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episode # 238

From Starving Artist to $90M in Real Estate with Mark Hentemann

Mark Hentemann ain’t your average family guy. Sure, he has a family (with slightly more than 2.4 kids) and, yes, he does in fact write and executive produce the tv show Family Guy. But that is absolutely where the similarities end. Is there anything average about owning 90 million dollars in Investment real estate in Los Angeles? Mark sits down with Adam & Matt to unpack his trajectory from starving New York artist to hit writer on The Late Show with David Letterman among other Hollywood accolades to real estate investing guru – one door – and script! – at a time! Trust us: this episode will hit your money making sweet spot. Giggity giggity!

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Episode Summary


 

Who is Mark Hentemann?

I am a writer and producer and I have been in the entertainment industry since 1997. I’m originally from Cleveland, Ohio. I always wanted to be a writer and moved to New York after college. It probably wasn’t one of the smartest things to do to move to one of the most expensive cities when I had no money. But I was passionate about writing. I was panicked about how I was going to pay rent, but I eventually got hired to write for David Letterman. I then moved out to LA and joined a new show that was just starting, Family Guy.

I didn’t have much trust that I’d be able to make money in entertainment. I knew I could be spat out anytime. So, I took my first couple of script payments and invested in a duplex. A broker convinced me to put my money into a mortgage instead of rent. I wanted financial security and a cushion, which is what my broker found for me in this ugly duckling duplex. It needed a lot of work, but it had great bones. So, I decided to jump in. I had no clue what I was doing but I figured it out as I went along.

It turned out to be a pretty remarkable experience. My tenant was Mike Henry, who voices a lot of characters on Family Guy. I learned everything I could about real estate and it turned out to be a phenomenal investment. I sold it for three times what I bought it for and leveraged it with a 10% down payment as a first-time buyer. My return was 2000%; I think I made $800,000 gain on a $43,000 down payment. After that, I was blown away. I realized real estate was the thing I had to do. I was passionate about it and have been doing it ever since. Every time I made money off of scripts and shows, I wanted to put it all in real estate.

 

Has being a creative person helped you in your real estate journey?

I think so. Real estate for me is like shifting to a different part of my brain. My first job was as a greeting card illustrator and writer. So, I can visualize the potential in distressed properties, which helps with my value add. I enjoy the shift of spending all day in my head to concrete things I can see. I didn’t know anyone else who invested in real estate until I got into it.

 

What are you buying?

When I started investing in 2000, I was in Los Angeles, so all I knew was I wanted to buy multi-family properties in the best neighbourhoods for the lowest cost. That’s what brought me success in my first deal, so I wanted to replicate it. So that became my formula. I wanted to buy at $200-250/square foot. So that drew me to 1920’s construction.

After listening to Bigger Pockets, they were saying not to buy anything pre-1980’s but I had been doing that for 12-13 years already and having success. So, I was carving out my own strategy. Building codes and permits are very restrictive in Los Angeles. So, I was buying the cheapest buildings I could find and fixing them up. I love to bring out the historic architecture in those buildings. I also like to bring out the Hollywood character. The changes I made were dramatic and the tenants loved them.

 

Do you do the work yourself or do you have a team?

At this point, I have a solid team around me. In the beginning, I knew I wanted to build a team because I knew I was too busy working to self-manage. So, I found a management company, an insurance agent, a loan broker, and continued to build my team.

 

About location:

I’m more interested in the location than the property itself. That’s where I start. LA has 80 sub-markets; it’s a big sprawling city. There are hot areas like Santa Monica and Beverly Hills, and then there are transition neighbourhoods. When I got here, Hollywood was a dump and downtown LA was a ghost town. There were major pushes to renovate and revive these areas, including economic incentives to do so. So, I knew those areas were going to explode. I always look for up and coming hot neighbourhoods and locations on the peripheries of the prime markets.

 

Are you renovating and holding? Do they become revenue properties, or do you put them back out on the market?

I put them back out on the market. Ever since my first duplex, I’ve been dreaming of bigger units and I believe in economy of scale. For the first eight years of my investing, I wanted to get in with the funds I had, fix it up, sell it and then go into a larger property. So, I went from the duplex to a 14-unit and continued doing that. My biggest trade-up was a four-unit building to a 36-unit building. I like that model.

I always thought once I got to 50 units per building I would settle down and hold them. But I’ve now been at it 20 years with buildings up to 90 units and even some in Austin, and I’m still looking to trade. I renovate in the first 1-2 years, refinance in year three, and then sell in years 5-7. I add the most money when I renovate so once the renovation is stabilized, I sell.

 

How do you choose markets and where do you see the opportunities? Are you still buying right now?

There are still opportunities in LA and there will always be because in 2016 there were 3 million properties in LA county. There is just so much inventory! As an investor, you’re a venture capitalist, especially if you’re a value-add investor. You want properties you can improve immensely.

There is a lot of opportunity in LA, but I wanted to diversify into a second market. So, I spent 2-3 years looking at other markets; looking at population growth, job growth, income growth, a diverse economy and barriers to entry. I ended up in Austin and I like it a lot. I actually moved there and now have about 200 units in Austin. There are still jobs and new residents pouring into that city.

 

How did you approach the idea of a second market?

I figured out what I wanted and did research on that. So, it was based on my experience and the data. That narrowed it down to a few markets like Austin, Salt Lake City, Boise, Charlotte and Nashville. I also wanted something close by so I could get to it easily. It is daunting to invest in a new market far away. I talked to brokers in Austin and got to know the professionals there. I was still hesitant, but a guy named Nick reached out to me to pick my brain and he was in Austin. We stayed in touch and eventually started a partnership. Nick was on the ground in Austin which gave me the confidence to start investing there. We made a map of Austin and decided where we wanted to go. We started networking and went from there.

 

How do you stay on top of a market?

It’s hard. I am very busy so it’s all about having good systems and a good team. I wake up each morning and start reading real estate and economic news. I try to digest and understand what’s happening in rental markets and the greater economy. I try to see what’s happening with employment and rent, and what is projected to happen in the future. Real estate isn’t always upward charging, so you have to be careful and know how to navigate.

 

Does timing the market play a role in your strategy?

Yes, and I’m embarrassed to say it. They say not to time the market, but I’ve been doing it since the beginning. I bought in 2000 and thought I had made a huge mistake. I overpaid; it was listed for $380,000 and I paid $435,000 after a bidding war. I assumed a recession was coming. But I had the good luck that things worked out.

I’ve been focused on where the economy is going and seeing how long a market has been chugging upward. In 2006 I started sitting on the side-lines because I knew the market was overheated. It dropped in 2007 and I was able to buy then. The market did continue to go down, so I bought a bit early. I was determined to find the bottom and read a lot about it. In early 2012 the market went up for the long term and I started buying aggressively. That was me trying to time the market and it served me well. Maybe it was luck, but it worked. It’s not impossible to time the real estate market because it moves at a glacial pace.

I’ve benefited from how slow it takes markets to hit bottom and go up, but I’ve also made mistakes and bought prematurely. That might be happening right now. Investors say multi-family has fared pretty well through the pandemic but I’m sceptical about it. I don’t think we’ve seen the worst of it yet.

 

How has COVID-19 affected your portfolio?

I’m on the side-lines a bit. I am always looking at properties and every once in a while, when something catches my eye, I go for it. I am watching the market carefully. My portfolio has done better than I expected during the pandemic, but it has been impacted. There’s been an uptick in vacancies. All the properties are surviving but it could become more challenging.

I just bought two properties, a distressed property and one with low rents, and I’m looking at a big property in Austin. Which isn’t exactly sitting on the side-lines. But I am being cautious. I don’t need a deal. Now is not the time to be going all out; wait and watch. Do the math and ensure you can survive upcoming volatility.

 

What advice do you have for young investors who are thinking about going into the real estate market?

I tell writers that if you get a chunk of money, there’s nothing better than buying a property. Get into a duplex, three-plex, four-plex or even a single family and rent it out. Keep your expenses low so you’re ready for any curveball the entertainment industry throws at you. A house hack is the best option for starting out. You can live for free while investing in something that allows you to grow wealth and experience.

A house hack is what I did with my first property, the duplex. It’s when you can live in a property and also rent it out. You can do it in any kind of property. You reduce your cost of living while also making rental income. You can fix up the property and add value, increase rent over time, etc. There are also lots of loans and programs for first time buyers. It’s a no brainer!

 

How has mindset played a role in your investing strategy?

I think it has played a huge role. I learned about mindset when I was trying to get into the entertainment industry. The going doesn’t just get tough, it stays tough. Everyone has passion on day one, but can you hang in there for the long haul? Developing the mindset of determination is important.

Real estate takes passion, but it also requires you to be dispassionate; be passionate about the process of looking at deals but be dispassionate about decision making. Don’t get emotional about a deal. And don’t get scared. Define your criteria – that will help you overcome analysis paralysis. I look for a five cap, $250/square foot, and someplace I can add value. Get a list of value-adds you can do. That gives you a lot of tools to ensure your investment is a success, regardless of the economy.

 

It seems like you fell into real estate by accident. Growing up, did you ever think you’d be controlling a multi-million dollar real estate business?

Not really! My dream was to be a writer. I remember driving to high school and driving past a lot of abandoned buildings. I used to think it would be so cool to fix them up. I was drawn to architecture and buildings. But I was always fixated on writing and comedy, so never thought I’d be where I am. In retrospect, the trauma of being broke in New York created something within me that led me to real estate. After my first duplex, I decided writing was my dream and real estate was my must. I committed to doing it to build my financial future and I wanted to do it until I turned 100.

 

Five Wire:

Favourite neighbourhood in Los Angeles: Korea Town or West Lake

Favourite bar or restaurant in Los Angeles: Le Pain Quotidien

A book you would recommend everyone read: The Art of Performance by Jeroen De Flander

One piece of advice you would give your 18-year-old self: Teach yourself about personal finances in your spare time; this will help you in life

Something you have purchased for under $1,000 that has changed your life: Adopting apps for my iPhone

 

Find out more about Mark Hentemann and Quantum Capital.

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