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
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Connect with Andrew at the Redline Equity website and check out their podcast, blog, and their FREE 8+ part learning series.
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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 fiancée, 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.
