Expert Investor Mike Cantu Joins Bruce Norris on the Norris Group Real Estate Radio Show #536

Norris Bruce

Bruce Norris is an active investor, hard money lender, and real estate educator with over 30 years experience. Bruce has been involved in over 2,000 real estate transactions as a buyer, seller, builder and money partner.

Norris Bruce
April 28, 2017

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Bruce Norris is joined again this week by Mike Cantu. Mike has worn a lot of hats: real estate investor, entrepreneur, property manager, sometimes speaker, and full-time capitalist.

Episode Highlights

What prepared Mike for the downturn in 2008?
How are mobile home parks different from houses in terms of investment?
Did Mike’s goals remain the same, or did he have a new list for 2017?
What effect do both Bruce and Mike believe the downturn had on people’s character?
Does Mike’s goal list mostly involve financial, or are there other aspects too?
What was Mike’s experience working with a promissory note, and what did he learn about himself?
How does Mike handle his properties, and how has Bruce adopted his policy?

They had just talked about his three most influential teachers. He mentioned John Schaub and Jack Miller, and he said he could not just name one person as number 3. There was a cluster of influencers who were all equal, Bruce Norris being one of them. Another was Rhonda Graham from a wholesaling and fix and flip standpoint. Peter Fortunato was a huge influence as well as Jim Napier. Mike said Bruce was a huge influence over the years, and he attended his February class.

Bruce said it was exciting having an audience listen to you. He did not expect the ending he ended up coming up with there. Mike said the next day he reread the entire workbook from start to finish. He concluded many years ago that if you go back to the 1989 debacle, the one known out there is what the market will do. He nailed it every single time and knew exactly what was going to happen. One of three things will happen: it will either go up, down, or stay the same. He does not think there is a fourth choice, so his plan was always to remind himself that no matter which scenario happened, he is okay.
Mike was ready for 2008 because of what happened in 1990. In his goal book, he had a quote from Jack Miller written on a casino tablet note and taped in the front. On it, it says, “A wise man once said when you have it made, there is no need to take any more chances.” Mike elaborated on that as far as what type of chance he was willing to take. Two of them were not personal liability and large balloon payments. He developed a list of things he was not willing to do at that point in his real estate career.

Bruce thinks of all the people he knows in this industry and how they actually spend more time in thought. Mike still has his habit of daily reading, which he has done since the beginning of December. Starting at this point until now he has read about 20 books, and they were all new. He read a lot about mobile home parks when he and a lifelong friend got into the business and he realized he knew a lot but was not an expert on it. He spent four months getting his hands on everything he possibly could that would give him the education he wanted in that arena. Now he is much more confident in it.

A lot of people would think this is a risky investment, so Bruce asked Mike how he viewed this since he was normally in the home business and this was a different model. Mike and his friend actually took a real estate principles class together, and he was also a die-hard Jack Miller student like Mike. His friend spent his adult life in Tuscan, and this is where he has worked. He has watched him and talked regularly. Mike said he was interested in an opportunity if the right one came along, and this was after he shot down several. The deal they ended up doing was one they had been chasing for 20 years. When it came on the table, he felt it was one of the best deals he had ever done. They ended up buying anywhere between $.40 and $.50 on the dollar with seller financing at 5% for 15 years. Payments did not start until four months after they closed, and it had all of the right things wrong with it. Finally, the upside was several million dollars.
Bruce asked what was different about this product from houses, and how does he look at the investment differently? Mike said he is nothing but humored by it. Every day he thinks how different a segment of society to which he has been exposed. It is a different rung on the housing ladder, it is a business, and there are a lot more moving parts. He would never have gotten involved in something like this had his friend Mark not done this for his entire adult life. He lived only five minutes from the property, and they have come a long way in the five months they have owned it. He has a list of areas in the Tuscan area that he loves, and this property was one of them.

The area in Florida where Bruce is, Leesburg, has this type of product. He suggested borrowing some books from Mike since he does not know much about it. Mike said there is a lot of good education out there as well as some garbage. Bruce said one of the things that is interesting about how he does the business is that he does most of it over the phone. He does not go out of the way to physically meet with owners, whereas a great majority of people do. Bruce asked how he landed on this square and why he feels this is best for him to do. Mike said it started out with the absentee owner 20+ years ago when he realized somebody lives in a different state, it will not happen face-to-face. The best he can do is written correspondence and follow-up with a verbal correspondence. If he was dealing with owner-occupants in his own local market, that would certainly be a different MO. Occasionally he will go in front of somebody, but it is very rare. It has usually been because of the distance between him and the other party that they end up on the phone.

Mike mentioned goals several times, and Bruce wondered if he still had a new list for 2017. Mike said ironically just the previous week he had upgraded to a new notebook. As long as he is on this planet, he will always have goals in front of him. Bruce asked what effect this has had for him. He said it has had a huge impact on his life because he has had the short-term, mid-term, and long-term goals. With his daily planner, in order to chip away at his goals he will do something every day that will effect those goals. He has lots of lists and goals, and every day it is about trying to check some of them off. He categorizes his day, and he realized in the business world there are only three things you can really do. These things are call, do, or go. Everything seems to fit into one of these three categories, and he has vertical columns for these. The top third is urgent, the middle is important, and the bottom third is miscellaneous. He tries to focus on the top 2/3 and chip away at the long-term. Before he met with Bruce he was cleaning up some lists that were going to go in his goal book.

Bruce asked what one of the items was on his original goal list. He said the first goal he ever put down in writing said he was the proud owner of 4 re-treads that he got off of layaway and paid the $60 balance in full. He read a book called The Lazy Man’s way to Riches, and it said you state your goals as if they already happened. This was the first card, and he realized he was going to be a businessman and would wear a suit. His next goal card said he was the proud owner of not 1, but 2 business suits. However, he never accomplished this goal. He has a sport coat, dress shirt combo, and rented many tuxedos over the years, but no suits.
Bruce asked about when he looks at his goal list and if there is a predominance of financial things or if it crosses over into other categories. Mike said he had his business goals and personal goals, which are the ones with dollars attached. He said his other personal goals since he has lived in Huntington Beach is to surf 100 times each year.

One of the things Bruce and Mike talk a lot about is when the downturn came. He remembered him making a statement that he saw a lot of people’s character change. Bruce made a statement about how he did not know if it was changed, but it was revealed. He really shed light on this and said this is the real person you are seeing now. Whenever he does business with his people, he has never had people come to him and say when the going gets tough they are going and leaving him hanging. This has never been on the business card. Mike, on the other hand, said he saw a lot of people doing this.

This is the one thing with which Bruce was most impressed. He remembered Mic Blackwell talking about a promissory note and saying he did not see any way around it. Mike thought after 6-8 months of this that they had come far enough and should just file for bankruptcy. This was when Mic sat him down and explained to him how they had signed a promissory note promising to pay. The big impact was when he explained that there were a lot of people out there who had taken a leap of faith in them, had skimped and saved and put money aside to invest it for hopes of a better tomorrow. However, their tomorrow will be no better than today because their money will not be there. Bruce can count on a few fingers the character of Mic at that time as he was a huge influence at that time.
At the time Mike was not happy with the news he got and knew he needed to keep working. Bruce asked him what he learned about himself at the time. He said the person who came out the other end of the tunnel was not the same person who started at the beginning of it. He was a completely different person from the standpoint of what is possible, what he is capable of, and what he is willing to do in the future. He ended up with more lessons in life and notes to himself over that 18-mohth cleanup period than any other time, and he knew he needed to stick with it. He tried to eliminate whatever could take him down after that.

He knew what he could go through and gut out, and he also made a to-do list and not to-do list so he would not have to repeat the experience in 2008. The what not to-do list is equally as important as any to-do list ever is. Bruce remembered during that time when he wrote his California Crash report. We were at the peak, everything was great, then everything started to change in 2007 and got bad in 2008. He would have people come up to him and say they had lost $1 million and needed to hurry and get it back. He would always tell them this was a bad plan.

Bruce would ask Mike on a regular basis if he was disappointed he did not sell out. His answer was always no, and it still is to this day. He is thrilled that he has what he does, and if he did cash it out he would have to take Federal taxes out at 15% and the state taxes at 10%. With this and all the other factors, he would have had to buy back in at $.60 on the dollar just to break even. This was with a portfolio that would take an adult lifetime to put together. Mike remembered when he told Bruce he was sweeping everything off the table and starting a new pile. Bruce gave Mike a strange look, but Mike stuck with his plan.

Mike was one of the few people who had the property that he did. Rick Solis just went through a lot of property sales and was happy to get it accomplished. Those rentals were not in A locations, and Rick sent Mike several pictures of them as he was cleaning them. This all goes back to the right house being in the right neighborhood. Mike saluted John Schaub for exposing him to this as it was the biggest game-changer. Fortunately for him early on, the third house he ever owned was in an A-neighborhood with a double cul-de-sac, 3 bedroom, 2 bathroom, 1300 square feet, and the right school district. He still owns this house to this day and uses it as his model.

Mike has always had an assignment he gives to properties, which Bruce has adopted. When he comes across a project or property, he thinks about what the property’s job is. Bruce asked Mike if he is still pursuing some single-family homes and wondered what various assignments are attached to the property. Mike said the latest assignment, a free and clear house, was when he signed up for the mobile home park deal. They went over the budget; and rather than borrow money, Mike realized it would need a cash infusion for the following 18 months to rehab park-owned trailers and get them sold.

There were 28 vacant spaces, and he realized the budget he put out there was $20 grand a month. He combed through the rental properties, went through and assigned everyone, told them what their new jobs were, and said which ones were already handled. He gave them assignments, and he still has their basic core pile of things that covered his life expenses. When you have enough properties, eventually the basic things are covered. Next comes debt reduction. When you run out of debt, it will pile up if you do not spend it. Mike is still buying and selling houses now and is getting a real kick out of it because his brother is back in the real estate game full-time. He talks to him every day about his real estate deals and what is happening with him. Mike likes his brother to make the deal, and he will make it go away. He is the one placing these houses. He has his neighbor Justin, with whom he has worked for many years. Mike said between his efforts, Justin, and Dave he is doing about three deals a month as he has done for several years now. However, at 56 he does not work nearly as much as he used to work.
Bruce said one of the things that has happened is Mike is a core go-to person. He hears from a lot of people who ask what to do with their property, but they have found something of value. Mike has gotten into the middle and is like a traffic cop. He has different arrangements with different people, and a lot of his deals are other people’s deals. The value is there, but they do not have a taker for it. A couple years ago he flipped one to Aaron, and sometime in the summer he will cash over a $100 grand check for it. Bruce thanked Mike for this.

Mike realized when he lets something go on a wholesale level, he goes through the whole analysis. He asks himself if it is something he wants in his life on a day-to-day basis. Does he want to babysit it, rehab it, or drive to if necessary? As he has gotten older, most of these answers are no. Yet from the parts and tools standpoint, this is a tool that will generate a lot of money. One of his daughter’s properties was tied up and bought by Aaron Norris, and he still owns it to this day. This always thrills Mike to hear this because a lot of other people in his world have cashed out with things Mike sold them. Looking back, he would not have wanted to take this journey with that particular property as well as several others.

When he looks at Mic Blackwell’s endgame portfolio, he has a list of his houses that he gave to him over the years. He receives a new updated list annually, both what he owns and the properties on there. There are still about 50 houses on there still; and as Mike went through it he realized he sold Mic all but 6 of them. A huge part of his net worth came from deals he did, and Mike would not be where he is now if he had not sold to him or somebody else. Mike had a goal of owning things free and clear at one point, and Mic was not too thrilled about this.

When Mic sold his apartments and did a 1031 exchange, he went to Mike and asked him for 20 houses. He put 10 on the table, and they ended up settling at 14. He was just south of the $1 million in combined checks when they closed. When he got the money, he ran into Mic 2 days later and saw him really excited. He asked Mike what he was going to do with the money, and he told him he spent it. He got really excited and asked Mike what he bought. When he told him nothing, he got very concerned and asked him what happened. Mike said that he paid off 9 more houses, and he watched Mic’s face slowly wad up like a piece of tin foil. Mic gave Mike the most disgusted tone he has ever heard, and he told him he did not remember what seminar they went to that told him to take his hard-earned after-tax dollars and pay off positive cash-flow, single-digit, fixed-rate cash-flowing loans. Mike walked around for several days studying his shoe laces, so disappointed in himself and thinking he blew it.

The following Saturday he had a big day planned and was going to do several jobs. It was this day he woke up and realized he was financially free. Several times what he needed to live on would come in monthly, and he did not need to do anything he did not want to do for the rest of his life, work-related. He jokingly said he has paid off many houses since then, he just does not tell Mic. Now Mic is at a point where he is clearing his debt left and right, and Mike chose that path a lot sooner. He was a great influence on Bruce to do the same thing.

Thank you for joining us for the real estate radio show with Mike Cantu.