Mark Hentemann 2:58
I don’t want to have the burden of a big house payment. So I gave her my number left figured I’d never hear from her again. I got a call a couple weeks later. And she said I found the property you need to buy. And she’s like, but there’s a catch, you need to become a landlord. And I was like a landlord? That doesn’t sound like any fun. And I met her at the property. It was a duplex kind of rundown in a transitional part of LA but it was up and coming. And you know, I looked at I can see the bones. It was a cool old historic duplex with nice architecture.

Mark Hentemann 3:32
But the owners were raising goats and chickens in the backyard. It needed a lot of work. And they were I think they were moving moving to Kansas leaving LA to dig a hole and live in a house underground and live off the grid. But anyway, I thought about it. And I thought there was some potential here. So that’s how I got in I put a bid on on this duplex. And you know, unexpectedly it was LA my experiences in Boston is is there was like 15 other buyers. And we got in a bidding war. I had no idea what I was doing. I was terrified. The price was going up basically about 15 grand every day.

Mark Hentemann 4:14
And I had no idea how to value this thing. And it was a roller coaster ride. But I kept looking to this broker for guidance and she was like, I think it’s worth it. I think this was underpriced and stick with it. And I did and after two weeks, I won the bidding war and you know, immediately regretted it, but I think I had I think it was listed at $379,000. This was back in 2000. And I won the bidding war at 435,000 and figured I just made the biggest mistake of my life but tried to embrace it and moved in and started fixing it up.

Mark Hentemann 4:49
My tenant was a guy named Mike Henry. He does the voice of of Herbert and Consuela and who else, Cleveland on Family Guy and you know, so he was kind of either an easy tenant to start with, or a bad tenant, but he was a good tenant to learn how to become a landlord with and, you know, just went about trying to fix this place up and figured in year one, I figured this was the biggest mistake I had made in my life. And I was probably going to lose this property, go bankrupt.

Mark Hentemann 5:18
But after a year, you know, I was able to fix it up, raise the rents, I refinanced and, and lowered my rate. And I started thinking, maybe this isn’t such a bad thing. And then within like, maybe by year two or year three, I was like, This is the greatest thing in the world, because it was paying all my expenses, and you know, its appreciating, and I really fell for real estate. And I was committed, I’m like, I’m doing this for the rest of my life.

Robert Leonard 5:47
So nowadays, we would call that a house hack. That’s the strategy. But back then I’m assuming that that wasn’t known as an investment strategy. So when you went into this, were you expecting to use half of that rent to pay off your mortgage? I mean, you were looking for a property to just buy like just a house, I’m assuming you weren’t necessarily looking for that. And it kind of just fell in your lap. But what did you learn? Or how great was that for your first property to be a house hack that you weren’t necessarily expecting?

Mark Hentemann 6:13
And I was behind the curve on everything. Yeah, I never heard the term house hack. I don’t think that was much of a term back then. And I knew that I would have rental income, and I knew what that rental income was, was at the time, I think it was around maybe 1400 1450. The other side was paying. And then, you know, I knew it was going to help pay the mortgage. And I knew that was the concept of a duplex. But I was a little fearful of, of just owning this property and being responsible for this property. But But yeah, I jumped in and tried to embrace it.

Mark Hentemann 6:47
And because I was so convinced that I had made a big mistake that I was reading, and trying to educate myself and learn everything I could about real estate, that experience of that bidding war, that two week period where every day I had to make a decision on, you know, everyone else was going up. $15,000, did I want to stay with that? Or did I want to bail. And, you know, I was going through that I thought, I never want to go through this again, there was so much anxiety, so much stress. I was like, I wish so badly that I educated myself before I got into this situation.

Mark Hentemann 7:22
So as soon as I took ownership, you know, I started reading every book I could on real estate management, you know, even the Accounting and Taxation of it, you know, it, like I said, it took me a little bit of time to embrace it or even feel comfortable that I had made the right decision. But you know, it became clear, it wasn’t that long as it was maybe, you know, a year and a half in or two years in, I think rates were going down. I think I my first rate was about a 7% interest rate, which seems astronomical now, but it was, you know, rates were higher in the early 2000s. And I as I reified and lowered that rate down from like a seven to a four.

Mark Hentemann 8:02
You know, it just so much improved the economics. And pretty soon, and I know but my friend Mike lived there for like two years, but then he moved out and I you know, increase the rent, I think we started at 1450. And within a couple years, we’re at like 1950 and lower the rate. And that’s when I was hooked. I was like, this is a model of like an economic model and investment model that seems so valuable, you know, is many people experience new investors or people just, you know, graduating from school and getting out into the world. When I was in that apartment, I felt like I felt like the world was conspiring against you.

Mark Hentemann 8:41
Like when you enter the real world out of school, like bills, paying bills, paying rent, things faster than your income is every year. And I had to stay like this theory like, yeah, there’s a world is conspiring against you. And everything you can’t see and don’t know about seems to be working against you. But I got into real estate. And while I it was the opposite. When I got into real estate, as I was owning this thing.

Mark Hentemann 9:12
Everything seemed to be working in my favor. Like while I was sleeping, my loan principal was getting paid down. The neighborhood was improving. So this property was appreciating, I was getting depreciation, which I didn’t know about. So all these invisible forces were working in my favor. And it was a it was amazing. And like I said, it was something I knew that it was it was going to be the perfect complement to a career in the entertainment industry.

Mark Hentemann 9:40
It would bring me financial security a lot faster than I otherwise would have found it. And at this point I’ve been doing for 20 years and I’m like I’m going to do this until I’m 100 Young. I don’t know I don’t want to retire. I don’t have any interest in retiring. This is fun. And long after I get spit out of the entertainment business. I’ll be doing this.

Robert Leonard 10:00
So where did you go from that house hack? What was your next deal? Or how long did you own it for?

Mark Hentemann 10:05
I owned it for five years. And because I was a first time buyer, I got, you know, I didn’t know about that FHA loan back when I first bought this, but I got a 10% down. So I put down about 43,500 on this, this duplex, and I sold it five years after I bought it and bought it for $435,000, sold it for 1.2 7 million, had fixed it up and took that money took those proceeds, which was I can’t remember exactly what those proceeds were, but I spun those into a six unit and a 14 unit. And what I had done is I’ve read about the tax, real estate, tax law and tax strategies.

Mark Hentemann 10:52
And I had learned about the married couple owner occupied credit, if you’re familiar with that, which is if you’re a married couple, and I had gotten married while I was in the duplex, but we took the combined married couple credit, which was $500,000. So you could take 500,000 of your gain tax free. And so I did that. And I asked my CPA, if I could 1031 exchange the other side, because there’s basically a side by side duplex.

Mark Hentemann 11:23
And I said, Can I take advantage of $500,000 tax free, and then the rest of it 1031 Exchange, which was the rest of it was maybe $350,000. And my CPA, surprisingly said yes, you can do that. And so I I bought those, those two new mult multifamily properties. And I knew that I wanted to go bigger as I sat living in that duplex, always look across the street at the four plex in the six plexs. And I was like, Yeah, it’d be better to have six units instead of two. I appreciated the economies of scale in multifamily.

Robert Leonard 11:58
What difficulties did you encounter when you went from just a duplex that you were also living in. So it’s different than just a traditional rental property to scaling to that size of property where you’re not probably living there, now you have all kinds of different dynamics working for you or against you, depending how you’re looking at it, but you’re basically just having a much bigger asset.

Robert Leonard 12:20
And you’re having all these different things that you have to deal with and manage now that you haven’t had before. So what types of things did you encounter issues problems, you know, unexpected headaches? Did you come across that you weren’t expecting when you went from that house hack to those bigger deals?

Mark Hentemann 12:34
Well, I was looking, you know, honestly, I actually bought the four plex, a four Plex, a four Plex, a year before I sold my duplex, so I was already getting into multifamily. I was already committed to doing this. And I think loosely in my mind, I was gonna buy maybe a building or two a year, and try to do that every year and just build a portfolio. So I think my first challenge was to find good third party property management. I have, I was working at the time, maybe 70 hours a week, 80 hours a week. And so I needed I absolutely needed third party property management.

Mark Hentemann 13:13
And I found a couple property management companies, I started with one I had them for maybe a couple years, didn’t really like the way they were adding the expenses. And then I moved on to, I got some recommendations. And you know, back then looking back, I had a couple people that steered me, a couple professionals who had a lot of experience who could have taken advantage of me, particularly that first broker pretty much June on and I’m still friends with her, but she was the one that talked to me basically talked me into not buying an apartment, not renting an apartment, but rather putting down a mortgage on this duplex.

Mark Hentemann 13:50
And she could have steered me wrong, like day after day, when she was telling me to raise my offer $15,000 It seems crazy to me, but I did it. And, you know, obviously, in retrospect, it was the right thing to do, because, you know, basically tripled my money on this property on that first duplex, which launched me into, you know, much bigger multifamily, but she was one there, there were a couple brokers that I got to know. And, you know, they were mentors to me, there was a guy at an escrow company that was great.

Mark Hentemann 14:25
And, you know, the property management always was a bit of a struggle, you know, you got to watch them, but none of my property management experiences were too disastrous. So they, they helped me along the way. And yeah, my learning experiences, were learning how to manage property management, and you know, just reading and learning everything about the metrics and how you could sharpen your your buying criteria. Yeah, otherwise, I always had, you know, a little bit of an artistic bent. So, whenever I looked at a building, I could visualize, you know how I wanted how I thought could be improved. So I was, you know, from day one, I was a value add investor, not even knowing what that was I was I like the rough buildings, the rough properties. And I could envision like this could look amazing. And I would just break down what needed to be done.

Robert Leonard 15:16
Do you think that if you had never done that first house hack, that you would have still became a real estate investor?

Mark Hentemann 15:23
That’s a good question, I kind of think I would have, I was always skeptical of stock market, giving your money over to an investment manager, and just letting I would have been frustrated, I would have been, you know, eternally frustrated, and eternally skeptical and suspicious, if you know, someone else was managing my money.

Mark Hentemann 15:44
And, you know, I experienced this a little bit with my retirement, some of my IRAs is they they eke out, you know, maybe a five to 8% a year. And I’d like to having more control over it. And I made a, I might have fallen into it along the way. But surely, it would have taken longer for me to get in. I think this was a good baptism by fire.

Robert Leonard 16:06
And so let’s talk about what you’re doing today. We talked about you started the house hack, then you went to a four unit and then a little bit bigger. So let’s fast forward all the way to today, what does your portfolio look like today?

Mark Hentemann 16:16
I am at about 400 units, and I’m a possibly be closer to 500, I’m in escrow on a 90 unit, I consistently was buying value add multifamily in up and coming neighborhoods in Los Angeles. And my criteria was always I want to buy something at a rock bottom cost per square foot. Because in part of that, because I was in a major city. And I knew that, you know, in a major city, the land was very valuable, the location was very valuable. And it was a high priced market.

Mark Hentemann 16:52
And I wanted to buy as cheaply as possible. And so I targeted about 200, between 203 100 a square foot in LA. And at that number, I knew that that was about half of what it costs to replace, to build given that LA’s is very difficult to build and very expensive to get the permitting, go through that process and navigate that. And so I would do that with by cheap value add at a good cap rate, and the cap rate allowed me to get leverage.

Mark Hentemann 17:22
So I did that over and over and over again. And you know, I built up to maybe 230/250 units in Los Angeles, and then maybe, you know, five years or six years into it, I decided you should really get a second market. I should diversify. LA, you know, has earthquakes. And if I’m going all in on real estate, I should, I’d like to have a second market and I wanted to pick what I thought was the best market. So I took my time I spent maybe two years analyzing markets and watching markets and which one would be the best place to focus on and establish a beachhead in another market.

Mark Hentemann 18:03
And I zeroed in I think ultimately, I zeroed in on either Austin, Texas, or Salt Lake City. They’re both relatively easy to get to. But very strong, growing, growing populations, very strong business growth, rent growth tech centers, and I landed on Austin. And so today I am in escrow to buy I’m going to have about about 300 units in Austin, if this goes through this latest purchase. And you know, I’ll have a couple 100 in Los Angeles as well.

Robert Leonard 18:38
How did you go about finding those markets? I mean, there’s hundreds of markets across the US. So how did you narrow it down to those I know you just mentioned population growth, income growth, things like that. But tactically, how did you narrow it down to those specific cities?

Mark Hentemann 18:53
It’s funny, I thought that all I really needed to do is go online and look at what are the top markets for multifamily. But what I when I did that, I found that there were 15 different answers. And they all had a different they all had a different top 10. And, and there was no consistency. So I figured I had to kind of do my own due diligence. So I would go on to city sites and just gather data, gather research.

Mark Hentemann 19:19
And I knew that Austin, Texas was had the highest population growth from 2010 through 2018. And then it that continued that trend continued up until today. And that’s relative to size. I think there are there are cities that add more people but as a percentage basis, Austin was growing the fastest. It also was a tech hub where there’s Apple, Oracle, Google, Amazon, they all had major presences there at a big university and also importantly, it was hard to build.

Mark Hentemann 19:54
Austin was the most difficult city to build in Texas. And it had, if you want, I wanted barriers to supply. That’s one of the things that drives prices upward in Los Angeles, is, I think the two most difficult cities to build in the United States is Honolulu, Hawaii & Los Angeles. And that because the land is limited, and the permitting process is difficult and expensive, I think Los Angeles, Los Angeles prices continue to go up, because the supply can’t keep up with demand. And so that was one of the factors going towards my decision to invest in Austin.

Robert Leonard 20:31
How did you scale from those first three properties that we talked about already to doing 100 unit deals? Did you continue to slowly get bigger and bigger? So maybe 16 units that you did two maybe 30 unit 50 units, so on and so forth? Or did you just kind of stop at the 16 unit, and then go for it and start going for 7500 unit deals? What did that dynamic look like?

Mark Hentemann 20:53
I think I was a slow, I think I moved slowly, I did, you know, jumped to 14 out of the duplex straight out of the duplex. And I stayed in that 14 to 25/26 for maybe six or seven years, I went through the 2008 collapse. And you know, that was that was a great experience. I mean, it was not a fun experience by any means. But you know, I was able to navigate it, I survived. And I saw a lot of investors get taken down by that, and you know, lost their entire portfolio.

Mark Hentemann 21:26
And it affirmed the strategy that I had been dabbling in. But it made me more committed to the strategy of B and C Class workforce housing, buy affordable, don’t buy, you know, top of the market. And make sure you do value add, you know, buy it with a plan to add the value because during that time, if you just bought a property at retail pricing and counted on the market, the market was dropping.

Mark Hentemann 21:54
I think the market dropped maybe 30 to 40%. During the collapse and a lot of people got caught a lot of investors got caught with their properties underwater in mind, you know, knock on wood fared pretty well. My I stayed rented. There was always renters during that time. They were a lot of them were moving down from the A and B class properties that were much more expensive, because their sales salaries were being cut, or they were losing their jobs. But my building stateful luckily,

Robert Leonard 22:24
Are you starting to position yourself today, similar to how you did back then. And I’m not saying we’re at the end of a cycle or at the peak of a cycle. But as we record this in early March 2020 Things may or may not be starting to crumble a little bit around us, you know Coronavirus is going around the stock markets not doing great. Are you starting to position your real estate to weather a downturn, whether it’s now or whether it’s coming up? How are you envisioning that?

Mark Hentemann 22:51
For the last year or two everything I buy I look at very carefully as to how is this going to weather a downturn. And it’s not a matter of if, it’s a matter of when and I maybe they’re Coronavirus, who knows what’s going to happen with this, but maybe that’ll be the thing. But yes, I’m preparing, I fully expect and am ready to, you know, go through a downturn. And hopefully I’ve made right preparations.

Robert Leonard 23:16
Yeah, I agree with you. I mean, I think it’s definitely a matter of when not if, although I’ve kind of been expecting it for a couple years now. So I am definitely not not the best person to ask in terms of when it’s actually going to happen.

Robert Leonard 23:29
And I think if anybody knows, and they try to tell you, they know that you should probably run the other way. But it’s coming right. So what exactly are you doing to position yourself for that? I know you said you are. So what specifically are you doing?

Mark Hentemann 23:40
I think specifically I have to buy and it goes back to my the the cost per square foot, it goes back to the cap rate, it goes back to the strategy and the class of asset. So I don’t want to be I don’t want to buy anything that’s topped out. So I want to buy at a cost per square foot that is less than everything around it. Because when the recession occurs, the cost per square foot is going to drop. And if you’re paying if the cost per square foot in your market is an average of 350.

Mark Hentemann 24:15
Within a couple months, it could be down to 290. And so you want to be able to absorb that kind of drop. And one of the things that happened to a lot of people during the the 2008 collapse and I think I had maybe five or six properties. When that happened. One of the things that happen is that even if your property is running fairly well and you’re weathering the downturn, the banks that lent you you know to have your loan, they have a certain LTV loan to value that they want you to maintain and your contract stipulates that you have to maintain that.

Mark Hentemann 24:49
And if the prices go down nationally or regionally, they’ll mark down the value of your building. And if your loan, you could be running your property just Fine, and you could, your rent could cover your mortgage, but your bank could call you and say, you know, according to our valuation, our new recession valuation of your property, you’re under 75% LTV, or you’re over 75% out, you’re over 75% LTV, and we want you to make up the difference.

Mark Hentemann 25:21
And, you know, I think I had one property that they the bank asked me to do that they wanted like 80 grand to make up the difference to get my property to that level. And luckily, you know, I was employed, a family guy was doing well, through the recession, and I was I had a good paying job. So I just paid it. But you know, other investors could have been in a different situation. And given that I had six buildings at the time, if all six of them had a lender that wanted me to give them 80 or $90,000, you know, it would have been a problem.

Robert Leonard 25:55
That’s a really interesting thing to talk about specifically right now, because I hear a lot of investors talk about how as long as a property’s cash flowing, it’s a good investment to make even (Crosstalk) Yeah, it’s really interesting.

Mark Hentemann 26:08
Like, it doesn’t matter. Like if it’s cash flowing today, like what, for example, what happened in the when the downturn hit in in 2008, was triggered by the collapse of Bear Stearns and Lehman Brothers. Yeah, it started with Lehman Brothers and Bear Stearns followed. But when that shock hit, for example, I’m in California, in California, I don’t know the statistics. But construction is either about 30% of the population, employee population is in the construction industry in some or some affiliated industry, in all construction immediately stop.

Mark Hentemann 26:47
You know, when the shock of a recession hits, or an event like the Lehman Brothers crash, that all immediately stopped, flippers, stop. And so there was a mass of people that instantly became unemployed or underemployed, and they couldn’t afford the rent. So rents were going down, you know, if you say, I’m going to buy this building, because it’s cash flowing today. And so that’s all I need to worry about, well, your rents are going to go down, most likely in a recession, depending on how bad it is. But any recession, I think you’re gonna see rent softening. So I think that’s not that’s not as safe a strategy is, is, some people might think.

Robert Leonard 27:23
That’s really, really interesting to hear you talk about because I haven’t heard a lot of investors talk about that. Usually, it’s assumed that if you have strong cash flow, then you can weather a downturn. But I’m gonna bring up a stock market term. I know, this is a real estate show. But my other show is a lot about stock investing. And we talk about that a lot. And that’s margin calls. And so it almost sounds like in the real estate world, there’s a potential for a margin call. So it’s something you need to take into consideration if you’re investing in today’s market. Now, to go from just a few units you did at the beginning of your career to over 400 or 500 units. Were mentors super important for you?

Mark Hentemann 28:01
Nowadays, and with podcasts, and meetups. And I think real estate is such a much more social thing. And everybody’s partnering and networking, I’m embarrassed to say I did, yes, I did have, I did have people that liked me. Thankfully, they liked me and looked out for me. But a lot of it was just I was reading books, I was, you know, I was on an island, I had to go into a writers room. I was in the entertainment business, I wasn’t even in the real estate business, I was spending 80 hours a week in a writers room surrounded by, you know, comedy writers.

Mark Hentemann 28:37
And so I don’t know, I didn’t know a lot of people, but I knew this was what I was going to do. And I would just, I was getting emailed, you know, a lot of listings. And I just, you know, would analyze almost all of them to some degree, and just pick, I would say this, this looks good. And I would buy it. And I did that over and over and over again. And, you know, luckily, I was always getting, you know, Family Guy, we got cancelled twice in those early couple years.

Mark Hentemann 29:04
And I never thought it would last I thought, you know, it’s going to be out of work, looking for a new job maybe every couple years, but Family Guy has been a bit of a juggernaut. And so I’ve had the benefit of having good income. And you know, my inclination was just pump that into real estate. And, you know, I created a couple of shows along the way. And, you know, did that as well. So, you know, a lot of my a lot of my social world, my network is all in the entertainment business. But yeah, there’s some great people I’ve met here in Los Angeles and in Austin. And, yeah, I had never really I can’t say exactly that. I’ve had a mentor. I think a lot of it’s been figuring it out myself.

Robert Leonard 29:44
I think that’s awesome to hear too, though, right? I think so many people talk about finding a mentor these days. And of course, that’s great if you can, it’s a super valuable resource, but it’s also good to hear situations like yours where you are able to become super successful in the real estate space. And in other spaces as well, but specifically real estate here without a mentor.

Robert Leonard 30:04
So I want people to hear that that are listening to the show because I don’t want them to use as an excuse. I don’t want them to say, Oh, I can’t do a deal, or I can’t do my first deal or I can’t scale because I don’t have a mentor, I don’t have anybody to bounce questions off. You know, Mark, you’re an example that it can be done with a ton of success. And that was even back before, you know, a lot of the technology that’s available today.

Robert Leonard 30:24
And I talk about this concept a lot where you don’t have to have a one on one mentor. I’d argue that I don’t really personally have a one on one mentor that I go to with all kinds of questions, but podcasts and YouTube videos and all these different mediums that are available today that you probably didn’t have back when you’re investing are available to investors today.

Robert Leonard 30:41
And that’s essentially like being mentored one on one. I recently had Lewis Howes on my other show Millennial Investing. And he said the same thing. He said, I don’t really mentor people one on one, not because I don’t want to, but because everything I would tell them is already in my podcast. So just go listen to the podcast. And that’s like you’re being mentored.

Robert Leonard 30:58
When these guys have 300 episodes, there’s every single question you could probably think of in those episodes. So just go back and listen to it. And so I think it’s such an interesting dynamic. And I want to make sure that people really understood your story about that you didn’t necessarily need a mentor to be successful. And so that helps get rid of their excuses that they might have.

Mark Hentemann 31:15
Yeah, you can’t use that as a crutch. I don’t think I even ever heard a real estate podcast until maybe 2014. And in there was nobody Yeah, never had a mentor. I read books, like real estate is not that complex of a strategy of an investment strategy. It’s actually pretty simple. And I think your best training is to do it. And you know, I just, I don’t know, maybe I was foolish, but I just knew, you know, I was ready to take the plunge.

Mark Hentemann 31:43
I didn’t want to sit on the fence, when you know that first opportunity came up. And sure I was terrified and anxious and thought had filled with regret, and thought I had made a huge mistake. But you know, within it within a year, year and a half, I had embraced it entirely and was just reading everything I could reading books, because even not a ton of real estate information was even online back in the early 2000s.

Mark Hentemann 32:07
Yeah, you can’t use that as an excuse. just educate yourself. You ever break down what a mentor tells you step away, And they is that something that’s such secret knowledge, forbidden knowledge? It’s mostly stuff that’s already out there. And you’re already hearing it.

Robert Leonard 32:23
Yeah, I mean, I feel the same way. And I think mentors do have a lot of value. But like you said, if you have a question, I would say 99.999% of the time, you could do a quick Google search, and probably have a dozen different answers that will answer your question just as good as a mentor would. So there’s really just not that excuse these days.

Robert Leonard 32:41
And like you said, and I really like what you said about how real estate investing really isn’t super complex, right? I think a lot of times people try and make it overly complex when you really boil it down. Real Estate Investing really, it can be hard to do at times, but it’s not a complex concept, right? You just need to read a few books, listen to a few podcasts, watch YouTube videos, you’ll get your head around the idea of what it is, and then you just really need to go out there, take action and do it.

Mark Hentemann 33:07
And you know, one of the sore, I always had sources of guidance. And I met a lot of brokers and I got to know pretty much every broker in Los Angeles because I wanted them to send me deals. And I also, you know, went beyond brokers. Brokers always have an agenda. So they were always trying to get you to buy the deal, and they didn’t necessarily have have your best interest in mind or completely have your back. I met some great brokers, who always gave me honest guidance.

Mark Hentemann 33:39
Basically, I appreciate a broker if they simply accurately underwrite the deal, because so many deals that show up in my inbox. I spend 30 seconds looking at the underwriting and the expenses, and I realized this is absolutely ridiculous. It’s inaccurate. And if I were to buy it based on these numbers, I would lose my shirt. But I did you know, accidentally, uh, you know, it was not something I deliberately did.

Mark Hentemann 34:05
But I started to use, I found that I had a loan broker who I was using more and more often, and then eventually exclusively, and this is a guy who he steered steer be the outset, all I wanted was the best interest rate, best interest rate best terms. And he often had the best rates. And so that’s why I began this relationship with him. But over time, you know, I was doing all my deals with him and I was giving him a lot of business and a lot of refinances.

Mark Hentemann 34:36
And he was somebody that had been in the business for 40 years, and I think I’ve gotten some of the most insightful and helpful mentor style guidance from him. And because he didn’t have a vested interest, he was just giving me the loan, but he would usually weigh in on the deal itself and the location and he would give me really high level insights and high level level, you know, subtle strategies that improve the operations and improve the deals.

Mark Hentemann 35:09
And that was, that’s something that I don’t think I ever could have gotten from a, you know, one of those online, podcast driven mentors. I think that you know, you just need to be working closely with someone who knows the market intimately and has been doing it for 30 years or 40 years. Anybody could get find that person if they develop that relationship.

Robert Leonard 35:30
I want to talk about how you’re finding deals today in the two markets that we’ve talked about, because LA and Austin are arguably two of the more expensive markets in the US. They’re growing, but they’re also very expensive. So how are you able to find good deals worth buying in today’s market?

Mark Hentemann 35:49
I think what helped me, you know, I started in LA, I didn’t know anything else. I never, when I got started, I never even considered investing out of state or investing in a cheaper market, which a lot of people do today, especially if they live in an expensive city like LA, but I got pushed into it by the this broker in Los Angeles, one of the things that helps is that Los Angeles is huge. I think I read that there’s something like 3 million parcels in the county in Los Angeles County. And it’s a big, renter city. So I’m taking a wild guess here, but out of 3 million parcels.

Mark Hentemann 36:31
There might be maybe I would guess, take a wild guess. But maybe there’s 800,000 multifamily properties in the county of LA. And at any given time, say there’s 5% of the inventory on the market. What is that? Is that 4-40,000? Is that Is that right? 40,000 properties on the market. I mean, that’s a huge, a huge pool of properties to look at, in the county of LA. And you just pick through those. And you can even you first of all, your broker sending you deals, and you hope that your relationships have narrowed those down to kind of pre screened properties that they’re pretty good properties or very good properties.

Mark Hentemann 37:14
But I am people, bad mouth, online sites like loop net. But in a market like Los Angeles, I find it helpful, I’ll just go on. And I don’t want to sift through 20,000 properties, I want to narrow it down to use filters to to screen my specific criteria in terms of cost per square foot specific criteria in terms of cap rate, and then pick the range of size. And then it narrows it down to a very small batch. But because of the size of LA, you know, I might be looking at 50 buildings that all fit the cost per square foot that I have that cap rate and the size.

Mark Hentemann 37:59
And then from there, I’m just looking at those neighborhoods, and I’ve lived in Los Angeles long enough that I look like where is this property? And what what is the bogeyman about that property? Why is it this affordable? And if there’s nothing that jumps out as a, you know, an unfixable problem, I look at it pretty seriously. And I’m mostly driven by I’m always looking for an up and coming market.

Mark Hentemann 38:24
I don’t buy top heavy markets that have already appreciated and are really high priced. I go for cheap markets, cheap areas of LA, that are in the core locations that are maybe on the fringe have better neighborhoods, but are are being impacted by the growth of that hotter market.

Robert Leonard 38:42
Why have you decided to stay in LA and Austin for your main markets? I mean, you’re nearing 500 units, you have good systems in place, I’m assuming you have probably a good team behind you. You understand real estate, you know how to analyze markets. So why haven’t you taken everything you’ve built so far in those two cities and scale to a different city that might have more opportunities?

Mark Hentemann 39:03
I think LA always has opportunities. I think I’ve never, I’ve never not found a building. I think I’ve mentioned this before I kind of was thinking about it. But at any given time, if anybody told me oh, you can’t find a property worth buying in LA, give me 20 minutes and I’ll find a building that I would buy. And you just put those filters in search everything on the market. And suddenly, you know, there’s anomalies.

Mark Hentemann 39:28
That’s one of the beautiful things about real estate is it’s nowhere nearly as efficiently priced as say the stock market. I mean, everything is personally priced by the owner. And so there’s anomalies there’s market dislocations all over the place. And some you know, every some sellers are more motivated than others. So yeah, you could I think I could always quickly find a deal worth buying in LA. You know, I say that cautiously. In Austin, it’s a little tougher. Austin is smaller and I think the properties tend to be bigger unit numbers, they’re usually those, those bigger garden style, there’s a lot of 100 plus apartment complexes in Austin.

Mark Hentemann 40:10
So yeah, there’s, there’s a big difference between how much inventory there is available in Los Angeles, and how much inventory there is in Austin. But uh, I like those two markets, I think I’ll stay in those markets, I’m open to going elsewhere to I don’t want to spread myself all over the country, it’s contrarian to what you hear on a lot of podcasts is people always say go for cash flow. And, you know, I don’t want to bad mouth any markets that I don’t know about. But I’m always very cautious about going to rural, tertiary, you know, third tier markets.

Mark Hentemann 40:45
For example, if you’re investing in the stock market, you know, you want to buy Google or Amazon or Apple or you want to buy those powerhouse companies. And I think similarly, in real estate, you want to buy into a powerhouse economy. And LA is a powerhouse economy. It’s got a huge, it’s the center of the world for entertainment, it’s a big tech hub, its financial hub, medical, it’s got multiple major colleges. Austin is similar. It’s got a diverse econom.

Mark Hentemann 41:16
I think I’m an investor who wants to buy and Brian markets, I want those powerhouse economies, those are going to weather the downturn. As soon as the the economy turns soft, those people who are in the sticks, investing in the stick seeing great cash flow. I mean, it’s the equivalent of buying a beaten down a company that’s going out of business, I’m sure the Sears stock paid a huge dividend towards the end, because I don’t know enough about the stock market to weigh in on that stuff. But um, I think people investing in real estate should remember that there’s a rule of buying quality assets, quality locations is really important.

Mark Hentemann 41:57
And don’t chase cash flow out of a good area, cash flow is going to be lower in a prime market, because of the competition in you know, for example, in Los Angeles, you’ve got, that’s one of the prime real estate markets in the world, you’ve got Chinese buyers, China has exploded in population, and in wealth, it’s become a newly wealthy country, and so is India. And, you know, luckily for all of us, in the United States, the United States remains one of the most desirable, it’s the most stable political system, you know, despite what our current climate is.

Mark Hentemann 42:34
We still have the most stable economy, most stable political system and most stable currency. And I think most of the rest of the world wants to put their money in United States assets. And real estate is one of those assets of choice because everybody understands real estate. So they stick to basically in the United States, more or less three or four markets. It’s a, it’s on the West Coast, it’s LA, San Francisco, Seattle, on the east coast. It’s New York, probably Boston, Miami, but I read somewhere that there’s about $500 billion of foreign money invested in US real estate each year. And I think 90% of that goes to Miami, Florida, New York City and Los Angeles.

Robert Leonard 43:19
So let’s take it back for new investors. For someone just getting started, maybe done a couple deals, what would be the number one piece of advice that you would give them from all that you’ve learned from when you first got started to where you are today.

Mark Hentemann 43:32
The number one thing I would say, and this is a in the context of where we are in the market cycle. You know, the market is cyclical, do not be fooled into thinking the way it is now is the way it’s going to be two years from now, the real estate market and the economy itself is cyclical. It goes from expansion, growth, to oversupply, and then recession and that sort of natural cycle. It’s like the seasons. And you could see it’s kind of a cool and amazing process.

Mark Hentemann 44:07
And it’s all natural, like when rents are going up. And the economy is booming. builders build and, and financing is very available. And that’s where we are now. And what happens is builders don’t build to need they build according to what funds are available. And right now, funds are easily available. So what you’re going to see is they build in it becomes kind of this irrational exuberance situation where you know, they build beyond what the need is. And then there’s oversupply, and then prices go down naturally they’re going to go down and that’s that’s the the recession process. So I would say to investors, be conservative and be disciplined and be persistent. You know, don’t give up. Don’t be emotional. This is a logical strategic game. Play it like that, and just keep at it.

Robert Leonard 45:02
I think that’s really good advice. Mark. For those listening to the show today that want to go connect with you further learn more about what you got going on, where can they go to find you?

Mark Hentemann 45:13
You could visit my website. About five years ago, I started a company to formalize my investing, it was called Quantum Capital Inc, you could go to quantumcapitalinc.com. And you could reach out to me through the website. And yeah, reach out anybody I’d love to help. I’d like to help new investors. And yeah,that’s it.

Robert Leonard 45:35
Awesome. I’ll be sure to put a link to those resources in the show notes. Everyone listening today can go check it out. As always, I’ll also put links to books related to the different topics that we talked about throughout the show. So you can go dive into those more, read more about it, learn more about the different things that you’re interested in. Mark, thanks so much for your time. I really appreciate it.

Mark Hentemann 45:55
Thank you, Robert. This is great. I really appreciate you having me on.

Robert Leonard 45:58
Alright guys, that’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro 46:05
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