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November 8, 2022

Sacrifice Today, Amazing Success Tomorrow With Andrew Schutsky [EP126]

Ready to change your life for the better? Andrew Schutsky is a technology guy and real estate investor who can help you achieve success. He’s been where you are and knows what it takes to sacrifice today and make the leap to a better tomorrow. Andrew has the unique ability to take complex subjects and break them down into easy-to-follow steps that anyone can understand and follow. Listen and learn!

Table of Contents:

A Tech CIO and Real Estate Investor

A Tech CIO and Real Estate Investor
Photographer: bruce mars | Source: Unsplash

Darin: Andrew Schutsky lives in Pennsylvania with his family. He started on the computer at the early age of five years old and stuck with it. He’s currently CIO for a major medical technology company. Andrew started investing in cash flowing real estate 14 years ago and has continually pushed himself to learn, grow and scale. He wants to share his experience with others.

Just a little bit about how we know each other. Andrew and I were both co-GPs together on a deal. It was a two-property deal in Greenville, South Carolina. The two lead sponsors on that were Arn Cenedella and Reed Goossens. With us being two co-sponsors, Andrew reached out to me and we got on the phone and started talking to each other. We found out we had podcasts and we said, "Let's get each other on." So, here we are, and I appreciate you coming on. The first question I typically ask is how many properties and how many units you're invested in.

Andrew: It's just north of 1,600 units. That's a combination of a general partner, a limited partner, and some single family, short-term rental stuff. I guess a grand total if you want to call it that.

Darin: You've been doing real estate investing for a while. Share what you do. I know you still have a corporate job, so share what you do from a corporate job, and your background. How and why did you get involved in real estate investing?

Discover How To Save Taxes and Build Wealth

Passion for Real Estate Investing Means Sacrifice Today

Andrew: I'd say first and foremost, I'm a tech guy at heart, so 15, 20 years of technology background. I got into the executive level, and just happened to have a passion for real estate investing. As far as why I wanted a way to invest in something I was interested in doing instead of just throwing money at stocks or mutual funds. I wanted to pick something I was interested in. From an early age, I've always had an interest in real estate and as you've probably read from my bio, it started with my first home.

I started house hacking. No one called it that at that point back in the mid-2000s or 2006, seven, and saw the potential of "Okay. This is half a house I'm renting and it's starting to pay most of my mortgage. I should start extrapolating." The next couple of decades were a series of experiments that turned into something more professional. It became a career of mine, now the multifamily space.

Darin: I think that's so important for listeners to understand, that everybody starts with one investment. Everybody comes into it not owning any real estate investments other than their personal home and it could be somebody who dives right into multifamily. It could be somebody that house hacks like yourself, or buys a single family house for a rental or duplex, but they have to get their first one.

So now what happens after? First of all, share with the listeners what a house hack is and then what happens to you after you do that first one. You said, "I've started looking for others."

Spark the Addiction to Real Estate Investing

Andrew: I think for most people, it's either going to spark the addiction or it's you're going to completely shy away. The house hack, I don't think anybody even called this back in 2007 or six, whatever the year was. But it's when you buy a house, you're living in a part of it and you're renting another part of it. At the time I was in management consulting. I was on the road 50 weeks a year and I had a three-bedroom house. Wasn't married at the time.

My girlfriend at the time would come to visit on the weekends, but I was leaving it vacant during the week. I found a gentleman who was doing the opposite. He was in consulting in the Delaware area, so he'd come up and use my house. We'd cross paths on Thursday night. It was a natural free way to utilize that dead space in my house. A lot of people were doing it. It could be a single family home, it could be a duplex, or a triplex. You live on one side, rent out the other, and for me it really got the wheels turning.

Back in the day, this was Craiglist sourcing. I just wrote an ad, took me an hour, interviewed a few people, and found somebody. I'm like, "Oh my god. That was easier than I thought it would be." On an ongoing basis, there was no real management because we just cross paths from time to time. That was like, "Wow, this could be something much bigger down the line."

Accidental Investors

Darin: I think people get caught up that they can't do it and I've heard many stories where they become accidental investors. They bought a townhome in the East and then all of a sudden they got relocated. It was a bad time to sell, so they rented it. All of a sudden they see the positive cash flow and they're like, "I can do this."

We're going to talk more about large-scale multifamily, but I so wanted to share. I listened to a podcast and I thought, "I wish I had done that." I've told my kids, "Look, you're a first-time home buyer, once. You get that three-and-a-half percent FHA loan."

Andrew: Maybe still, I'm not sure.

5 Step Process Ad

Darin: Maybe not. I heard this and I was like, that makes a lot of sense. Rather than go out and buy your first home, buy a duplex or a three-plex, or a four-plex, and live in the unit. You only have to live in it for a year and you only put three and a half percent down. Then you can move someplace else after the year and you have your first investment property. Even if you don't do anything more than that, you can roll the gains of that into a 1031 and keep expanding that. For people that haven't bought their first home, that's something to consider for sure.

Andrew: What I love about that is really anybody can do it. You don't need hundreds of thousands of dollars, you don't need to do some special qualification. You don’t need to be an accredited investor. Literally accessible to anybody with a job, which is awesome.

House Hacking, Sacrifice Today, Success Tomorrow

Darin: You guys were crossing paths in the house hacking, but there are some people that maybe own a house. They have two empty bedrooms and then they rent out one or two of those bedrooms. Then it's just the power of, once you see it, then it gets your mind thinking of other things. So now you do that deal and it starts sparking your interest to do more. How does that go in your head?

Andrew: I have a buddy who's a cop. I'd say the odds are against him; four kids, crammed household, doesn't have a ton of extra money to invest. I had a lunch conversation with him maybe a year ago. He's like, "I really got to buy my first property." It was really the power of that first deal. Bought a duplex, and rehabbed it. Less than nine months later, he is already on a second property now. A mixed commercial use. It's just awesome to see that first property. That's my favorite thing, talking to somebody and seeing that first deal come to life. Really how meaningful that is and how much it really builds momentum.

Darin: The momentum is huge. Once you do it, then you start thinking about other things that you would never even have thought of had you not done that first one. It doesn't really matter what that is, it's going to spark the imagination. It's going to give you the confidence to go out and do more. You're a tech guy. Let's talk about how you're doing your own deals. You're a GP in deals on the large scale, multifamily side, but you're also a CIO of a large technology company.

No Excuses, Just Hard Work

Darin: There are a lot of excuses out there for why people can't get started. They don't have the money. They're too young, they're too old, or they're too busy. You're a busy guy. How do you do it?

Andrew: I always say this when this question's asked, there's no magic bullet. If you've got a reason and the reason is strong enough, you'll find a way. I've got two kids, and my wife works just as hard, if not harder than I do. Time is limited. When I started out in the multifamily space a couple of years back, I started the business. I really started to make this a bigger thing than just buying a couple of houses here and there or a short-term rental. It really became, what's my role going to be? Then it took me some time to reconcile not wanting to do everything, find deals, and talk to brokers on a budget of probably 15 hours a week. That was a recipe for failure.

My biggest lesson learned, if I could rewind back two years from now, was just to pick one role. If you've already worked 50 hours a week or traveling, have kids, or limited money, whatever your limitation is, pick one role. One way to add value instead of trying to do everything. As time expands, maybe I back off the corporate career at some point, then I'll expand again. But the biggest thing for me has been the importance of focus and just dialing into that one role. I really like doing and talking to people. I'm a relationship person above all.

Pick One Role and Sacrifice Today for Amazing Success Tomorrow

Pick One Role and Sacrifice Today, Success Tomorrow
Photographer: Johnson Wang | Source: Unsplash

Andrew: Despite my technical background, I really like to enjoy working with people, and talking about real estate. Pitching deals, working with investors, doing the relations aspect, I really enjoy that part of it.

Darin: You picked one role, focused on investor relations and bringing new investors into deals.

Andrew: Yes. It took me time to realize that. I had the time and that was the best use of my time, hour-for-hour, over a while. But I do think I'll expand into the acquisition space, if and when, time permits. I'll have to make time. Another part of that is just being really smart about how you use your time. As I said, if you have a budget of day-by-day, Monday through Friday, I have the first hour or two of my day.

My time for real estate and research and education and then Saturday and Sunday mornings I've got a couple more hours there. How do I really use that wisely? You really got to trim out if there is any fat in your schedule. I think everybody has fat in their schedule, let's be honest. Figuring out what makes sense for me. That uninterrupted 5:00 AM to 7:00 AM window on the weekends or on the weekdays or maybe an hour before the kids go to bed. Everybody's going to have a schedule that works for them.

It's too stressful trying to do everything at the same time. I found it helpful to carve out those dedicated times per day on the weekdays and weekends. That's when you really got to just be grinding. Not a lot of room for inefficiency there.

Family Men With Full-Time Jobs

Darin: What if you have a day, a full-time day job, those are the hours that you have available to you, are the evenings and the weekends. You have to sacrifice or have discipline today so that you can succeed in the future.

I know two guys that are super successful, who came together and in the beginning, they both had corporate jobs. They were underwriting deals and phone conversations at night and then on the weekends they were going and doing property tours. So they had to sacrifice in the beginning.

But they also were family men, so they would block out. They'd work till five or six and then they'd have dinner and put the kids to bed at nine. But what they carved out was their Netflix time. They stopped watching TV and started to focus on real estate investing because it was important to them. It was important because they wanted to provide for their family and the future. They also wanted freedom of their time and freedom of money in the future as well.

Andrew: I think it's important to know your non-negotiables too. For me, health and family, they're off the table. Honestly, I need to go back and audit my own behaviors from time to time to make sure I'm not because it happens. We're all human and I can get really into something and I'm pushing the kids off. I'll play cards with you later or play a game with you later.

Darin: Even if you're in the same room. My problem sometimes is my head is somewhere else, thinking of different business problems and how to solve them.

The Value of Being Present

Andrew: You're 100% right. It's the awareness, it's paying attention to the right thing, it's being present. That's the word I was searching for in my mind as you were talking. The presence, it’s all about it. Don't get me wrong. We all struggle with that. I am a hundred percent offender of that from time to time. My wife will usually do a good job of calling me out on that, so I'm pretty lucky there.

Darin: Your background is in IT systems. I've met a lot of engineers that have been in the multifamily space. Software engineers as well as other types of engineers; problem-solvers. How does your corporate background help you in the multifamily space?

Andrew: I think about that all the time. As time goes by, you pick up more and more skills. There's a lot more transference for all of us than you think there is. It could be as simple as, "I'm pitching an investor presentation for work." Or "I'm pitching an idea or a project." That's part of it. There's the technical aspect of it. "I can set up a portal in my sleep." I can do things you take for granted. There are a lot of team members out there that are needing help in that area.

It could be setting up a website, setting up a portal, or setting up a workflow system for confirming reservations for a deal. There's a lot of, beyond the technical, there are a lot of soft skills that we take for granted. If you're used to being in front of a C-suite or pitching an idea or a project or managing a multi-million dollar budget.

We Can’t Take For Granted the Sacrifice Today

Andrew: All those things for me, they're just, I rattled off a few that come to mind. But I think if anybody is really honest themselves, you inventory what you've done. You might think, "What am I going to add?" There are a lot of things that you learn in the corporate space that is directly transferred. Whether it be having finance time in spreadsheets and that's underwriting, or it's budget management like a lot of stuff I do, or even building a team.

A lot of us run large teams. You take for granted that I build, hire, retain and develop talent. And you know, you can't take that for granted either. There are a few things that come to mind that we do on a day-to-day basis that I think we take for granted, to be honest.

Darin: Let's talk about the team. How do you interact with your team and how do you motivate your team? The team members don't necessarily always have to be employees of your company. You may hire a third-party property management company, but have an onsite leasing person. That the success of the property and the returns to investors and your reputation is a lot dependent on how they perform. You may have a weekly call with them. How do you communicate with them? Explain how you take that to that weekly call and how you treat them with respect.

Andrew: It goes back further than that. Actually, we just switched PMs. I get another thing transferable from the corporate world which is screening for talent. You get pretty good.

Soft Skills

Andrew: I don't know anywhere for me maybe five interviews a week or 10 sometimes on a busy week; on average five. So you get really good at reading people and reading between the lines and the soft skills of things. When you're interviewing property managers, you're interviewing even brokers to list your property, you can quickly pick up if this person going to be a fit. Then of course in the weekly meetings, you're asking the right questions.

You're diving into, "Are you doing what you should be doing?" You have to make a correction again, you're making that adjustment quickly and not waiting months for it to get worse. It's just all about open communication, the consistency of communication, and having the right consistent questions from week to week.

Darin: I heard this from somebody that was on the asset management side that worked for a large apartment owner. It just cemented in my head that you can nitpick and there are a lot of things that you can bring up in that weekly call. But that person only can focus on certain things in the next five days.

For you to bring up the top two or three things for them to really focus on, and even though you have a laundry list of 12 or 15 items, you can't bring those up. They may go and check those boxes off and they don't have as much impact on the bottom line.

Andrew: We come to these calls sometimes, "Oh the mailbox is going to be painted and we got to do this landscaping. There's a couple of pieces of mulch on this sidewalk and pressure washing."

The Real Focus

Andrew: But really, occupancy, that's the focus. Delinquency, if you've got collections challenges, like for one of our properties, we're working on that. Those two things are the most important. The other stuff, as we sort that after we get above 95%, then we'll go back to the mailboxes and paint those.

Darin: You talked about your focus as a co-sponsor and the value that you bring to others. It's important that people understand, you said, everyone has value to bring and some people discount the value that they have. But you also have to tell people what you want to do and you got to get some overlap. You're going to get some no's and you have to be okay with that. If you go to somebody, another GP and they're really strong in raising capital, they're like, "Andrew, man. You're a good guy but I don't need you. I need somebody."

Andrew: It's got to be a fit.

Darin: It's not personal.

Andrew: I always say, I'm sure you have in the same position. You might make it a habit to connect with four or five, or six people a week. Winds up being two people in a slower week and it's like speed dating. It's like "Here's what I have to offer. Here's what's on the menu. Here are my needs." A lot of times, it's not a fit and that's okay.

Just keep firing away and eventually someone will need an asset manager. I know everybody has underwriting. Like no. Somebody's going to need an underwriter. They don't enjoy doing that. Or they might be half good at it but not as good as you are, so it's a competency and bandwidth thing.

Sacrifice Today: The Only Way to Go Faster and Farther

Sacrifice Today: The Only Way to Go Faster and Farther
Photographer: Fern M. Lomibao | Source: Unsplash

Andrew: I think I look for those two things. Can I do it? Do I enjoy doing it? Do I really have time to do everything? Can I do it as well as someone else would? You need to be willing to let others in and split a piece of the pie. I think you can only go faster and farther that way.

Darin: When you get that call, you got to look at your bandwidth because you might get four calls to work on a deal for the next month and you can't do it. Even though you like the guys, the opportunity, the property, the location, and all that, some of that you have to say "no" to.

Andrew: That's the thing. There's a famous quote from Warren Buffett. They asked him, "How did you become successful? What's the key to success?" One of the answers was, "I learned how to say "no" to most things. Or, I say "no" to the majority of things that could present myself." Because I think that's when you know you're starting to get traction when you need to really pull back. If you've got eyes bigger than your stomachs, a lot of us do, sometimes you really got to think, is this really the best use to my next month?

As you said, once you commit to a deal, I don't do anything else. I don't do three at a time, I like to focus on one thing. That's it. You're now closing off October, November, or whatever the timing might be. It's just important to think of it that way.

The Different Roles You Play

Darin: The other thing is to tell people what you do. If you don't get out there and tell people, they are not going to come knocking at your door, whatever role you play. Whether you're on the investor side or on the acquisition side, you will not find partners. You will not find investors if you don't put yourself out there and let people know what you're doing

Andrew: Constantly. It's consistent.

Darin: Talk about how you have built an investor base and how you nurture that investor base.

Andrew: Probably one of the most common questions I like to talk about is everybody starts with who they know in their immediate circle. Friends and family and again another benefit of the corporate connection is the extensive network you've built through. Being 20 years in the industry, you're working with potentially high-net-worth individuals, some C-suite individuals and they learn what you're doing. They tell their friends and it's been a lot of, in the beginning, word of mouth.

In the last six months, you run out of bandwidth that way. You ask for referrals and former investors. It starts to spiral from there. But then I also started to make a more conscious effort of having a better social media presence. So, hiring a social media manager, even if he starts small there and posts consistently. Just getting information out and just generating more and more leads.

The friends' and family's sphere can only take you so far, even with referrals. That was a great foundation. Then it's been a matter of, how can I connect with the unknown. How do I get my name out there on social media and set myself apart from the hundreds of other firms out there?

The Investor Avatar

Andrew: I started thinking about that way and then really getting crisp on who I want to be my ideal investor and what they call the investor avatar. What do they look like? Where do they shop? What do they do? Where do they hang out? What TV do they watch? Which social media platforms they are in? What do they want to know? What's on their mind? Are they thinking about the recession? Or are they thinking about is my 401k going up or down? How do I diversify? I'm trying to anticipate people like me, in similar situations, that just want a different alternate investment vehicle, which happens to be my specialty.

Darin: I love that you said, "Who do I want?" I've asked some syndicators that have done lots of deals. I'm like, "When you have a new deal, are there any passive investors that you don't send it to?" They all look at each other. Maybe I'm playing golf with a bunch of them and all look at each other and they're like, "Absolutely."

You know what? They get to pick the syndicators they work with. When you're building a syndication business, you get to choose the people you want to do business with. There could be some passive investors that, for one reason or another, you just don't click with them. You get to a certain point where you move on and you work with other people.

Andrew: The more deals you do, of course, we all learn as we go. The biggest takeaway I have is what really separates the way I like to work. I think it’s different from a lot of others.

Scrape Money, Sacrifice Today, Success Tomorrow

Andrew: I really try to listen to what they want to do. I'd say maybe a third or more of the time I'm like, I don't know if what we're offering right now is for where you are in your life or at least not this year. A lot of guys are like, "I'm scraping together money, I'm about to put my kids through college." I'm like, "If you need the money in the next year, it's not always the right fit."

They really appreciate it and not right now. Maybe keep us in mind, but when I hear them say "no" or "not right now," it's almost like, "Oh I didn't expect. I expect you to push me on something or sell me on something." That's not my intention at all. It's like we've got options. I like to educate you and if it's not right for you right now, that's totally fine. Maybe their neighbor or friend wants to invest and maybe it is right for them.

There's always value in a conversation. They appreciate the advice, they appreciate the time I spend, and a genuine connection with them, regardless if it's a fit. But I'd say a lot of times it's not right now and that's okay. People will need to be okay with it. It's not rejection. Again, it’s like finding partners. Finding investors is the same situation for me.

Darin: Spend time with them. I've spent a lot of time with different people that have not invested or want to go down the GP route and haven't bought anything yet. That's a huge joy in life.

Going Through the Process

Darin: You're planting seeds and I may plant the seed and then Andrew may end up having the opportunity, at the right time, that right fit, and they end up doing it. But they needed to go through that process. They needed to hear it three times, five times.

Andrew: To me, that's what makes this fun. It's not all just working with the brokers and putting numbers in a spreadsheet. This is a people business. We happen to buy the property and the property benefits people. People in, people out. That's all part of the journey and that's what makes it fun, to be honest.

Darin: People, all the tenants at the property, all the investors, I probably side more on the investor and helping grow people's wealth. I know people that have such a heart for the tenants and building a community at the properties. They're giving out backpacks and different things to the kids, and I think that's fantastic. There are so many opportunities to really touch lives in this business for sure. What makes you different than the next guy doing this?

Andrew: As I said, we all have unique ways of adding value. I'm a technical person first with a mindset of a corporate professional. I like to be able to relate to people that are investing with or alongside us. I've spent 20 years building a career and am proud of what I've done. I love spreading the passion that I've built through this and I love generating that same energy in investors and potential other GPS as well. So, I bring a unique perspective of that technical background, the corporate background, with a pretty much 20-plus year history in real estate.

Unique Relatability

Andrew: I think that’s a unique combination. Balancing the jobs, I wouldn't get that if I was just doing the real estate thing, which is the unique relatability.

Darin: In this syndication space, what's very cool is if you're an LP and you invest in one of Andrew's deals, you can call Andrew up. What's going on with the deal? You just don't get that access when you're investing in Amazon stock.

Andrew: No. Or a REIT. My neighbor asked me the other day, is this similar to REIT, or REIT, with Vanguard or another firm? I explained when you're doing that, you own a fraction of a share, and the structures are entirely different. You don't get weekly or monthly communications, you don't get pictures of a property, or be able to see who you're impacting and what changes you're making. The return structure looks a lot different.

Darin: Depreciation doesn't get allocated to you as the investor. That's a big impact as well. Let's go back to when you were a kid. Did you know that you were going to be successful?

Andrew: Absolutely not. It's funny because it's on the technical side of things, that was a given. From the time I was five or six, I got my first computer. It was an IBM 8088, a big floppy desk.

Darin: When you were five, you were on a computer?

Andrew: I learned to type in, I think it was either kindergarten or first grade. Everybody calls BS on that but ask my mom. She's like, "This is crazy." I was fixing all the neighbor's computers when I was seven or eight years old, a little bit after that.

A Successful Career Requires Sacrifice Today

A Successful Career Requires to Sacrifice Today Success Tomorrow
Photographer: Alex Hudson | Source: Unsplash

Andrew: That was clear but I didn't know what I was going to do with that. I was like, thank God I didn't wind up in a tech support role for my whole life. That's not a successful career. I sure didn't know I'd be in real estate but I knew that I enjoyed playing Monopoly. It was my favorite game growing up. Probably like many others you get on the show, everybody says that. But genuinely, I could play that for hours on end. Had no idea what that was going to mean for me.

My first exposure to something more than just living in a house or rental property was my grandfather had a few. He did some development work and I watched him do that and it was interesting to me. It didn't have me really hooked at a younger age, but he started managing a quadplex at the time. When I began to get older, I started cutting the lawn at that property. My dad would do the maintenance. I'm like, "Oh this is pretty cool."

I watch him go pick up the check every month. I'm like, "Okay." So I think that that had something to do with it. I didn't realize it at the time and maybe I came back to that once I graduated college. I'm like, "Maybe my grandfather was onto something." Maybe I won't follow the exact same path, but it definitely sparked an interest in my brain.

Darin: That's interesting. There's been a number of people that I've interviewed. Their parents worked jobs, but then on the side, they had just some rental houses or duplexes.

A Common Person Getting Into Large Deals

Darin: Back then, it didn't seem like the common person was able to get into these large deals that we talk about now with these syndications. But that sparked something in them that, "My parents, they're working but they're also doing this other thing that brings in income, and what is that all about?"

You hear about building multiple income streams, and most of us are just taught to go to school. Get good grades. Go to college. Get a good job. Climb the corporate ladder. You have one income stream. Put some money in stocks that are going to grow into this big nest egg. Then if you decide to leave, or the company decides to let you go, that's it. There's no remaining value.

Andrew: It doesn't leave a lot of options for flexibility there.

Darin: You have started seeing the power of "This could be another revenue stream." What I see in people is, they get to a certain point where they can see the light at the end of the tunnel. Maybe they're on a career path that they enjoy, but there are a lot of people in America that don't what they're doing.

Andrew: The thing is, you enjoy it, but you hit on this a little bit a couple of sentences ago where you can't control your entire destiny. You may love what you do, you may love your team. Let's say 90% of the engagement you really enjoy, but the C-suite changes hands, and that guy or gal brings in his or her new leadership team. It may not be a good fit for you or for them anymore.

My Biggest Why

Andrew: That could happen in six or nine months and then you're looking for another job or you're looking for something else. I just like the idea of having options. Maybe you don't have to rush back to another job at all. But if you don't take any action, 99% of us outside of the CEO and CFO, are going to need to work with some source of income. The probability of landing that job is one in 50,000.

What can you do if you don't want to live the life of an average person? I know I didn't. That was one of my biggest why's was that I wanted to do something different, something I was really passionate about. I wanted something that was going to open windows and options.

Darin: I love that you said taking action. So what can people do to take action?

Andrew: For me, it started with education and everybody's inspired in different ways. Whether it's listening to other stories on a podcast like this great show, reading a book, or people learning in different ways. It could be just learning what you need to do. It's reading a book about your passion or energy. Whether it's investing or starting a business or starting a bakery. You got to learn what you don't know first and learn what to do and then start to create a plan.

Darin: I think education, whether it's podcasts, books, blogs, but then some people stop there. Some people get very educated but they're scared to go out. In this business, you have to go out and meet people.

Education Without Action

Andrew: That's the thing. It's education without action that leaves you with being a professor. You're a master of all the knowledge, but you're not really ready to act and I think going out and taking action without education, is just reckless. You don't know what you're getting into you. You're not looking at the risks. It's the combination of those two things and not everybody's equally motivated.

I'm fortunate that I'm fairly self-motivated, but if you're the type of individual that's not, then we better pair up with somebody or a group that is. There could be a mastermind group or an accountability group. Joining a local meetup and showing up regularly. Having a one-on-one coaching call with a mentor, and a coach, weekly. Whatever it takes. If you're not the type of person who knows how to take action on your own, then finding someone else who will hold your feet to the fire is my advice.

Darin: But even joining that group, people are scared. We've all gone through the times that we've been scared, that we are fearful, but you have to push past that fear. You can go to a free meetup group in your market. Just type in multifamily investing or apartment investing and in the app meet up. Go and meet people that are passive investors. Meet people that are syndicating deals. Learn something. But that's scary.

I remember the first time I went to one, I was like, "All these people are going to know so much more about real estate investing than me." But you realize they all walked in that door for the first time at some point and they are willing to help the next guy.

The Learning Path: Sacrifice Today, Success Tomorrow

Andrew: Everybody was there where we were, a year ago, a month ago, 10 years ago. Everybody had to go through that learning path.

Darin: For me, it was a duplex four years ago. If you would ask me, "Are you going to buy a duplex and then a 76 unit and then be co-GP on 200 plus unit deals and start a podcast and write a book?" I'm like, "No." I wouldn't have thought of any of those things. But you got to go out and do that first thing.

Talk about why multifamily. There are a lot of different asset classes. In real estate, you've got a single family. There are people that are killing it, cash flow-wise and with Airbnbs. There's office, there's self-storage, and there's retail. Why multifamily?

Andrew: A couple of things for me. I may not give you the traditional answer that you're used to hearing here. But for me, number one, I've explored different options. I'd say it was a bit of a trial-and-error process for me. I mentioned back to that house hack and I thought, "Oh cool. I'm just going to buy the whole block and rent these all out and live off the money." Then I realized that it's got to be a fit for me.

You got to be able to have your own money to invest in that path and you can only go so fast. And you start to chart that out. I was like, "If I want to have flexibility by the time I'm 50, this ain't going to work." The math wasn't going to work out.

The Single Family World

Andrew: The scalability wasn't going to work out without injecting another source of capital or having a property manager oversee it. As soon as I did that, it was like strike three. The cash flow was eaten up or would just simply take too long.

I did an experiment and I still own short-term rentals and they're actually a fun source of diversification for investors. But again, the same thing. In my area where I'm investing in short-term stuff in Jersey and looking at Florida now, you need a sizable chunk of capital to close on each property. 10, 20 years out, you're going to improve and it's going to be fun. You're going to learn the process, but that does not get you where you need to be.

That brings me to multifamily and it was quite simply a great way and the fastest way to scale for my investors and for me, into where I wanted to be. That's the five to 10-year timeframe. From there, I can fill a role. It worked well with balancing this job. I'm not property managing properties. I am not talking to brokers. It was just I'm able to do a very distinct role and then scale that to hundreds and thousands of units. The scale factor was there, it worked well with our lifestyle. Something I enjoy doing and I really enjoy the teamwork aspect of it, which you didn't see much of that. It's a lot more, dare I say cutthroat, in the single family world.

Darin: I've heard that. I'd never invested single family but I've heard that it's not very collaborative and it's very cutthroat in the single family world.

In the Multifamily Space, Sacrifice Today, Success Tomorrow

In the Multifamily Space, Sacrifice Today, Success Tomorrow
Photographer: Vishwasa Navada K | Source: Unsplash

Andrew: I'm a relationship person, so just for me personally, the multifamily space was an awesome fit because there are a lot of great people out there. There are more good people than bad people, and I like playing the team role. You're a defense guy, you're an offense guy and it works well together.

Darin: Talk about scale. I'll just give an example. That duplex, my wife and I put in like 50,000. We got a loan for the rest. Then I went from a duplex to 76 units and my wife and I put in a hundred thousand. So going from duplex to 76 units, like 50,000 to a hundred thousand, that is incredible that you can do that. How do you do that? Well you're leveraging. You're getting a large loan and you're leveraging bringing in other investors, and other partners. All of a sudden, you're a part owner in a much larger deal. The upside, is that people say, "Well, how does that work?

Well, if you buy $10,000 worth of Amazon stock to double your money, that has to go, valuation has to double. To get to 20,000. But it doesn't work like that in multifamily. You can buy a 10 million building in between the loan say 70% of that, and so that's seven million. Maybe you bring three million of equity plus maybe another million of rehab; four million. If you sell that for 14 million, did I get that math right? 15 million. If you sell it for 15 million, so it's only gone up by half the value, but you've doubled investors' equity and that is the power.

Rising Interest Rates

Darin: What's your take on financing? We have rising interest rates now, we have rising inflation. What's your take on that and what are your investors' worries? Concerns?

Andrew: I take a fairly conservative position. I think we talked about this recently on the phone with our South Carolina deal. I'm a big fan in this environment, of fixed-rate debt. If it's going to be a bridge loan, it's got to be a rate cap and the numbers have to work with either one of those scenarios, bottom line. I'm not okay with floating something. The uncertainty out there is just massive right now. It's just very simple for me. I'm fairly conservative. I really like fixed-rate debt and if it can't work with that, unless it's a very unique property with very little occupancy or something, the deal won't work possibly. It’s that simple for me.

I've seen too much. Been around the 2008, 2009 days. It's got to work with something locked in. I mean we're looking at another potential 75 to 150 basis points in the next month here. We're already seeing rates. I'm sure you are too in the six and 7% range or higher in certain areas in tertiary and secondary markets. I'm just conservative and there's nothing else to be said there.

I know my investors appreciate that. A lot of them are in the same position. Like, "I'd rather take a little less return and lock in a lower rate." Almost everybody's aligned with that position.

Darin: Getting into the space and the education standpoint. As a limited partner, when you see a deal, I highly encourage you to ask the sponsor what type of loan they're putting on the deal.

The Investment Deck

Darin: Sometimes it's going to be in the investment deck, but sometimes it's not and you have to actually ask. Be focused on not only the rate but also the term. When does the loan come due? On your home, you get a 30-year fixed-rate loan, but on these large multifamily deals, you can't do that. Make sure you ask and understand that.

Andrew: Another big piece of that is there is a prepayment penalty. A lot of, especially fixed rate debt can carry, let's say the market goes really well and you want to exit in a year or two. Your prepayment penalty may be a heavy penalty in the area of millions of dollars. That's something else to consider and look at for sure.

Darin: That's why a lot of people went to floating because they were all doing fixed rate and then rates went down. When rates go down, that actually makes your prepayment penalty typically go up. That’s based on the written legal documents.

Now you've got a great valuation. Everyone's like, "Why aren't we selling? Our properties are worth so much more." The problem is, syndicators feel like they're in jail because half of their gains would go to a prepayment penalty. Everybody moves to float and then floating rate deals happen. All of a sudden you get inflation and we're in the position we're in now.

Andrew: It seems like a lot of people are getting creative with assumptions now for the same reason. "I'm locked in a really low rate, I might have a prepayment penalty, but I might be able to transfer that sub 4% loan to a new buyer." It becomes a lot more attractive in that scenario.

More Attractive Rates

Andrew: Usually, assumptions were looked at, historically in a negative sense of, "I don't want somebody else's debt. That's not going to work." But in today's environment, it becomes a lot more attractive when current rates are two, three, and 4% above that, but the locked-in rate from prior.

Darin: Yes, that's a great point. Assumptions are definitely more of a plus now than they were before for sure.

Andrew: Not dirty laundry anymore.

Darin: Talk about mindset. If you don't believe that you can achieve something, you're just not. So, talk about how you expand your mindset.

Andrew: That's number one, probably the biggest thing that holds people back or makes them successful. We all come with very similar, I shouldn't say similar. Different, but sometimes equal, abilities. I have a lot of friends that are way smarter than me, who might have PhDs or advanced degrees from Ivy League schools. It's not just about that. You got to be competent. You got to be intelligent. The one thing that really sets people apart is their mindset, their desire to see, and just staying mentally conditioned all the time.

For example, even I, I'm sure you as well, struggle sometimes. Even this morning I woke up and I'm like, "I'm just not feeling it today. I don't feel that same jolt that I normally do." It doesn't happen to everybody.

Darin: You faked it well because you sound good on the show here.

Andrew: What I was going to say though is it changed. So I started a new book at six o'clock this morning. I took a couple of days off and wrapped up another book. But, I wasn't feeling that one.

Financial Investing

Andrew: I was, very infrequently, don't finish a book and I wasn't feeling it and I feel like that threw me off. Then I was traveling last week. I was tired and I was like, I got to bounce back. So I started this new book and read the first 10 pages, It had nothing to do with investing, real estate, or my tech job. It’s just generally around financial investing and I don't know what it was, but I'm like, it's back, I feel it again. I needed to condition my mind. As soon as I broke out of my routine, my habits and traveling threw me off. I'm like, "I just feel like I'm struggling." Then it just kind of started to come back.

For me, it's all about just getting routine, and dialing in. Whatever works for you. It's going to be different for everybody and sticking to that and knowing when to call yourself out to get back to your habits that work.

Darin: Your mindset can be, people are like, why go to conferences? You're reading a book that maybe is not about your career or about real estate investing and why read that book? Or why go to a conference that isn't related to that? Well, it's because you may walk away with some idea or some energy that you can do something different.

I talked to somebody that said they went to a Tony Robbins event and I haven't been to any Tony Robbins events. I've heard people come back, and say amazing things. But she said she went and she was a little reluctant and she said within the first 15 minutes, he expanded her mindset.

The Mindset of Sacrifice Today, Success Tomorrow

Darin: So much so that after she left, she'd changed a lot of different things. Now she's big time in the multifamily investing world, and she never thought she would've ever been there. She was an artist. It was completely out of her realm. But having that mindset, it expands.

Just like when we talked about your first investment, mine was a duplex, and yours was a house hack. Here we are doing 200 unit-plus deals but it doesn't happen right away. You expand that mindset that you believe, "Oh, I did that. Now I can do this."

Andrew: I think we all go through tough times, whether it's physical, mental, or spiritual. Getting through those humps is what's going to separate the men from the boys or the women from the ladies. You got to be able to get through these tough times. The one thing that carries you through is that energy and that purpose and a lot of it comes back to mindset. Simple as that.

Darin: Yes. And I think meeting other people. Look, if you get out there and you meet a lot of other people that have gone through it and have been successful, I think it does a number of different things.

One, you see, all right, these people are smart. But look, I'm smart too and I could do it. So it gives you that. Two, they'll share their war stories. "Yes, I had a bunch of deals that didn't happen." Then when that happens to you, you're like, "It's not just me. This is part of the process."

Andrew: It's relatability. You build a lot of energy from that, for sure.

Perseverance and Determination, Sacrifice Today

Perseverance and Determination, Sacrifice Today
Photographer: Dave Lowe | Source: Unsplash

Darin: Talk about perseverance and determination because look, you get into the business, you want to do certain things. People don't just knock on your door and hand you the deal.

Andrew: I like to go into these types of situations, whether it's starting a business or applying for a promotion. Just with the idea that it might take a hundred times to get it right or to get someone to say "yes" or to get the deal you want. You might have to work through or find the right partner or do the speed dating thing I mentioned early back in this episode; 40, 50, 70 times.

People might think, "I know I'm going to fail, but it might take three or four attempts." I'll go and think it might take a hundred. If you set the bar there and then you strike gold in your 30th meeting or 40th meeting, you're pleasantly surprised. But going in with a marathon mindset is really where you need to be. That's just what separates the successful from those that haven't made it in the long term.

Darin: Sometimes you don't know what's going to happen. I've heard people say, "I'm going to this conference, and look I went to the conference. I didn't know what I was going to get out of it. All of a sudden I met my business partner that I'm been doing deals with for the next five, 10 years."

Andrew: Just the law of probability.

Darin: Had no idea. In the South Carolina deal that we're a part of, I went down to Charlotte for it. I was speaking at a conference and ran into Arn.

Doing Deals Together

Darin: We knew each other and the next thing we were talking. Next thing we're doing a deal together. That wouldn't have happened had I not gone to that conference. Even though he knew me, he probably wouldn't have just called me out of the blue. It was just like I'm in front of him and we're talking about it, so you have to get out there and do it.

Andrew: The way I met Arn was I'm thinking through a similar theme of we are on Bigger Pockets on the web. I'm sure most listening have heard of that. If you haven't, it's a great forum for just networking for real estate in general. But just shot him a private message maybe a year ago. I was like, "I saw you around here a lot. We both post together. That connected. Meet up for 15 minutes." That was two deals a year and a half ago. So, you never know what can come of a one-line email or personal message.

Darin: That was a one-line email and then the next thing you know, a year later, you guys are doing a deal together.

Andrew: We did one, maybe a couple of months after that, a smaller 43-unit. It turns out we like working together, but a lot of times you might send 20 of those and it might just be nothing. Or you get on a call and "Yes, I like real estate." Cool. See, there's not a fit. You might have 50 of those and that's fine. Ever heard the flipping cards analogy?

Darin: No.

Andrew: It's flipping a deck of cards. You might flip a two, you might flip a four, and then you flip enough cards.

Keep Flipping and Sacrifice Today for a Successful Tomorrow

Andrew: You're eventually going to flip a king, a jack, a queen, an ace, and a joker. So, you're eventually going to flip. You got to keep flipping the cards. That's how life works.

Darin: Another story I'm driving and I'm going down to meet a guy who I know very well and my wife's like, "So what's in it for you that you're going down?" I was like, "I don't know. I'm going to visit this property with him. If nothing else, I'll just learn."

The next thing you know, we're out and we're seeing stuff. We start talking about, "Let's do this together," and now we're working on a deal together that we wouldn't have. But I didn't know that going in. Like you said, flipping cards. Sometimes it's nothing and then sometimes it turns out to be something.

Andrew: But you got to keep turning. Got to keep going. Keep the legs moving. For those football fans out there like an offensive lineman or running back, you keep the legs moving.

Darin: You've talked about relationship business a lot. Why do you think it's a relationship business and how do you leverage that? What difference does it make?

Andrew: For me, it's pretty simple. This is by far and large, a team. A team sport, a team career. It's like no one individual is going to go huge on their own, so we rely on the help of others, whether it be a broker.

Darin: Everyone says that, so talk about some of the team members.

Andrew: In the case of a multifamily general partner team, you could wear more than one hat, but typically you'll have and they'll be a certain personality.

The Direct-to-Seller Approach

Andrew: The deal funder acquisitions partner that's working very closely with brokers, or in our case, directly with sellers. You're trying to persuade them to sell their property or keep and build relationships. It may take eight or nine or 10 points of contact, just like we talk about finding partners.

Let's say you go on the direct-to-seller approach where you're reaching out to a property owner to see, "Is the route now the right time to sell?" They might say, "Oh no." A ninth time might be the right time for them. That role is going to be very much a relationship person, a long-term relationship builder, whether it be a broker or an owner.

You've got maybe more of a technical role on the underwriter who does a lot of the analysis, the analytics, which may be the acquisitions person doesn't do. You're kind of like me, I can do that stuff but I really don't enjoy it. But those people know what they love doing. They love analytics. I love analyzing the $3 rent difference between the two properties. They knew who they are and that's not me and I know that. That's fine.

You've got the asset manager who's got the project management background. He’s really good at creating that cadence and accountability and the back-and-forth communication. Again, different types of relationships there. There are just a few examples of roles that are out there that may be different personalities. But again, no one person that I know does all those things well. They can do dozens of deals, and scale without killing themselves, or working 150 hours a week.

The People Involved

Darin: Then on top, that's just people within the GP group. You've got the property managers, the brokers, the legal counsel, and the rehab people. There are just so many people involved. Investors, so many people are involved. The lenders in these deals, that you just can't do it alone. You have to build relationships where each person in that circle understands their role and understands that you're going to perform your role. They don't want to work with people that are going to say one thing and don't deliver.

Andrew: I'd say if you can do it all and you're not going big enough. It's just going too small, you're managing a handful of properties or something smaller, holding yourself back.

Darin: That's a good segue into, what is your next big stretch goal?

Andrew: If you ask me that going into 2022, it'd probably be a different answer. Looking at next year and now I've got a pretty clear sight of what the next nine years want to look like, or at least the nine-year out mark, not year-to-year.

Darin: You're allowed differently than most. Most people don't even write out what they want for next year. So you got nine years out.

Andrew: I've been doing this every year and refining my process a bit. It was all about, "Let's just put an arbitrary number out there." Doesn't make sense. It doesn't need to be like 10,000 units or anything. I have a very specific, I'll call it a freedom number for our family. Here's my process, taking that a little bit. I've kind of itemized all the things that we want to do, experiences, and where we want to live by the time the kids are in college.

Have the Flexibility to Sacrifice Today

Andrew: Have that flexibility to live where we want to be and not rely on having to rely on another company for income. I got a number there. Then I backed into, "What do I enjoy doing the most?" In this case, it's multifamily and I know how much passive income I need and my thoughts change. Instead of just trying to constantly do two, 300-deal properties next year, I'd like to focus on doing a couple of JVs. I'm okay with smaller properties because it gives me the same. It's a larger percentage of a smaller pie.

Honestly, I don't know about your perspective, but I'm finding that it's a lot less crowded in let's say the 20 to 50-unit space. If I do a few JVs there and keep the lights on with a couple of larger properties and a small piece of the pie there, it gets me where I need to be. I have a lot bigger voice than the decision-making table in a large three, 400 unit property. I've pivoted my strategy a little bit.

Darin: That's interesting. Most people go the other way, they just keep one. They want to get bigger and more units and then also want to shift from B, C properties to more A properties.

Andrew: I know and it's why everybody's like, "Oh you got to go big. You got to do a thousand units next year." I found that that's not necessarily what I need to do. And I found that if you want to have a larger stake in some of these properties, we’re fortunate to have some of my own capital to deploy, maybe you could do it with a smaller group.

Enjoy What You Do

Andrew: I don't need to do hundreds of units every quarter to do to meet my goals. I know where I need to be and I know what I enjoy doing. I'm starting to learn what I don't like doing more and more too, so that's how I've dialed it. I know it's backward from what most are thinking, but that's fine with me.

Darin: I like to hear from people that they think not only about hitting certain goals, but they think about their lifestyle because that's what everyone's selling this as is. Like it's the ability to give freedom of your time and freedom of your money. But some people build these massive companies. They're just like they don't have the time anymore because they're built this big machine.

Andrew: There's a certain quality control aspect that comes with it too. I always really enjoy having one-on-one conversations with my investors and my partners. You get to a certain point, I don't want them to have to talk to seven members of my team to have that same relationship. They like working with me. They invest in me because they like the quality I have, the product I deliver, and the communication. As you get bigger, it always seems to fall apart someway. You can have a great team, but it only gets you so far and you lose that personal touch.

Darin: What do you like to do outside of work, for fun?

Andrew: I got a lot of hobbies. I guess we'll rattle off a couple of the more famous ones from my wife's perspective. But I've always been in automotive nut and my company's name's Redline Equity for a reason. I'm a gearhead.

A Muscle Car Guy

Andrew: I have been since probably the early days along with the tech stuff. Love to barbecue.

Darin: What do you own for automobiles?

Andrew: A couple of things. I grew up as a muscle car guy, so had all that stuff in the past; Vets, et cetera. I've just pivoted into the electric world now. I just picked up recently in the next month a Tesla Model S Plaid. At this time, it’s still the world's fastest-accelerating car, which is just absolutely ridiculous. The fact that you can go out and buy, anybody can, just with a checkbook or credit. You can go out and buy a thousand-horsepower car and just get in and drive it, it’s ridiculous to me.

I grew up building cars and spending all my allowance or money on car parts just to try to get that ten-second quarter mile. You can go out and drive it and this thing doesn't even use fuel. It doesn't make any noise, it doesn't really burn, and it doesn't smoke the tires. It's just ridiculous.

In the era we're in, we're just spoiled with the amount of performance out there out of the factory. There are a lot of cars out there, in that range, that are just super competitive. It's an interesting time to live in from an automotive enthusiast standpoint.

Darin: If you're a listener out there, you're wanting to find a syndicator who has a love for cars, this is the guy for you. So, what's the best way for people to reach out to you?

Andrew: Everything really funnels through our site. It's investwithredline.com. You've got a link to our podcast in there. We do weekly blogs.

Free Investing Course

Andrew: We've got almost 80 of those on there now. We got a free eight-part investing course. Everything you can find is on there. Email all contacts through investwithredline.com.

Darin: I really appreciate you coming to the show. Looking forward to being on yours at some point here in the next couple of weeks.

Listeners, reach out to Andrew. He is a great guy and he's down to earth. He's really investor-focused and that is so important in this day and age. Until next week, signing off.

How to Reach Andrew Schutsky

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