You’ve found a great deal, but are the people working on it right for you? Andrew Schutsky, Founder of Redline Equity LLC, believes that partners can make or break a deal for an investor. In this episode, Andrew shares his insight on networking and how to properly select a business partner.
Andrew Schutsky | Real Estate Background
- Founder of Redline Equity LLC, a real estate syndication firm specializing in the acquisition, improvement, and management of large apartment buildings.
- Portfolio: Ownership interest in over 1,100 units including both GP and LP positions.
- In his first five months, he closed two deals as a GP: 94 units and 43 units.
- Based in: Thornton, PA
- Say hi to him at:
- www.investwithredline.com
- Crushing Cashflow Podcast
- andrew@investwithredline.com
- Best Ever Book: Principles: Life and Work by Ray Dalio
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TRANSCRIPTION
Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed and I’m with Andrew Schutsky. Andrew is joining us from the Philadelphia, Pennsylvania area. He’s the founder of Redline Equity which focuses on large value-add apartment deals. Between being a GP and an LP, he has over 1,100 doors. Andrew, can you start us off with a little more about your background and what you’re currently focused on?
Andrew Schutsky: I guess I could go a little more to [unintelligible [00:03:06].26] here. I’ve got a full-time W2 working as a CIO for a medical technology company, so completely independent of the real estate angle. Balancing that, running a family, two younger kids, married, all that stuff. On the real estate side, I really got started back in 2007 with my single-family. The first house I lived in became a house-hack before anybody really called it that. It spiraled from there and I thought that was the path, was to keep acquiring single-family houses in neighborhoods that were close by, and easy to manage. Started down that path, and moved into the short-term rental business in 2015 on the Jersey Shore area. Again, thinking “Wow, this is awesome.” I kept going and then ran out of money pretty quickly on the down payment side. Started looking at other options and partnerships and JVs, and started looking at small multi, four, eight units, and I’m like, “Okay, this is manageable.” Then my eyes got opened, found a thread on BiggerPockets one day in mid to late 2020. And I’ve been reading a lot of the stories and backgrounds of fellow syndicators and I’ve been trying to follow in their footsteps and it launched from there. I read a number of books, went hard on podcasts, started going to meetups, and now here we are a couple years later from that point, very busy and engaged.
Slocomb Reed: Yeah. I have here that you closed your first two deals in just five months. Tell us about that, closing two deals in your first five months; what do you count as day one and what is it that you went through to put those two deals together so quickly?
Andrew Schutsky: I love it. Day one for me it was when I formally launched the LLC, which was December 2020. I couldn’t tell you the exact day. And then closed the first deal in April of 2021. The second one following that in May of 2021. For me, again, a busy working W2 professional, not a lot of spare time, and just really trying to focus on starting to build out my brand, telling friends and family what I was doing, started going to a number of meetup events. I think I probably went a little hardcore. My wife would probably agree.
I met a few potential, or I guess, future partners, and found the role for me luckily. I was willing to do, at that point, anything. Started out that [unintelligible [00:05:12].09] wound up being the tech behind the scenes, wound up helping with the acquisitions, and then from there, it’s spiraled.
Slocomb Reed: Are you working with partners right now then on the GP side to put your deals together?
Andrew Schutsky: That’s correct. Yup.
Slocomb Reed: Within your partnerships, what is your focus? What do you specialize in?
Andrew Schutsky: It’s funny, it took me a while to get dialed in. I think one of the mistakes I made in the beginning was trying to build the brand, be the social media guy, find the deals on-market or off-market, and raise money. And I’ve kind of backed into a point where I’m like, you know what- I’ve got a great professional network, and word of mouth is getting out, we’re delivering on our commitments… I’m now focusing on the brand and investor relations side of things and raising capital.
Slocomb Reed: Nice. You have other people then on your team who are more focused on acquisitions and asset management?
Andrew Schutsky: That’s correct. Yeah, mostly on-market right now, but we’re starting to build that direct-to-seller campaign like everybody else is doing in the country right now too. We’re not unique in that regard.
Slocomb Reed: Thus far — you said December of 2020 so we’re coming up on about 13-14 months, based on the day that this is being recorded, since you dove headfirst into apartment syndication with your W2 on the side. What are your biggest lessons learned in the last year and a half?
Andrew Schutsky: I guess for me, there’s a lot of potential partners out there to find deals. I was really hungry in the beginning. Luckily, they were both performing well. But communication styles and values don’t always align. Now I’m becoming a bit more selective in who I work with and working styles; simple things like are they showing up on time, do they share the same principles I have in terms of quality and integrity? You get more particular the more deals you do. The fewer time and minutes you have, you want to spend them with people that you really, really enjoy being with. That’s my biggest takeaway.
Slocomb Reed: Andrew, tell us more about that. Give us some specifics on what you’re looking for in a partner.
Andrew Schutsky: There’s different ways to skin the cat when it comes to multifamily. Some guys want to go after as many possible doors in a year; five, six, seven, 10,000 doors over a year or two. For me, I guess the bar is still high in terms of volume, helping as many people, partnering with the most amount investors, and helping as many people as I can… But not at the expense of quality or integrity. For me, the asset itself has to meet certain criteria, which is probably a little more conservative than a lot of the market’s doing right now, so it might take a little longer. In terms of overseeing the asset and team communication, somebody who shows up on time, somebody who’s willing to go the extra mile to make sure things are done on time, to follow up with contractors… I’m not doing asset management, so I expect certain communication for weekly updates or monthly updates and things are in sync. That’s what I owe to my investors. For me, I hold up a pretty high standard for communication and that’s what I’m looking for in partners as well.
Slocomb Reed: A high standard in communication. How far down the line of partnering with someone have you gone before realizing that they weren’t the right fit for you?
Andrew Schutsky: In the beginning, it was a lot of what I’ll call speed dating. You know almost off the bat, first day, first 15 or 30-minute phone call. In most cases, like “Okay, we’re not complementing each other. You’ve already got enough of this, and we’re overlapping.” Sometimes it’s the third or fourth call, or like I’ve gotten pretty far into underwriting and I’m like, “Okay, cool. We’re going to do this. I’m transferring money out of my account to stand up the at-risk capital side of things”, and you’re like, “Something doesn’t sit right.” That’s happened two or three times, and sometimes the things you walk away from are the best deals you do.
Slocomb Reed: Walking away is one of the best decisions you’ve made.
Andrew Schutsky: Oh, yeah. For sure.
Slocomb Reed: Gotcha. Can you give us an example, without naming names, of people you stepped out of partnering with, of one of those times where the best decision you could make was stepping away?
Andrew Schutsky: Oh, yeah. We had an asset that we’re looking at in Dallas with a partner down there. It was the first time I would have worked with this group and individuals. Both the initial documentation, the underwriting, the OM, all the package we were about to pitch to investors all looked pretty good. Went through a second iteration, went through a VA to put everything together, he’s about getting ready to do the pitch deck to investors and the webinar, and then we got some updated financials and they’re totally different. And I’m not a finance guy by trade, but it doesn’t take much to set off the alarm for me in terms of things that are not consistent. If I’m seeing jumps in the historical by a large amount, to me, red flag. It wasn’t like it was called out and say “Hey, there was an error.” It was like, “Oh, yeah. It’s fine. It’s going to work…”
Slocomb Reed: Andrew, are you saying that you were sent a second set of historical financials that was significantly different from the first?
Andrew Schutsky: That’s correct.
Slocomb Reed: Okay. Whose error was that that you were given two separate sets of financials in the same time period?
Andrew Schutsky: To this day, I’m not 100% sure.
Slocomb Reed: You’re just 100% sure it wasn’t the right deal, because you were told two stories.
Andrew Schutsky: That’s correct. To me, it didn’t matter the fact that it wasn’t called out from that team; that wasn’t my role [unintelligible [00:10:08].04] calling it out was a red flag for me. It was enough to say, “I’m fine waiting for the next one.”
Slocomb Reed: The team who shared those financials with you – let’s see if we can cut them some slack. Was this the kind of deal that was more heavily value-add, where historical financials just really have no reflection on what the property will be doing three to six months after you own it? Or is this one of those situations where you were planning to keep most of the inherited tenants and not push rents too far?
Andrew Schutsky: Yeah, this wasn’t a huge value — it wasn’t like it was $400 or $500 bumps. It wasn’t ingesting millions of dollars into an asset, correct. So it was a high-risk situation for me and relatively [unintelligible [00:10:52].00]
Slocomb Reed: Gotcha. You’re GP on two deals currently?
Andrew Schutsky: Correct.
Slocomb Reed: Okay, how did you find those partners?
Andrew Schutsky: Straight up through networking. I mentioned I hit the events side of things pretty hard in early 2021, and I was attending every one. At that point, all virtual, this was right in the midst of COVID. I was thinking it was going to take me years to find a deal and find the right people, because at that point, I’m really not engaging with brokers. I’m saying, “Hey, let me see where I can help.” I call it sweep the floors, so to speak, in the beginning, and making 15 to 20 partnership calls in nights and weekends following those events. With that volume, it’s kind of a numbers game to find the right fit, but it’s a lot of work and networking and hard work to find the right fit, and that’s how I found these two individuals I’m working with still today.
Slocomb Reed: Through networking and events. Where specifically did you meet them?
Andrew Schutsky: This one, I think was a mix of the MFIN conference, it was a virtual one. The second one was Northstar Real Estate.
Slocomb Reed: Gotcha. Cool. So both at conferences or events.
Andrew Schutsky: Correct.
Slocomb Reed: Gotcha. Nice. Those were both virtual events?
Andrew Schutsky: Correct. Sorry, I said Northstar, it was not Northstar; I couldn’t remember the second one. That was the one I missed in the summer, but I forgot the name of the second conference. Both conferences, correct.
Slocomb Reed: Both conferences, both virtual. Virtual requires extra effort to reach out and connect with people.
Andrew Schutsky: Now luckily, some of these events have apps. Like the Whova app you have for the Best Ever one coming up here at the end of February. That’s a great way, especially when you got five, six, seven, 100 people. You’re never going to meet all those people face to face anyway, so the apps are great too.
Slocomb Reed: We are recording just a couple of weeks before the conference. This episode may air just before or just after. The Whova app, I need to spend some more time diving into that to do the pregame networking as well for sure. What advice do you have for people who are going into networking events, whether virtual or in person, for the sake of finding potential partners?
Andrew Schutsky: I guess number one, do your homework. If you have access to an app like Whova, where you kind of know who’s coming, and if you’ve been in the circles of Facebook groups and BiggerPockets, you’re going to recognize a number of the names. Learn a little bit about the background of people that are coming and focus on quality over quantity. If you try to hand out your car to one or 200 people, it’s going to be a mile wide and inch deep, that depth of relationship. I’d rather focus on one, two, or three people in a day; you’ve got potentially a weekend or two days. Focus on quality over quantity, but if you do that homework ahead of time, you’ll know who you’re going to target and who might be a better fit versus, “Okay, yeah. They’re not going to be in the realm of what I want to do.”
Slocomb Reed: Gotcha. So dig deep and try to identify people before the event that you want to meet.
Andrew Schutsky: Correct.
Break: [00:13:37] – [00:15:33]
Slocomb Reed: Andrew, let’s make this a little more personal. I want you to give me individually advice for myself, that hopefully our Best Ever listeners will get some value out of. The Best Ever conference 2022 will be my first in-person networking meetup, and I am looking to connect with people who are interested in getting into medium and large-sized apartment deals for the buy-and-hold long-term strategy. I’m looking to underwrite to a five-year hold, maybe a cash out refinance down the line to increase ROI by returning capital to investors. It’s within apartments, but it feels like a niche, because underwriting to the five-year hold has been the sexiest thing for the last several years.
Andrew Schutsky: It’s the norm.
Slocomb Reed: Here’s my niche. I’m interested to meet people who are already doing it, I’m trying to figure out whether or not it’s a model that works, that appeals to people who are looking to place capital as limited partners, and I’d love to find people who are already doing it and winning. I recognize that I have weaknesses, and that I am much more of a team sports guy. I have skills that will definitely complement partners, and there are things that I need from partners in order to succeed at a high level. All that being said, Andrew, how do I find these people at this conference?
Andrew Schutsky: I guess before you even go looking, you need to know what you’re looking for and why. So a couple of things. One, I would say, be very crisp and clear –I wasn’t good at this in the beginning– about what value prop you’re going to bring. Is it one thing, is it two things, is it “Hey, I’m strong in financials and underwriting,” or “I’m great at asset management,” or “I’m going to help in investor relations, communication, networking, and things like that,” and “What are you looking for?” You mentioned, “Hey, I’ve got some gaps.” The more crisp and clear you are on them, the more we’re going to be relatable to people. The more calls I do with people –I got one coming up right after this– I’ll get emails saying, “Hey, I can do asset management,” or “I can do investor relations,” or “I can go find deals,” or “I can write letters to sellers.” Well, that’s kind of vague. What are you best at, if you had to pick one thing? Especially if you have limited time, if you had to pick one thing, what do you have to offer, and then why is it going to be a slam dunk where there are other people or the hundreds of people they could work with? You get that clear, you get your 60-second pitch down, you’re going to get somebody’s attention much more quickly than if it’s generic like, “I’ll do anything. Yeah, let’s figure this out as we go.” You might have a very limited window with this individual or group, and there’s a lot of people, so you’ve got to be able to be really succinct and crisp on what you’re asking for and what you bring to the table.
Slocomb Reed: Andrew, I’m taking notes right now. I hope our listeners are taking notes as well. First things first, I need to understand my value proposition, and understand how to pitch myself to people who may be interested in partnering with me. What’s next?
Andrew Schutsky: I mentioned being able to do a little background work. You’re going to know, primarily, if you’re on social media at all or any of these Facebook groups and networking groups, you know who’s going. You know what groups are investing in the areas you may be targeting; you may or may not know their hold strategy at that point; not everybody advertises that, but a lot of people do. If it’s a 506C deal you might see business plans with two to three-year holds, or I’ll call it a long-term fix and flip on smaller levels.
Doing your background work, a lot of these higher-level names will advertise what they’re doing. Do the background work on them and reach out and know who you’re selecting. And out of those five, six, 700 people, or maybe 100 people. Know your top 10 or top 20 and who you’re going to have to try to go after and network with.
Slocomb Reed: Andrew, this is great. I’m going to push for this episode to air before the conference, ideally, more than a couple of days before the conference.
Andrew Schutsky: Great. Yeah, it’s timely.
Slocomb Reed: Specific to Best Ever 2022, there’ll be several hundred people there. I’m busy, I want to make sure that I’m optimizing the experience and the opportunity involved in this conference. Can you give me an idea of how much time in hours I should spend preparing for the conference by figuring out who’s going to be there, what are they doing, what are my opportunities to meet them, making my top 10 or top 20 list, and figuring out how I can track those people down? At a conference like ours, with so many high-powered investors and several hundred people in attendance, how much time should I be spending in this preparation you’re talking about?
Andrew Schutsky: First thing I’ll say, you don’t need to kill yourself. Most people are not going to go through extreme efforts of doing or reading biographies of the people attending, so the fact that you’re going to spend maybe 10 or 15 minutes researching an individual group and what they’ve done in the past, what are they looking for… Take a look at their website – how long does that take? Maybe 15 minutes a group. If you do that for four or five or 10 groups… You’re not talking about days, you’re talking about a few hours here and there. Maybe you do it at the airport before; you’ve got downtime there, you’ve got downtime before you go to bed or first thing in the morning. Why not leverage a half an hour here and there just to take a couple of notes. Most people will be impressed by that. Like, “I love what you did down in Georgia, that 86-unit you guys closed on. Tell me more about that. What did you struggle with? What would you do differently next time?” Most people are not going to go to those lengths, so you’re going to impress an individual or group by just spending those 15 minutes to learn more about them.
Slocomb Reed: That’s incredibly helpful. Andrew, thank you. Best Ever listeners, I hope you are writing down things as fast and as furious as I was just now. One quick question, change of topic before we get into the next segment of the episode. I think I heard you mentioned that you use a virtual assistant to help you with your underwriting.
Andrew Schutsky: It’s funny, we started out with a VA in the beginning, and honestly, it was not working for me. It’s funny enough, again, through networking at a local meetup group, I found a younger individual who I was talking about what I was doing, and the deals we’ve just done… He’s like, “That sounds great. I’ve got a supply chain and finance background. Would you mind if I helped you with deal analysis?” So kind of I trained him up, local guy, 20 minutes away from me, we hit it off, and now we’re analyzing 10 deals a week together. So that took the place of the VA, and it’s a win-win, because I can get him in this first deal, and it’s no money out of pocket, no frustration dealing with non-native English speakers, too. So that was a win-win. I’d recommend the same for anybody looking for similar type help. There is someone out there that would do anything to get into a deal, and there’s a lot of financial savvy people out there.
Slocomb Reed: Absolutely. Andrew, the reason I ask is that I have a lot of experience with virtual assistants. I try to only give them work that allows for mistakes. If they mess something up unintentionally, maybe it’s because of some sort of social miscue –because mine are all international– I know that I can clean up after them. I don’t know that I would use someone like that for… Thinking specifically, most people who are using VAs are using VAs because they’re diligent, hardworking, and affordable. Underwriting deals for me, doesn’t seem like something I would readily give in that regard. Someone with a finance background, particularly in real estate, I could see that being beneficial. Yeah, okay, that makes sense.
Andrew Schutsky: Yeah. The initial thought was that the most time-consuming piece you know is take the OM, take the trailing financials, and just plug them into the spreadsheet. Don’t make any wild assumptions around any of the growth, just plug in what’s in the OM, one for one. It’s starting to work but, again, I’d rather much have someone with a background, like you said, that can take it a couple steps further than just copy and paste.
Slocomb Reed: Yeah, totally. I have a VA specific to this, several hours a week of copy and pasting that needs to be done. I wouldn’t do that with my underwriting. Andrew, are you ready for the Best Ever lightning round?
Andrew Schutsky: Let’s go, man. I’m ready.
Slocomb Reed: Awesome. What is your Best Ever way to give back?
Andrew Schutsky: I’m also a podcaster, and I really enjoy sharing everything that I learned always so much, in every episode with all of our listeners out there.
Slocomb Reed: Nice. What’s the name of your podcast?
Andrew Schutsky: Crushing Cashflow.
Slocomb Reed: Crushing Cashflow. Nice. What is the Best Ever book you’ve recently read?
Andrew Schutsky: I’m just about finished, but it’s not a new book. It’s Principles, by Ray Dalio.
Slocomb Reed: Principles by Ray Dalio. That’s in two parts, isn’t it?
Andrew Schutsky: It should be, it’s about 600 pages. It’s a lot to take in, and it’s separated into life principles and work principles, correct.
Slocomb Reed: Gotcha. Okay, I think work principles was released first, and that’s the one that I’ve listened to. Ray Dalio narrates the audiobook, which is helpful.
Andrew Schutsky: I think I’d struggled to get through that one in the audio form; it might be a little dense. But it’s good, it’s full of information, just stuff you got to go back and re-read twice though.
Slocomb Reed: Yeah, absolutely. The Rewind 15 seconds button is really helpful for the audio stuff. What is the Best Ever skill you’ve developed since you got into real estate?
Andrew Schutsky: I don’t have a financial background, and I’ll never be a pro underwriter with the best of the best. But that’s something that I’ve probably taken a 200% increase on, just out of necessity, because I like to double check those that aren’t right. For me, that’s the area.
Slocomb Reed: Andrew, what is your Best Ever advice?
Andrew Schutsky: Number one, pick one thing that you’re good at, roll with that, and go really deep, really far. Don’t try to be everything to everyone. Don’t try to please everyone.
Slocomb Reed: Lastly, Andrew, where can people get in touch with you?
Andrew Schutsky: I love it. Our company name is Redline Equity. Our website is investwithredline.com. You can email me at andrew@investwithredline.com. You can find us on Facebook and LinkedIn. Crushing Cashflow, our podcast is on Instagram, Facebook, and LinkedIn as well.
Slocomb Reed: Best Ever listeners, thanks for tuning in. If you’ve gotten value from this episode, please subscribe to our show, leave us a five-star review, and please share this episode with your friend so that we can add value to them, too. Thanks again and have a Best Ever day.
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