Abbas Mohammed is the CEO and founder of Model Equity, a multifamily real estate investment firm with a focus on properties in the Dallas-Fort Worth area. He started in the residential space as an agent at 18 years old before going all-in on multifamily real estate investing.
In this episode, Abbas discusses hiring and utilizing virtual assistants, the gap between seller and buyer expectations in today’s market, and the importance of choosing the right market and right properties above all else.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocum Reed, and I'm here with Abbas Mohammed. Abbas is joining us from San Jose, California. He's the CEO and founder of Model Equity, a multifamily real estate investment firm with a focus on properties in the Dallas Fort Worth area. They're currently GPAs of 338 units for 54 million in assets under management. He's also an LP in almost 1,600 more units. Abbas, can you tell us a little bit more about your background and what you're currently focused on?
Abbas Mohammed: Absolutely. Well, I appreciate you having me on. I first started off in the residential space, actually, as a real estate agent when I was 18 years old. And at the time, I didn't know anything about real estate, I just started as an agent, because it was the only thing I could afford to do. I got my real estate license on a credit card... And I thought it was gonna be easy, but in the first year, I remember I failed miserably. I literally had two headsets on I was cold calling all day long, trying to get listings... And after a year of doing that, I finally got my first transaction after 12 months. But then afterwards I started -- yeah, it took a while, but then afterwards, I started doing more and more transactions. By the time I was 20 years old, I was making about $350,000 a year. And then from there on, I started learning how to hire virtual assistants. Actually, at the end of 2019 I hired my first one, then hired the second and a third. And then in March of 2020 I went all in; when everybody was shutting down and reducing their business size, I decided "You know what, this is the best time to be going all-in." So I hired a hiring manager. And then from there on, we grew to 12 virtual assistants, and I tripled my production that year, and then the year afterwards I did the same thing and we went up to 25 virtual assistants, and I made close to $2 million from that business in that year.
But I got to a point where basically I was getting a lot of cash flow from the business, and it became very passive because I had so many people in the business. I had hiring managers, I had training managers, I had all that sort of stuff going, so I wanted to start investing that cash somewhere. And I looked at a bunch of different opportunities. Even though I sold residential real estate, I was not really a fan of it as an investment vehicle. So I didn't want to go into that side of investing, and I also don't like stocks, I don't like crypto, and so eventually, I found out about multifamily a few years ago and I decided to go all in. Sso I started off as an LP and then moved on and started off becoming a general partner in these deals.
Slocomb Reed: That's awesome. Started as an agent, no sales for a year, started getting the hang of it, hired lots of VAs, started deploying some of that capital that you were earning passively in syndications, and then getting into the general partnership side. That's awesome. There are a couple of things I want to jump in and ask questions on here, Abbas. I will say though that I can hear a combination of a couple of fairly common stories in the apartment syndication space. One of them being I started residential, I started as an agent, and then scaled, and the other being I was earning a high income, I needed to get capital deployed. I started passive, and then saw the opportunity to go active. So cool that you're living both of those.
Abbas Mohammed: I have a little combo of both, actually. I was just thinking that.
Slocomb Reed: Yeah. So I'm an apartment owner operator primarily in Cincinnati, Ohio. Also still am a residential agent, much more focused on operations from my portfolio and property management than transacting now. I've used virtual assistants to some degree of success for a handful of tasks, responsibilities within my various projects. I will say, especially anyone who reads The Four Hour Workweek by Tim Ferriss, there's a huge allure to the idea of getting someone halfway across the world for a third of the price doing work for you, that we are told can be as professional, if not more professional, while saving us a lot of money, and having a better work ethic, possibly, than the talent pool available to us locally. That said, there are a lot of hiccups, hang-ups, difficulties, nuances, cultural misunderstandings often with hiring virtual assistants in more affordable markets. I guess I'm making the assumption that you're hiring them in more affordable labor markets, Abbas, but can we speak to that? Can you give us some mistakes that you've made, some things that you did really well and best practices for hiring virtual assistants and building out your VA team?
Abbas Mohammed: Yeah, so it's interesting, I think a lot of people think it's a lot easier than it sounds. Hiring people and keeping the right people is a very difficult task, just as with anything that's really worth doing. We had a process on how we did it, but I've made a ton of mistakes. I've hired literally hundreds of people and had to fire hundreds of people that weren't the right fit before I figured out really the formula on how to do it. But basically, what I ended up realizing by the end of it is this - if I want to hire virtual assistants, it's hard to hire people to do things that you don't know how to do yourself. Because a lot of times they're focused on lower tasks and lower activities, so what you have to do is you have to become a master at those tasks, and then learn how to really delegate them in a way where they're very simple, to the point where it's very hard to make mistakes.
I remember I took my real estate sales business when I was still selling real estate - I don't do that anymore, but when I was doing it, what I did is I looked at every single thing I did and I thought, "How can I make it so easy to the point where a fifth grader could get into this and learn how to do it without making mistakes?" And so I just divided everything into little bite-sized little chunks. So what I also started doing is I realized later on that I can't have one person trying to do multiple things, because he's just going to make too many mistakes. So I divided it into many different areas, in every area I had specific people that would cover that specific task. So for example, cold calling had a set of people, and then management had a set of people, trainers were different, the salespeople were different, and nobody did someone else's job. It was very well separated for that purpose.
I also learned that if I want to hire one person, and I have to hire four, because what's going to happen is two of them will quit, and then I'll end up having to let someone go, and then I will be left with one other person. So it just kind of became a formula for me, where I know for every role I want to hire, I need to hire four, because only one will stay. That's after doing a lot of due diligence. Like, before we hire anyone, they have to go through a bunch of tests, and do a bunch of different things to even get to that stage. But I've noticed even when they do get to that stage and we actually had them on board, we still have to let a bunch of them go, unfortunately, because they just don't meet the requirements, or they don't end up showing to work, or there's too many problems. It's definitely very operationally heavy to build a virtual team. Having said that, now that I'm in the multifamily business, I still have some people that are virtual, but I'm shifting my focus much more to people in the US. And the reason is, there are a lot of different skills that I want to add on to my business, to my team, that I just don't have. And I would rather hire someone who's been doing it for 10 years, 15, 20 years, that could bring those skills into the business, rather than me trying to go learn it on my own, spend a decade of my life and then delegate it to somebody else.
So I think there was a balance... What I learned eventually, is that you have to have both; there are always going to be lower level activities that I would highly suggest having a VA for, because you don't want someone who you're paying 150k, 200k a year to be doing those sorts of tasks; you want them to focus on what you're hiring them for. But then you also want those people to bring in those skills that you don't want to spend your time building and learning yourself, because there's just too many moving parts, and you just want to focus on what you do best. So I think having a combo really is the best way of doing it.
Slocomb Reed: That makes a lot of sense, Abbas. A couple of questions, though. First, when you were going virtual, where were your virtual assistants based out of?
Abbas Mohammed: So initially, we started off in the Philippines, and then from there on, we moved over to hiring also in Pakistan, and then Mexico, and then Argentina, and Dominican Republic... So really a bunch of different places by the end of it, because I realized different countries tend to have different skill sets that people have. For example, if we wanted great salespeople, I know that Mexico is actually a great country for that, because the culture was very similar, and there were a lot of expats that lived in Mexico that are many times actually Americans, and so you could hire those people to do sales, and then for more an administrative type of tasks, you'd hire people from the Philippines. If I wanted video editors and a bunch of these other roles I would hire from Pakistan, or other countries. And then when I moved over to multifamily, I just kind of adopted a similar model. When I wanted people to do analysis, I'd hire people, again, from either India or Pakistan, I noticed they're great for more basic type of analysis. But then later on, I started also hiring people locally.
So again, I think having a combo is really cool, but understanding those different skill sets that these different countries have is also very important. And I don't mean it in a stereotypical type of way, I just noticed that when I hired people, we would have more qualified applicants for a specific role from different sort of countries.
Slocomb Reed: That makes a lot of sense. With your rule of hire four to keep one - was that specific to particular roles or responsibilities within your organization? Or was that for basically anything? The reason I ask - let me preface, Abbas... My experience was very similar in more sales, especially outbound sales oriented roles. But when it comes to administrative tasks, things like that, I'm probably closer to two to one or one and a half to one. Again, without your scale... But those just haven't been the kinds of jobs where I experienced the burnout, or people disappearing halfway through, the way I did with sales.
Abbas Mohammed: Yeah, I fully agree. Especially with the lower level type of roles, you definitely need to hire more and keep less. As you move up the ladder though, you'll notice that just naturally, for somebody to be at a higher-level role, they've already kind of filtered themselves out. If they weren't that great, they would have stayed on the lower-level tasks. So what you will notice is that it's easier to hire the higher-level roles than it is the lower-level roles for that reason.
But having said that, I would still highly suggest, if you're going to hire people for admin tasks, or analysis, or a bunch of these other things, that you also do a lot of due diligence and really focus to see if you're actually getting the maximum potential output from the person you're hiring. Because a lot of times, people hire someone, and they think they're doing a great job, but that's just because they don't really know what a great job actually is. And so if you hire multiple people, you can then start to see "This person is doing great, but this person is taking it to a whole other level, and I really need to set the standard higher."
So when you hire more people like that, you start to really understand what is actually possible, versus your own expectations. Because your expectations might be too high, or a lot of times I noticed they're probably too low for most people. And so that gives you a better perspective into what's going on.
Slocomb Reed: That does make a lot of sense. Abbas, transitioning into general partnership, active commercial apartment investing - within your general partnerships, which responsibilities do you tend to take on?
Abbas Mohammed: Because I used to be on the residential side, as a broker, I really knew how to build relationships with brokers, because I used to just focus on listings. So going into multifamily, what I wanted to focus on personally was acquisitions more than anything else; because I also believe choosing the right market and choosing the right properties is the most important aspect of this business. If you choose the right market, and then you have a way of generating off market deal flow and choosing the right properties, then really you have to make a lot of mistakes in asset management before you start losing money.
But on the other hand, if you choose a bad market, bad property, you're gonna have the best asset manager on the planet, and they still can't fix it, because there's not much that they can do. So when I got in, my initial focus was on acquisitions. So I built a lot of relationships with the top brokers in the Dallas market, which was my focus because of many reasons - job growth, population growth, landlord friendly, a lot of [unintelligible 00:13:47.10] growth. So I chose Dallas and I went in, and I basically built out a list of all of the top brokers in that market, started contacting them, going to events, going to dinners, going out to lunches specifically with each one... So then from there on, I just kind of built a brand and started getting off market deal flows. So that's been my biggest focus, is acquisitions. Early on. I also hired an analyst to help filter all the deals that we were getting, so I could just focus on building the relationships. Then from there on, after we did a few deals, then I started really shifting my focus as well to equity raising. So marketing and building our database and hosting weekly webinars and all these different things to grow our audience and our reach. So I've already kind of built out the systems for the acquisitions processes, so now that takes me way less time. And now I new focus is to build out our investor relations site to really grow our reach.
Break: [00:14:46.21]
Slocomb Reed: I do want to ask you about what you're seeing in DFW right now... But first, you talked about building relationships, having the broker experience, you also talked about the ability to get off market... Are you all working primarily on value-add apartment business plans?
Abbas Mohammed: Correct. Yeah, when I started, I was focused on B and C Class deals. My first deal was actually a C Class property built in 1972, and 1982; two phases. Six and a half million dollars. So that was my first deal, was a C Class property. And then afterwards, my second property was a B class, and then my third was a B class... And so now my focus is exclusively on B class properties.
Slocomb Reed: You talked about the value of going off market. Tell me about that. How many of the deals that you guys were underwriting were being brought to you by brokers on market? How many were off market, and how often were you going direct to seller?
Abbas Mohammed: We actually don't go direct to seller, because anytime you get over the 50 unit mark, what I've noticed is that the seller pool tends to be a lot more sophisticated. So whenever they want to sell, they want to make sure that they go through a broker. And so you could go after 50 plus units direct to seller, but there's the problem of sophistication, obviously, with the sellers. But the other problem is, in my opinion, you don't want to compete with the brokers. Because if the broker is known as that you're competing with them for listings, what's going to happen is they will be, in my opinion, less likely to want to do business with you, because that will damage their relationships.
So I made it a point when I got into this business that I want to build great relationships with brokers and start to get off market deal flow that way, so that way, we're not competing with them, because they're already working a lot. These guys spend a lot of time and effort flying out and meeting sellers and calling and doing mailers... So they do a lot of work, and so instead of me trying to go in and try to control every aspect of the business, it's better to just get on their good side and start getting deal flow that way. And so that was the strategy that I chose.
But to answer your question - so my first deal was on market, my second deal was also on market, but it was with the speaker I built a really good relationship with and it was a 30.5 million dollar deal. And I remember at the time, technically, really, we weren't qualified to buy that deal in the sense that we hadn't done a deal that size yet... But because we built such a great relationship, he really put in a good word for us with the seller, and they decided to go through with our offer, and we ended up closing on time... And I remember at the time, it's like "Abbas, if you pull this off, and you close and everything is great, I will give you as many deals as you want." And these guys do like half the business in Dallas.
So from there on, we started getting almost every transaction that fits our criteria, literally while they're just signing the listing, or they're just getting it ready, they send it to us before anyone else. So that's been a great experience.
Another broker I did a deal with recently - my third deal was, again, completely off market, they sent it to a couple of investors, we ended up buying it and got it at a great price faces because it was off market. So nowadays, we're getting a pretty good, consistent flow of these deals. Although I will say right now in Q1 it seems to be quite a little bit slower than usual, because a lot of sellers are holding off for the market to rebound before they do anything.
Slocomb Reed: Let's talk about that, Abbas. I was planning to ask how things are going with acquisitions in Dallas Fort Worth; we're recording in early February 2023. You're not seeing as many deals because sellers want to hold off for some change in the market. The deals that are coming into your inbox though, the line everyone is hearing right now is that there is a gap between seller and buyer expectations nowadays, buyers complain that sellers want 2021 prices, and sellers complain the buyers are putting too much of an emphasis on factors that are not actually the operation or the performance of the property. What are you seeing right now?
Abbas Mohammed: I'm seeing exactly that. So I'll give you some background on this. I remember in 2021 I did my first active deal in July 2021, then I bought a second one... So by the end of 2021 December we had about two deals, which was 37 million at the time... And then I was gonna buy more in 2022, but for the first two quarters, from January up until about June of 2022, the market was insanely overpriced. I literally looked at 400 deals all over the country, and I even expanded beyond Dallas; I thought maybe just Dallas is overpriced. Let me try to see Phoenix, let me try to see Nashville, let me try to see Florida. And the entire country was overpriced. So I stayed out on the market. So then I put my third deal under contract in July of 2022.
But having said that, what's going on right now is there were a lot of buyers that were actively in the market overbidding on each other last year, and now there's been a big shift in pricing, because interest rates have gone way up. So what we're noticing is that a lot of the sellers are expecting inflation to go down, and they're expecting interest rates to also go down eventually. So they're just holding off. There are a lot of deals that were bought on variable rate bridge loans, and a lot of them don't have rate caps, and they don't have reserves... So my opinion, I think we're gonna see a lot of these deals pop up on the market at some point, most likely this year, because they just can't hold off too long... But I think a lot of these properties have enough money to stay solvent for a little bit longer before they start to really need to sell.
I do think that a lot of these properties will get picked up pretty quickly. I don't think the opportunity is going to be as large as some might think, because there's a lot of equity sitting on the sidelines, waiting for that exact thing to happen. So when it does happen, I think we're going to see a flood of capital enter the market and pick up these deals. I wonder though, how pricing is going to play out. Because currently, I think in many markets we're seeing between a 10% to a 20% reduction in prices from the peak of last year. So I don't know where prices will end up, but I do for sure that right now it's much slower than it ever has been. So if you're going to buy a deal and q1 or q2 of 2022, it makes way more sense to be buying deals right now, because it's the same assets, and a lot of times even higher income, that are being traded at 10%, 15% 20% discounts.
But here's what I'm seeing that's interesting. I'm seeing a lot of buyers sit on the sidelines, because they're too worried right now. But they weren't worried nine months ago or a year ago when the prices were through the roof... Which kind of blows my mind, but that's kind of the market we're in right now.
Slocomb Reed: I get what you're saying about the market that we're in right now. Yes. I think it's really helpful that you talk about equity and the capital sitting on the sidelines waiting to pounce on something. Frankly, if I can draw an indirect comparison here, I don't own any crypto yet, but as Bitcoin was tanking, for example, or choose any asset that has an easily definable value - for people, Bitcoin, again, and this is early February, so for people who track Bitcoin pricing, you can go look at what it was in early February. For all of the people who are saying things like, "I'll buy bitcoin as soon as it dips below $15,000", well, there were other people who are waiting for a dip below 17k and 20k who bought before it got there and kept Bitcoin afloat. Commercial real estate is a little more complicated to price than something like a currency or cryptocurrency... But there are plenty of people out there thinking, "As soon as it hits X level of return, as soon as it hits x per door, or y cap rate, that's when I'm moving in." And for a lot of people, those numbers are not nearly as elevated, higher cap rates or lower cost per door, as some might expect. I think you're right that there are a lot of people sitting on the sidelines waiting to see what happens, but they're gonna jump in.
Abbas Mohammed: Yeah, you know what's interesting, I noticed a lot of the people that say those types of phrases "Listen, I'm gonna go in the market when this happens, when that happens." What I noticed is that when those things do happen, they actually don't get into the market, and they reset their expectation of when they're going to enter the market. Warren Buffett says this, and it's really interesting. He says, "Listen, buying stocks is like buying groceries. I want groceries to go down in price, because when they do, I'll just go buy more groceries. And it's the same thing with the stock market. If I'm looking to buy a company that's performing - well, if it gets discounted, I'm gonna go and buy more of these companies." And to me, it's the same idea in multifamily real estate - people were willing to buy these assets at the peak. And yet now that they're on sale, it's the same assets, same exact building, same exact location, better performance many times, because rents gone up, and yet for some reason, a lot of people are sitting on the sidelines right now when they should be entering the market.
I think what matters most on these deals is that you underwrite deals conservatively, you have conservative projections and analysis and everything... But if the numbers make sense, I think you should be in the market right now more than ever before. Because again, I don't think we're going to see this opportunity where prices go down as much as they have recently. And it's mainly been obviously due to interest rate increases, but also a lot of buyers have Just been scared of sitting on the sidelines, and I think that will work itself out over time, and that will get fixed. But what you want to think about is, if you're conservative, and you're not being over leveraged right now, in three, four or five years, is any of this stuff going to matter? And the answer is most of the stuff we're seeing today is not going to matter in that long of the duration.
The other day I was reading an article, and it made it sound like the world is ending where they're like, "Occupancy has dropped by 0.5% nationwide." It's like, who cares? 0.5% nationwide - is that going to matter in five years? Not at all; it's not going to even make a dent. So you want to look at the numbers, and you want to forget what the media is saying; you just want to see these deals make sense and the numbers make sense. And don't get caught up in the frenzy of what everyone else is doing. Because everyone else likes to do what everyone else is doing. People just don't analyze. They don't look at numbers. And this business especially, I think you should be very analytical and very number oriented, not focused on what others are doing necessarily.
Slocomb Reed: That makes a lot of sense. Abbas, are you ready for the best ever lightning round?
Abbas Mohammed: Let's do it.
Slocomb Reed: Awesome. What is the best ever book you've recently read?
Abbas Mohammed: I would say - not recent, but I always like to recommend this book, 'Whatever it takes' by Stephen Schwarzman. He's the CEO of Blackstone, and he's got a phenomenal book; I highly recommend you all read it.
Slocomb Reed: It's a great one for sure. What is your best ever way to give back?
Abbas Mohammed: So I actually like to donate to a lot of refugee organizations, mainly because I came to the US as a refugee when I was 11 years old, and had it not been for some of these organizations, I would not have been in this country, which has obviously changed my life significantly. So I always like to give back in that aspect.
Slocomb Reed: Abbas, focusing on your commercial real estate investing... What is the biggest mistake you've made and the best of our lesson that resulted from it?
Abbas Mohammed: I would say the biggest mistake that I probably made in this business is in 2022 in q1 and q2, I wasn't finding deals. I thought it might be a good idea to go and maybe look at other markets. But the reality was, the whole market in the US was overpriced. So I think I wasted about six months of my time just trying to build new relationships in other markets and fly all over to look at deals, when instead, I should have just realized the market is overpriced. I'll just sit and wait. And instead, I should focus on doing something else, like maybe building our database bigger, or maybe going out and doing more investor events, and building my database. So that way when the market shifts, I can basically reach out to more people and bring them into deals, rather than spending so much effort looking at markets when the reality is it wasn't a market specific issue, it was a nationwide issue with prices.
Slocomb Reed: On that note, Abbas, what is your best ever advice?
Abbas Mohammed: Best ever advice - in this business, I would say you should definitely be super conservative on deals. Don't get into the frenzy of seeing other people buy stuff, and then feel like you're missing out by not being in the market; you should only be in the market when you feel confident about the numbers. And I think you should also be very specific about which areas in which markets you're investing. In my opinion, that's probably the biggest mistake that people make, is they buy deals based on the property itself, and not based on the neighborhood and the market. And in my opinion, I think that's way more important than the property. They're both important, where you should prioritize focusing on good neighborhoods and good markets that have upwards potential, rather than just looking at a property and saying "The price per door here is this, the price per door there is much higher." So definitely prioritize markets; you should really understand at a very deep level how to analyze markets, how to look at data before you decide to jump into an investment.
Slocomb Reed: That's great advice. Last question, where can people get in touch with you?
Abbas Mohammed: So the best way is to schedule a call with me, and the best way to do that is if you go on my website modelequity.com/invest you can make a profile there; it's very easy, it takes like 30 seconds. Once you make a profile, you could book a 15 minute call with me, and that's usually the best way to reach out. Again, modelequity.com/invest.
Slocomb Reed: That link is in the show notes. Abbas, thank you. Best ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a best ever day.
Abbas Mohammed: Take care.
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