Balancing A Demanding W2 Position While Creating A High Momentum Investing Business

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You don t have to quit your day job to become an investor This is what Andrew Schutsky lives by He is the founder of Redline Equity LLC and has built 15 years of real estate expertise while enjoying a career as a CIO of a medical technology company He talks about how he got into multifamily real estate and how they are remaining competitive in the current market and how he s able to be successful in both real estate and his W2 00 01 – 14 55 1100 Units and Growing Andrew shares his journey from house hacking to short-term rentals to multifamily Finding opportunities in the multifamily space There s still a lot of demand for multifamily Things are tilting in favor of the buyer Syndicators are becoming conservative Why Andrew is a fan of fixed-rate debt Submarket knowledge is an advantage How to earn other income Add value through valet trash and cable and internet packages Talk with the local township to learn about tax abatements 14 56 – 19 11 Working a Full-Time Job and Investing in Real Estate He talks about how he s bringing technology to real estate and the entrepreneur mindset to his day job Building a team and learning to focus helped him avoid burning out 19 12 – 20 42 Closing Segment Reach out to Andrew Links Below Final Words Tweetable Quotes It can t just be a guess It has to be submarket knowledge we apply to win that deal – Andrew Schutsky I think it s what sets me apart from a lot of my peers and my competition is I m bringing that proprietor business owner entrepreneur mindset back to my day job – Andrew Schutsky —————————————————————————– Connect with Andrew at the Redline Equity website and check out their podcast blog and their FREE 8 part learning series Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below 00 00 00 Andrew Schutsky We re in a couple of submarkets that we know really really well We own and operate assets in those markets like Greenville South Carolina for example we got another one locked up right now and we know there s certain things that we go after and it s very infrequent in today s times that you ll win a deal or we will even get close in the top of the best end funnel with just rent increases So we re looking at a bucket called other income Those listing may do very well in this bucket but that seems to be the differentiating factor for us 00 00 38 Sam Wilson Andrew Schutsky is a passionate multifamily real estate investor who balances ownership in 1100 plus units with a full-time job as a CIO of a medical device company along with also being a family man Andrew welcome to the show 00 00 50 Andrew Schutsky Thanks so much brother It s a pleasure to be here 00 00 52 Sam Wilson Hey man Pleasure is mine There are three questions I ask every guest who comes on the show in 90 seconds or less can you tell me where did you start Where are you now And how did you get there 00 00 59 Andrew Schutsky Yeah absolutely So real estate journey for me has begun back in 2007 and I started before anybody called this house hacking I m using my air quotes so they can t see the video My first home was on the road 50 weeks a year doing the consulting thing learned a lot quickly realized I wasn t utilizing my whole house at the time put an ad on Craigslist with my wife at the time or I guess like my fianc e at the time found really creepy but it was my entryway into learning what you know a house could is not just a place to live in It s a source of income And from there I thought my journey was going to be great I know I don t want to work for 20 30 years I got to start planting some seeds So I thought I was going to do a series of single-family houses you know regardless of having you know that that great bonus or stock structure coming up year after year you run out of money pretty quickly About a decade later I found short-term rentals I still do those and I enjoy them but same constraints Regardless even with one or two really good W2-based incomes or other sources of income you can only go so fast fast forward to 2019 found a 60-something page thread on BiggerPockets You may have heard of that site before around multifamily It was actually a local guy syndicating read his story he was a CPA before and it opened my mind to this whole new world of possibilities which I can t believe it took me that long to find it It s almost embarrassing to admit And from there I kind of went full tilt You know 30 40 books digest every podcast I could listen to nagged anybody who had listened to my questions and joined a mastermind program got a mentor went all in really and just started to dial in on honing different crafts and just crafting new skills 00 02 30 Sam Wilson That is really cool Andrew I love that So you ve been long multifamily since 2019 00 02 36 Andrew Schutsky Correct 00 02 37 Sam Wilson That s awesome Okay Very very cool Tell me what when you say on the on the short term rental side you said that that was a tougher business for you to scale just because it was kind of it was kind of like just a glorified version of a single-family rental Is that what I was hearing there 00 02 50 Andrew Schutsky Yeah I I think what lured me to it is originally we wanted a house at the beach and we re like okay the only way we can make sense of this at the time right We had one young And another one on the way My wife s like you re absolutely insane We can t buy a property I m like what if we could make it generate cash So that was my foray into that And I m like Hey you know the pros and cons there are the pros are you re dealing with happy people They re on vacation You re getting paid in advance There s no such thing as an eviction in that world But the big con is as houses became at least in our area and the Northeast in the Jersey side became very very expensive So your down payments and your closing costs could be well over a quarter million dollars So you know unless you re fortunate to already have a running start and have you know seven figures to play with and invest really hard to get beyond the first 2 3 4 properties that way right within you know especially in your early thirties like we were at the time 00 03 38 Sam Wilson Right Yeah absolutely Tell us what are you guys finding in the multifamily space right now We re recording this on July 12th 2022 So this will probably go live sometime mid-August of this year but tell me what are you guys finding in the multifamily space right now That s making sense for you 00 03 55 Andrew Schutsky We re in the Southeast generally Carolinas Georgia and even a little bit of the Midwest Now we ve got one property in Louisville And still you know despite rising interest rates despite all the chaos and the economy there s a lot of demand still for multifamily A lot of you know institutional and private equity are looking for a stable asset you know hard tangible assets to cash flow with tax advantages And there s still tons of demand for multifamily With that said things do seem to be tilting just a little bit in favor of the buyer You re seeing you know maybe not 25 30 offers but maybe 5 For the first time ever I think 30 days ago I saw the first price adjustment downward or guidance pricing came down that was kind of actually relieving You don t want to see terrible things happen in the economy but also the silver lining of that is you get a little relief and you re not having to go And it s not a blood bath as much as it was you know 60 days ago now 00 04 48 Sam Wilson What do you think is driving that Like I mean is that just because projected rents are coming down Is that just be I mean why is that happening 00 04 56 Andrew Schutsky Well I think we were you know in a weird time the past year seeing double-digit rent growth especially the Southeast and Texas and even you know the entire Sunbelt really and it s not sustainable right I mean we know income s not keeping up with that So you start to see you know CoStar and others backing down their rent projections There s no longer you know 9 10 or 12 forecasted in every market Maybe some markets selectively Sure But you look at that s starting to stabilize and starting to tail off And you also look at the drastic rise in interest rates you know both in bridged and fixed rate debt The cost of capital is much higher right So people start to get a little nervous What happens you know therefore you know us and others and a lot of other syndicators are starting to be a little bit more conservative with their exit cap projections So that in turn is going to soften your offers a little bit 00 05 42 Sam Wilson Right Yeah absolutely And that s something that I guess let me ask you that as a nuance question on an exit cap projection are you guys underwriting refinances anywhere in your deals right now 00 05 53 Andrew Schutsky Never have and probably never will unless there s a very unique circumstance to do so 00 05 57 Sam Wilson Got it I like that answer That s something that we commonly see in deals where it s like Hey you know we re going to refinance especially a couple of years ago when we felt like things were more predictable like okay we re going to refinance three to five years from now or whatever it is So yeah that answers the question You re just not doing it 00 06 13 Andrew Schutsky I know it s a it sounds like a clear-cut answer and it is I just it s not my philosophy It s not any of my partner s philosophy to count on that right I don t have a crystal ball I mean I love to say yeah interest rates are going to be 1 higher at the end of the year but you really don t know that It d be great We always look at that as a scenario What does that look like But I never will make that our primary business case I look at it like I m investing a hundred percent of my own cash to buy a property Just like if my investors are in or not I look at it as like I want to be as certain as I can be right and I know I can t predict interest rates No one can right so I don t want to count on that as a variable 00 06 45 Sam Wilson Right that was going to be my question was how are you compensating especially right now for the complete unknown of where in the world or interest rate going That s how you figure it out or how you build that in you just don t 00 06 56 Andrew Schutsky And I m being I may be in the minority here but I m a big fan of fixed-rate debt I know it does hurt cash flow I know there s prepayment involved in in years you know one and two and it may inhibit your ability to exit early But I really like that Maybe I m a little bit of old school and you know I m a little bit of old soul that way I like that stability my investors like that stability So whenever possible and it doesn t completely crush the deal I I really like especially in today s times the fixed rate product 00 07 20 Sam Wilson While we re on this topic Tell me about this How are you guys underwriting deals and getting em to make sense right now Like what s your guys unique proposition when you guys acquire an asset 00 07 32 Andrew Schutsky Well I will tell you there s no magic bullet and there s still the majority of the deals that don t make a lot of sense but The few that do we re in a couple of submarkets that we know really really well We own and operate assets in those markets like Greenville South Carolina for example we got another one locked up right now and we know there s certain things that we go after And it s very infrequent in today s times that you ll win a deal or we ll even get close in the top of the best end funnel with just rent increases So we re looking at a bucket called other income Those listing may do very well in this bucket but that seems to be the differentiating factor for us If we re you know even close remotely close we start at looking at things like valet trash cable and internet packages And again there s small things but when you collectively add them up it could be 50 a hundred dollars a month And that can be the difference between winning or losing a deal So again that other income bucket has been a huge factor Things like tax abatements and looking working with the township or you know especially affordable housing There s some things at play there So you got to really know the submarkets to know if they re viable or not And I always look you know of course It s as competent as we are looking to have you know one or two of our property managers also verify yeah this makes sense We ve been planting this out It s been proven elsewhere So it can t just be a guess It has to be submarket knowledge we apply to win that deal 00 08 44 Sam Wilson Breakdown valet trash for me I don t even know what that means 00 08 47 Andrew Schutsky Yeah It s actually not commonly known I learned it from another partner that implemented it on dozens of properties and it s basically they ll come and pick up your trash at the door and bring it out for you It sounds simple but it could be 20 25 a month but that might be the difference between winning and losing And it s almost always received very well at properties from what we ve seen 00 09 07 Sam Wilson And it s amazing to me what people are willing to pay for 25 bucks a month Okay So you re telling me I don t have to walk my trash out and and again it depends on I guess you re in the Southeast so it s not even like it s you know three feet of snow because I guarantee my wife and I would probably be stroking the 25 bucks a month It s like okay it s zero outside So yes only 25 but in the Southeast it s not like but people pay for it 00 09 33 Andrew Schutsky Well especially if you look at it like some of the workforce housing we re in these guys work a really long day maybe second or third shift are exhausted They re like you know what it s just not worth the hassle Maybe you ve got two or three young kids at the house Just one of those things like wow this is something that you know is a small burden on you but Hey I m exhausted I don t want to spend time I don t enjoy walking down three four flights of stairs waiting for the elevator Hey you know it doesn t work for everybody We ve had a lot of success with it 00 09 59 Sam Wilson And that is an almost expense free like value add like it s not even capital There s no CapEx in it 00 10 08 Andrew Schutsky No a lot of times you can get the maintenance crew that s already on in-house to do that 00 10 12 Sam Wilson Right right I love stuff like that Anyway that you can add value to a property without incurring you know more cost to do so I mean that just pads the bottom line right away That s what we re doing right now in the RV resort space where it s like we can add dynamic pricing and online booking for I mean it costs us a little bit but not much There s no infrastructure We re not you know repaving drive aisles and adding sites and everything else It s like this is really very simple And yet it changes the performance of a property dramatically So I love stuff like that Tell me about the bundle when you said bundled internet TV things like that 00 10 48 Andrew Schutsky Yeah a lot of times we ll look to and this is I think probably more commonly known this isn t such a you know well-kept secret but you can go and get a larger bulk agreement with a service provider like an Xfinity or whoever is happens to be in your area and negotiate hey I would like to buy a hundred packages at 35 a month Tenants on their own might buy it for 70 a month We sell it for 55 to 60 again 10 20 30 bucks here and there adds up right So it just again it s it s a win-win for the tenant and for us like we get a little bit of the commission there and the bulk you know economies of scale and the tenant saves money you know versus the individual packages 00 11 22 Sam Wilson Right right Have you seen those which we ve done it at one of our properties and there s another episode here on this podcast where I interview the company that actually handles this but where the utility company via mostly the internet company internet and TV will pay you as the property owner for the right to be on your property Have you seen that 00 11 42 Andrew Schutsky We ve underwritten deals that that was the case We don t own any and operate already now but yes absolutely have seen that in the past The same with even renting renting space on the top of the building for a cell phone tower like that can be common or something Seriously I mean that can be a huge money maker 00 11 57 Sam Wilson Sometimes the cell towers are worth more than the building 00 11 59 Andrew Schutsky Correct 00 12 00 Sam Wilson When you when you look at those leases yeah you don t realize and again we ve had you know I ve had Meir Waldman come on the show here who is you know kind of the cell tower lease guy And we talked all about that It was like oh my gosh like there s more money in the cell tower lease than there is in the sale of the building This is madness So that s absolutely interesting Tell me the last comment you made though said you guys are working on our tax abatements How are you guys figuring it out This is why I need you to correct me When I look at a property I go okay there s a you know multifamily property like certainly there s no tax abatements There s nothing left there I mean that s all been extracted long ago when this was built and you know brought online Tell me why I m wrong 00 12 38 Andrew Schutsky It depends on the position of the property A lot of times you re absolutely right There s not much there And if there is anything there usually the broker will pick up the phone If it s an unmarked property they ll put it and they ll count on it and the underwriting the projections that s already factored in but the true gems are where you work with the township and it could be you know either the building already itself as a business already qualifies for this or maybe as you slightly reposition it Hey it s not affordable now it s affordable housing or based on that distinction you may now qualify for a new exemption or a tax abatement So something to look into talk with that local township as you get to know a submarket more and more as you start to buy more properties you may copy and paste from one or the other and apply the same strategy But if you re brand new to the market it s worth exploring cause that can save you thousands hundreds of thousands of dollars over the course of your whole period 00 13 22 Sam Wilson Right right Yeah What I hear you saying is if you could reclassify a property potentially from one to the next The township may be hard up for like you said foreclosed housing below you know that s priced 70 of whatever the adjusted median income is 00 13 36 Andrew Schutsky Yes 00 13 36 Sam Wilson Cool 00 13 37 Andrew Schutsky Or or I mean something we ve looked at too is maybe you can designate a portion of it as commercial space Like you have you know a coffee store We even looked at doing an arcade in a building where you have a percent it has to be a commercial occupied And then you now qualify for new exemption or cause it brings new jobs to the area So again some of these may be a stretch but it s worth exploring 00 13 57 Sam Wilson Oh for sure Is there a consultant that you guys work with to help you kind of explore that Or is this something just you ve self-educated on 00 14 03 Andrew Schutsky This has been a lot of self-education between my partners and I and a lot of them have been educating me actually So I m kind of the student in this scenario just applying what we ve learned 00 14 12 Sam Wilson Man That s awesome Thank you for taking the time to break down just some really simple ways I mean again cause right now especially in the multifamily market people are desperate to find ways to add value to these assets Like how do we make this make sense And you ve just given us three relatively simple I say simple cause tax abatement still confuses the heck out of me but you know relatively simple ways to look at these and go there s there there may be another way to take this deal down and have it make sense other than just get into a bidding war 00 14 43 Andrew Schutsky I mean in summer you got to be creative these days right Unless you re wildly optimistic with your projections most likely to win you re going to have to either accept lower returns or be really creative as to come up with a higher return so bottom line 00 14 55 Sam Wilson Let s shift gears here and talk about your full-time job cause you currently work a full-time job as a CIO of a medical device company What are your plans there 00 15 06 Andrew Schutsky Yeah so I guess first and foremost I really enjoy what I do I know I m probably in the minority of the guests you have on the show who have a kind of counter on calendar crossing out days marking the time where they can do this full time But for me I actually got I got a lot of pleasure and enjoyment of my job I get to travel a lot to cool places And most importantly I have a lot of flexibility at work from home when I m not traveling So I m not having to get up at 4 55 AM every day And if I do it s so I can spend some time working on my business So I find there s a lot of good parallels you know for example I work in the technology realm I love bringing technology through investment portals and websites and marketing and funnels to the investing business And I love the stuff I learned in investing around just being that critical ROI calculation that you know that business acumen I love bringing that to my day job cause we look at you know managing millions of dollars in budgets and looking at what if I put a dollar in what do I get back So I love bringing that acumen and I think it s what sets me apart from a lot of my peers and my competition in the day job bringing that you know proprietor you know business owner entrepreneur mindset back to my day job So they they kind of work together really well 00 16 12 Sam Wilson That s really really cool Tell me I guess when you look at the technology inside of what you guys are doing in medical sales what are some things that are lacking in the commercial real estate space You re like man this is a really cool way I can innovate over here in commercial real estate 00 16 24 Andrew Schutsky There s still a lot I mean number one when you look at structuring a deal and marketing a deal and just running all the intricacies and administrative parts of bringing in investors and marketing and then even the day-to-day operations and property management there s a lot still pen and paper or email back and forth So I look at things like automation of campaigns you know connecting people through like it s basically cutting out the manual task I think that s really awesome Whether it s the upfront part of like winning a deal and doing DocuSign you d be surprised how infrequently that stuff is leveraged where I bring value to a team by saying Hey why aren t we using this Or why are we do why are we spending all the time doing this We re highly paid professionals We ship this is a 50-a-month product We could be saving hours a time I love just doing simple things like that like connecting Zappier for example to link a Google form back to my active campaign to automatically create contacts and distribution lists Just one simple example of what I think that s things are often overlooked 00 17 18 Sam Wilson Right Yeah It s funny I m I m always torn maybe cause I can barely use email right Like I am you and I are are completely opposite ends of the spectrum Like I suck at using things tech related 00 17 29 Andrew Schutsky All good 00 17 29 Sam Wilson Lots of help but I get torn because sometimes like okay I do this task and I can get it done really quickly Just doing it and you know trying to figure out how to make the tech work for me becomes more cumbersome than just getting it done And it s like 00 17 44 Andrew Schutsky I think it s important on every team to have a guy or a gal that really understands how to make that less stressful for the rest of the team right cause without that like you said it s just so much easier to throw in the towel and it can be so overwhelming to people who don t have those reps in So I ve been doing this first since I ve been four or five years old where I grew up with like one of the first computers So it was in my DNA but I totally recognize for most people it s not They don t want it to be and that s completely fine And actually that s a great value you know driver for me that I can help bring to the team 00 18 14 Sam Wilson Absolutely Absolutely And last question here for you is let s talk a little bit about the team How have you effectively scaled your team while working a full-time job 00 18 22 Andrew Schutsky Yeah so for me you know it was a little bit of trial and error in the beginning right wanting to do everything jump in and and find my own deals and underwrite them myself and marketing myself And I I just found that wasn t effective It was a quick way to burn out So I ve kind of dialed in Let me just focus on for the next year or two becoming really good at one thing Right now that happens to be investor relations raising capital you know building decks and doing due diligence Like I m not going out I m actually stopped going to try to find my own deals New market partners that I trust I ve got a few deals under my belt now I knew who I trust I know what I want out of a deal I know what I don t want to be doing I don t know what I m not good at Let me focus on what I m good at And then maybe a couple of years from now I ll revisit and start to expand that repertoire And maybe there comes a time where I m doing this you know 40 50 60 hours a week on my own and maybe I will still go back to the broker thing but for now just dialing in on what I m good at and just continue to work that path 00 19 11 Sam Wilson Man that s fantastic Andrew thank you for taking the time to come on this show today I certainly appreciate it I ve learned a heck of a lot from you you know talking about really easy ways to add income and value to properties that are maybe a little bit off the beaten path We talked about your transition you know from house hacking into short-term rentals and then finally discovering multifamily in 2019 And you also shared with us you know why you love your job I think it s really cool that you re like Hey man I love what I do and I m going to continue doing it and maybe someday I ll transition out That s not the comment like you said that you or I probably hear very often where it s like 00 19 42 Andrew Schutsky That s right 00 19 43 Sam Wilson I just kind of like what I m doing So if it ain t broke don t fix it So absolutely and then you know talking about the tech stack and what it means to bring technology to a deal I think you ve shared with us some really cool things today and I certainly appreciate it If our listeners want to get in touch with you or learn more about you what is the best way to do that 00 19 59 Andrew Schutsky Best way to go straight to our website everything funnels through there contact we ve got the podcast in there It s investwithredline com Company is Redline Equity We ve got blogs and we ve got more importantly a free 8-part investing course Go check it out sign up and follow us 00 20 13 Sam Wilson Awesome Andrew thank you again Certainly appreciate it 00 20 15 Andrew Schutsky No problem brother Great talking to you Click here to visit this podcast episode