciation, we bet on value-add. Meaning we can go get the down units online if that's the type of play the deal is. But really, we're looking for deals that have nice, straightforward cash flow.
Texas Is a Great Market
Darin: I grew up in Connecticut. I went to school at University of Rhode Island, I was up there for a number of years afterwards. Then I moved to South Florida, so I had to experience South Florida. I've done business with a lot of banks in the California market, and I've been in the North Dallas area now for 10 plus years. Houston is probably very similar, both Houston and San Antonio.
My experience being in Dallas is that I don't know, I have the Warren Buffet view. He'll say, "I don't know what's going to happen with the stock market over the next six months or a year. But I'll bet any amount of money that 10 years from now the Dow is going to be higher than it is today."
I have that view of Dallas that I don't know what's going to happen three months, six months, a year. But five to 10 years from now, I'll put a lot of money that says there's going to be a ton more people living here. When there's that many more people living here, there's going to be that much more competition for apartments. For single-family housing, and more companies coming into town.
That gives me a comfort feeling that Texas is a great market. I'm in Dallas, so I love Dallas. I also look at the difference between where we are here in Texas compared to the coastal markets. What rent is, and what real estate prices are on both coasts compared to where we are in Texas. We're never going to be one for one with the coastal markets because they're on the coast.
The Gap Will Squeeze
Darin: They have a lot of things to offer that we can't offer. But what I do think is going to happen over time is that gap will squeeze. The difference between where rent is here and where it is in California is a big gap. But I think over time that will squeeze, both on the residential home side as well as multifamily pricing, and rents, etc.
Feras: The spread is so big that even if it goes up a little bit, that's still significant in terms of returns. Texas has done a good job as a whole attracting business. You have even the most recent news, Elon announcing they're going to do the next Tesla factory here in Texas.
Darin: That's in Austin.
Feras: He's pretty pissed off with California and that situation. In general, Texas has, and Dallas has done a better job than Houston. I know the Houston mayor was saying that Houston is not really, the way it is between the city, the county, the regulations. No one can really make a good offer to a company as a whole. Pulling off what happened with Amazon.
Darin: The tax incentives.
Feras: Houston struggles. They're trying to change that because we can't do things to try to really sweeten the pie. But Dallas has done a really good job of attracting companies to move their headquarters there. That helped. Then that's because Texas as a whole is very business-friendly, almost to the detriment sometimes.
Darin: It is very business-friendly, and it has a kind of a funny story. It has a very unique subculture to itself that it's very proud of Texans.
Your Customers Are Your Investors
Darin: I've found being an East Coast guy moving into Texas that you don't necessarily have to grow up here. But if you live here, in many cases, you're accepted. They're welcoming, but they have this pride in Texas and in treating people correctly and having manners.
When I first moved here, there was something going on in my HOA. There were emails flying around. One person ended it with, "That's un-Texan," instead of un-American. It was un-Texan.
Feras: Southern hospitality. You Northeasterners are just so rough, you know?
Darin: When you talk about the syndication business, a lot of people try to narrow it down to finding deals and finding investors. Finding deals, and finding investors. Two focused, you guys are approaching it in a little different manner in terms of trying to build out all these different verticals within the company.
Let's talk about how do you get yourself out there to attract more people to want to invest with you guys? So that you can grow and scale.
Feras: I would say maybe the elephant in the room. The easiest way to attract new equity is to perform for the equity you have. Ben and I did this exercise once where we've counted one investor literally had bought on 13 other people.
They tell their friends, "Hey, here's what I did." Syndication, I think is heading toward the golden age.
What is syndication? It's not real estate specific. Syndication is fundamentally about pulling together investor money to perform on a business plan.
Perform is the key thing, and your customer is really your investors. Understanding that dynamic now, whether we're buying an apartment or we're buying an oil well, it's all the same thing.
Double Your Money With One Person
Feras: So fundamentally performing for people is key. Those people will tell people because a lot of people still don't know about syndication. Guys like me and you, the information about syndication, how to be syndicators. It's out there. It wasn’t as easy to access that information 10 years ago.
On the passive side, sky's the limit in terms of people finding out about it. It's really about getting in front of those people. Guess what? That one person in their circle that happened to accidentally stumble across it, telling their circle, that's valuable.
Darin: That's incredible, that story of one person telling 13. So you had 13 other people that invested after that person.
Feras: Not even all in the next deal, just throughout the next several deals. Just introducing us to more people.
Darin: The other thing I've seen you guys do just from watching you from afar through social media and whatnot. You guys have been focused on building your brand, your company for Disrupt Equity, and establishing Meet Up conferences. I know you did one in Houston.
You did one in California, you did one in Massachusetts. Talk about what was the thought behind doing that? What were some of the challenges with doing that? When you go out to California and Massachusetts, people don't know you there.
Feras: I'm a big believer in doing things that are too big, too hard for most people, and then go tackle them. Most things are just about execution, and so the conference was a good example. There weren't that many, and most of the ones that were out there were very sales pitchy. So we were like, "How about we facilitate a really nice environment for people to network?"
A Brand in Association
Feras: We don't sell anything. Any speaker we bring on needs to add value. We tell them, "You're not allowed to sell anything. If you turn it into a sales pitch, we're not going to bring you on again." I'm pretty candid with most of our speakers about that. But really, we did the first test in Houston, and people loved it.
We literally had people come up afterward. They were like, "I'm surprised you didn't try to sell me anything." Our goal is just to break even. But by breaking even while we're putting this on, we're elevating the brand. Partly, there's a lot of intangibles that you start to realize once you do it. It gives me a platform to put people on, which is valuable. People want to be on that platform.
It helps elevate our brand to be equal to anyone else that we bring on. We had the mayor of Houston come on this past February. Literally, the mayor of Houston came and spoke at the event. What do you think that does to a brand in association? It elevates that brand. Being cognizant of that and doing things in a professional, attractive way, I think is critical.
A lot of people are really eager to try to build the brand, but they'll do it at any cost. Whereas in the company, I'm pretty anal about our positioning and of the branding. How we say things, and when we say them, and who do we bring in, and all of that. Having a strategy for that is critical if you're really looking to build something long-term.
Darin: So when you left Houston, you went to California first, then Massachusetts. Obviously, East Coast, West Coast. I understand why you want to do that.
To Double Your Money, You’ve Got to Hustle
Feras: You’ve got to hustle. We want to get out of the bubble that we're in. Me and you are in this Texas bubble. We all know the same 300 people. We wanted to go to the other coast and places that we've never been. Luckily, we had the blueprints in Houston.
Houston, the way we did it went really well. One-day event, action-packed, and a lot of networking planned throughout it before and after. The whole shebang. So we had a blueprint. It's about reproducing it, and luckily, we had figured out not all the kinks but figured out a lot of it. We went to the East Coast and we started finding local people.
Again, luckily we knew people in each of those markets. "Hey, can you help us do this? Help us do that?" And also, try to bring on the right speakers that could help you market in those places.
Darin: So you leveraged some relationships you had in both coasts to help you get there?
Darin: That's something that I mentioned to the listeners before, and I think it’s extremely important. No matter what you want to do, whether it's starting a conference, a Meet Up group. Doing your first real estate deal, starting your own business, you got to tell people what you're doing. You have to ask for help. Because there are people genuinely in your network that want to help you with nothing in return. If you don't ask, they're not just going to show up at your door.
Feras: The beautiful thing about real estate is that you have some people that really hold everything close to the chest.
It’s a Relationship Business
Feras: But there's a lot of people that are just willing to help because it's a relationship business. We've been successful, not because we do everything ourselves. We're happy to partner with the right people where it makes sense.
You mentioned this a little earlier, but it's ultimately about asking for help but finding ways to add value. Maybe a good example is this podcast. Happy to be on it. I appreciate that you're going to put me in front of your audience, and they're listening in.
But in return, guess what? I'm going to have our team blast it out to our audience and market it as well to help send back traffic and help you build it as well. There's a lot of intangibles in doing that and just be known as a person that tries to add value where you can. Then whenever you ask for help, people appreciate that.
Darin: That's huge. You are very transparent, which I love. I don't ever get the sense when I'm talking to you that you're, "Hey! Don't ask me this because I'm trying to hide something." You guys are who you are, and you're going to do what you want to do. You're trying to add value, and you do add value. So people keep coming back. That's awesome.
Feras: That's my M.O., to try to be as transparent as we can, and do that with each of these businesses too. For property management, the owners need to know what sucks about their property. Like, "Here's the problems that are happening, X, Y, and Z. How do you want to solve them?" So across the board, I try to instill that and teach people.
How Do You Teach Your Team
Feras: This goes into a whole management conversation, but how do you teach your team to also have that same mindset? That's the hard part, really. I can be as transparent and as effective as I can be. But really trying to instill a team that knows that, and they want to speak up.
They'll go back and give bad news, whether it's to me, whether it's to customers, everyone. Just having that across the org, that's the next rabbit hat that we're trying to pull off.
Darin: You make things sound very easy. You've been doing business for a long time, so it seems like old hat. But through that, you must have had some sacrifices along the way. What were some of the sacrifices that you've had to go through?
Feras: Not everything is perfect. This goes back to you making mistakes along the way, but just make sure they're not going to end you. Maybe thinking through sacrifice, so I had this software company. I did that very well.
Then we doubled down and tried to say, "Hey, we've done well for the past three, four years. Let's go build a real software company." Because we knew what we were doing at the time was not sustainable. It was not going to keep producing the returns that it was.
We doubled down and built a software company, and we built property management software because there was a gap in there. But the mistake we made was really try to pivot to a different niche in the market. We really couldn't compete against that, we thought we could. Now having a management company, I see and I'm like, "Oh, man. We would have never competed in this." It was terrible.
Let’s Double Your Money Down on the Real Estate Thing
Feras: Completely that just not working out. Having to wind that down and say, "Okay, let's just close this off." You have to give that up, and "Hey, the real estate thing is going. Let's double down on that."
Because people don't want to cut that thread. So being willing to let go and move on to the next thing but it's about having a plan and a strategy. And again, we make mistakes every day.
But again, learn from them, and I'm pretty anal about that and having the team learn from them. I'm getting things documented internally, and we follow an SOP. Whenever a problem happens, how do we update that? That way, we can continue to refine. It's about constant learning. I'm trying to think of other big sacrifices.
Darin: I'm just thinking like okay, here's a high school kid starting multiple companies. That's time away from just hanging with your friends. That's time not watching TV.
Feras: I have two kids as well.
Darin: When you were deciding to listen to all those podcasts, you were doing that instead of doing something alternatively.
Feras: True. I guess I love what I do. It's a lot of fun. That's part of it and what I like about it is I work when I want, how I want, where I want. That gives me flexibility. The podcast that I was listening to, that was pretty much late at night between the hours of 11:00 and 1:00.
I was in the gym, two hours of podcasts every single day. Even just making the decision to leave Microsoft. People thought I was crazy leaving Microsoft and not really having it all figured out.
It’s Important to Like What You Do
Feras: But if I didn't leave Microsoft, I wouldn't be where I'm at today. Or if I would have taken the job offer from Amazon instead of Microsoft, I would have absolutely still been at Amazon. It would have been hard to leave that. So you blaze your own trail, but it's important to like what you do. I think that's part of it.
To me, it's so much fun what we do. Building communities, building a company culture, that's my thing too, really. How do we keep an awesome culture and really maintain that? That's fun seeing the impact you have on people, so I enjoy all of that.
Darin: I love that you have passion for it. It's not like you just have achieved something, and now it's just, "Hey, I want bigger numbers." No, it's like you look at every relationship as something that you can grow, and you can have impact with. You don't seem like a guy that gets scared, but most of us deal with fear.
When we go to tackle something that we haven't done before, there's that thing that goes on inside our head that, "Alright, can I achieve this? Do I want to tell people that I'm going after this because what if I fail?" Talk about a time or multiple times that you've felt fear, and how'd you push through that?
Feras: I will give you a real example even right now. Fear happens to everybody, but it's believing you make the right steps, and you have enough of a plan. Like right now, we're hiring more people. We are arguably hiring on more than what cash we're bringing in.
Double Your Money and Bet on People to Scale
Feras: Because I'm doubling down and betting on, "Okay, these people will scale this, this, this." That way, before it becomes a problem, we will already produce more revenue from these other things. So just growing the business, taking on risk, that's important.
Darin: How did you get past that fear and actually take action to hire the people?
Feras: It's ultimately believing that the team is part of it. In the worst-case scenario, do we have mitigation plans and what that looks like? Can we structure things? I'll give you a real one. Can you structure things with people to create win-win scenarios?
Or maybe compensation, they're betting whatever it is, but compensation is back-heavy. That way we're not having to feed it the entire time. There's a lot of those being creative in some ways.
Darin: What about looking back at, "Hey, I was scared to leave Microsoft. But I felt like it was the right thing to do. And it worked out." Or looking back at past experiences.
Feras: The tip to people is just don't do it. Let's talk about the things that we're not talking about that we don't do. In the evening I would be with friends. Between the hours of 8:00 to midnight, I was at Starbucks working on different projects all the time.
Four to five times a week working on all sorts of side things. I'm not a big believer in the people that just completely jump ship and have no plan. That is risky. It's about having mitigated risk, or planned risk maybe is a better way to put it.
There’s Always a Sacrifice
Darin: That was a sacrifice. You could have been out drinking beers with the buddies after work. But instead, you were at Starbucks coming up with a secondary plan so you could jump ship.
Feras: I had it down perfectly. So I ate out for dinner with friends, and then 7:00 to 11:00 would be Starbucks working on stuff. Then 11:00 to 1:00 would be a happy hour. We'd go, and I'd get these Texas nachos every two or three days. I mean, there's always sacrifice.
Darin: You just planned your day well.
Feras: Yes, that's part of it. There's always sacrifice. I'd be lying if I said there wasn't. But again, it goes back to liking what you do and just having the flexibility because I can also tell people, "Hey, yeah, let's just go sailing all day today, and I'll catch up later." So you can be flexible and continue to work through the things that you need to.
Darin: You've got a lot going on. What's the next big stretch goal?
Feras: Our next thing right now is just doubling down on where we're at and really solidifying a lot of the things we have. Buying a few more properties, bringing out a few more under management as well. Scaling up more of what we've committed to on the insurance and on the financing side.
And really just building out these businesses, making sure that they start to get to a point where we can step back. Those businesses have enough. Starting that engine to where it can start to roll on itself. That's our next focus for the next few months.
Darin: Alright, so a year, or two, three years, how would you define where you guys are at?
More Tightly Coupled, More Vertically Integrated
Darin: What would Disrupt Equity look like in three years?
Feras: Disrupt Equity, three years from now, is basically really just more tightly coupled, more vertically integrated. 5,000 units under management across multifamily and even other asset classes. Multifamily is what we do A to Z. We pride ourselves in that. But we will partner with other experts in other asset classes. Fundamentally, we want to get good opportunities for our investors.
So we will source those opportunities, and with the right operator, even if it's not us. That's maybe where we're at. Tapping into finding deals that are attractive up and down the stack from ABC, and even different equity pools. We want to be known as the guys that, "Hey, what we present is what we deliver." To be known of that, whether it's institutional, whether it's retail investors.
Darin: That's almost a three-fold growth factor. 1,700 units now to 5,000, in addition to growing in-house property management, financing, insurance.
Feras: What we're missing is, having these other pieces will lead to business all by itself. So the property management company might know about the deal that the bank wants to get rid of. They're going to have us maybe house manage it for them but guess what? We're probably the first people that get to buy that deal. Same thing with insurance. You're so intertwined in the business that you see a lot more than most people, so I think that'll help.
Darin: I love when people, they reach certain goals, and then they turn around and they set another higher goal. Look, there are some people that may be listening that they are just finding out about syndication.
Figuring Out Where the Match Is
Darin: They're just finding out about passive investing, and it sounds very interesting to them. How would you explain to somebody how to get involved as a passive investor?
Feras: The first thing is get educated. Listen to these, and I'm going to give a shout out. One thing we didn't talk about, we have something we launched called InvestorAcademy.net. We get asked a lot about these things. We are like, "Well, how do we put on the highest quality content that people can go learn about all the ins and outs of being a passive investor, or doing your first deal?"
Darin: Where can people find Investor Academy?
Feras: InvestorAcademy.net. But it's really, for us, it's not meant about building revenue. It's really about building a platform for people. So getting educated, read books. I mentioned a book earlier. Listen to podcasts like Darin's. You're going to hear different aspects from different people. That's a big one.
The best investors are the educated investors, so get educated.
Personally, I invested with four or five different people. Initially to see what I liked and what I didn't like about each sponsor. Then, I figure out where the match is and then, on top of that is being one, I learned how to be the best. I couldn't know what else was out there without seeing what's out there. Now, how do I take the good from each person and combine it into something that I think is maybe the best?
Darin: So I would add on too. I think that those are great. Read books. Listen to podcasts. But then you've got to get out and actually meet some of these sponsors.
Feras: Go to the events.
Get to Know People
Darin: It's different from investing in the stock market. You really need to meet the people that you're going to do business with. Now, with COVID, there are not as many face-to-face events. But you can still find people on social media, Facebook multifamily groups. Ask other people that are in the market for recommendations. Set up calls. Even just having personal phone calls with them is critical to get to know people.
Feras: If a sponsor does not want to carve out some time to talk to you, that's a problem. They should be available. As busy as we are, we still make sure that we get on calls with investors. Whether it's me, Ben, or even bring on someone on the team to help with that.
Darin: So with that, if people want to reach out to you, how do they get in touch with you?
Feras: The best way is DisruptEquity.com, or send me an email. It's just Feras@DisruptEquity.com.
Darin: I really appreciate you coming on. Next time I'm in Houston, I will definitely look you up. I appreciate you guys taking the time to get together with me for lunch, and hope to do business with you in the future. Listeners, you guys heard some of the returns that these guys have. These guys may very well be guys you want to reach out to and get to know better. So until next week, signing off.