Expert Investor Mike Cantu Joins Bruce Norris on the Norris Group Real Estate Radio Show #535

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 21, 2017

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

Episode Highlights

What are the different hats Mike wears in the real estate world, and which is he most involved with?
How did he first get started as an entrepreneur, and how old was he?
What does he think is the reason a lot of people do not make it buying and selling properties themselves?
How did he first get started in the business of real estate?
What was his first loan he received, and what kind of loan was it?
What has been his experience in dealing with big downturns?
Who were his most influential trainers?

Bruce asked which of these definitions hits home the most, which Mike said it would be a property manager. With this he must stay on top of his portfolio. As an entrepreneur and capitalist, he must scan the horizon every morning for opportunity. However, his first priority is to keep the rentals going, solve any challenges, and change hats once he takes care of this. Bruce asked why he has never delegated this to a company, which Mike said he contributes to Mic Blackwell. He explained a long time ago that nobody will look after your things the way you do. Nobody cares about it as much; it is your responsibility. He always went to the Mic Blackwell School of Management and has been influenced by others, but all his big influences do their own in-house management.

At this point, Mike’s secretary of many years handles 75-80% of the challenges, usually a tradesperson call. She usually knows who to call, resolves it, and gives Mike an update. Occasionally they have to have a discussion about it. He had a water heater go out that did not make it to the 2-year mark, and they had a brief discussion about this because the code had changed on the pressure release valve. However, they were able to handle it.

Most of the people who have fairly large portfolios seem to manage them themselves, which Bruce has never wanted to do. It would be very difficult considering a lot of his properties are in Florida. He learned the hard way that it is all about the property and the location of it. That dictates the tenant draw, which dictates the whole management experience. This includes a good house in a good neighborhood with the right tenant in it, and you have no idea that you are even in the real estate business. The wrong house, neighborhood, and tenant is a 24/7 nightmare.

Mike always had a grading system for properties, and he certainly had his share of C properties that he started with and ended up with A properties. Bruce asked him about his journey and if at times he had C rental properties that were challenges. He asked Mike what his end goal was for that property, which he said he had lots over the years. It was trial and error, and he has always had his parts and tools vary. The parts are the good properties that make up your retirement, and the tools are all the other houses you use to get there. This could include either a wholesale or retail flip to generate a chunk of money or something else you hang onto for a few years. It would then go up in value, you pay down the loan, and create some equity. These are the tools he uses. Anything that was a C, C+ or B- were a temporary ownership and all part of the big picture to get the good things paid for retirement. Bruce said we need a Mike Cantu book of theorems or postulates.

Mike made a commitment and kept it to not smoke when they had the Millionaire Maker Event. He said this was a challenge, and he called and told him he made a mess of his summer. However, he got through it despite it being an interesting journey. Hardest thing he had ever done, but it was mission accomplished. Bruce finally gave up Diet Coke, and he thought about what Mike said about how a lot of his day was wrapped around certain things. Every time he got gas, he would go in and get a Diet Coke. He realized he was changing when he had gas and didn’t have anywhere else to go. Mike realized also with the smoking that most of it was triggers. When he would go into his truck, he would put the key in, put his seatbelt on, push the lighter in, and smoke. He saw the routine and realized he first had to acknowledge these triggers and start eliminating things.

Being an entrepreneur, this was something Mike started at an early age. Bruce asked what he did in school that looked entrepreneurial for his age group. Mike said he started off in elementary school. He had a business he started in third grade where he would take his lunch money, go to 7-11 in the morning, and buy a pack of Starburst. He had 11 pieces to a pack, and he would sell them at school for a nickel a piece. The whole pack cost a quarter, so he would usually eat one or two of them and end up doubling his money almost every day. This was the first of many, including an aluminum can business and bottle drive. He would go around knocking on people’s doors and getting returnable bottles from them. He had several friends who were well-to-do when he was a kid, and he realized their life was totally different from his. If they wanted a fraction of what Mike had, then it was up to him.

The gear kicked in because of his observations that he wanted something different. Bruce asked how many other third-graders he had ever heard of who did the same thing as him. This is ridiculously rare. Mike agreed and said he did have a monopoly on his business in elementary school. Eventually, this came to an end. He remembered emptying his pockets out and having three packs of unwrapped Starburst in one pocket and another pocket full of nickels.

A lot of people attempt buying and selling properties, and not a big percentage make it. Bruce asked Mike his take on this. He asked if really good people are trained in this business or if they are born with a gift that allows them to do it. Mike said this is something you have to attack from a couple different angles. First, there has to be a real desire here. Not just a wish, but a burning desire. Second, the education is so important. Mike realized early on that if he was going to be in the game, then he was going to be a student of the game. Every day he realized how much he did not know. As he progressed down the road of real estate, he realized that everything else in real estate is harder than a house.

Every time he would venture off into something else, he would end up back at the kindergarten of real estate. This included entry-level housing in decent to good neighborhoods. He thought that this is what most of the people in America deal with and where he needed to focus his area of expertise. Having role models and watching people is something else he does. He was partners with Mic Blackwell for many years, and he would look at what he accomplished. He used to go to breakfast with his friends on a regular basis, and Mike would tag along to see what they accomplished. He would look at them; then he would go home, look in the mirror, then tell himself they pulled it off and he would be embarrassed if he could not. These were ordinary, hard-working people from a big variety of backgrounds, and every one of them made it. It was not a matter of if he could do it, but when he would get there.

Bruce next asked Mike how he got started in real estate. He said he watched a late-night infomercial. The guy was sitting on a surfboard, and he recognized the beach where he was. It was Mission Beach in San Diego, which they were using as a backdrop and interviewing him while he was sitting on his board. It was for a free event the next night, and he and his roommate drove to Long Beach and listened to the pitch for a two-day weekend course. He knew this was the ticket that was going to get him there. They were the last people there; neither had any money, and they gave their pitch. He told them they needed a two-for-one discount but only one workbook and chair. They would sit in the back row and take turns using the chair and workbook. His roommate went in with an AAA discount worth $500, which they were both able to get even without an AAA card. He asked for a good student discount, and had another $50 knocked off. He could get this because he was going to community college, although barely pulling a C average. The final straw and last discount was a Gymco card, to which the lady rolled her eyes and said, “$350, take it or leave it.” Driving home, they had a new goal to come up with $350 in the next 48 hours.

If he was on the other side, he would look at the people doing the pitches and think it was very impressive. Him showing up at the class was non-negotiable; he was showing up at it one way or another. If they absolutely banned him from it, he jokingly said he was probably going to try and listen in through the ventilation vents. They had what he wanted, and he knew that was a key component in his future.

Bruce remembered a story Mike told about looking for seed money and talking with his dad about it. After the class he got cleaned up, put on some good clothes, and told his folks they needed to have dinner and a very important discussion. He contained himself through dinner, then afterward he explained to his dad about taking the free-and-clear house mortgage it. They would then pull out 80% of the money and give it to Mike so he could work his way down the road of real estate riches. His dad’s eyes got big, his mouth opened up, and he has never heard him laugh like he did to this day. He laughed so hard he started holding his stomach and rolled out of his chair onto the floor, still laughing. When he finally composed himself, he made eye contact and started round 2. That was when his dad lit a fire in him that still burns to this day.

Bruce said he has noticed the pissed off mode is a good place to be able to get where you have to show somebody they are incorrect about your future. There may have been equal parts of negative motivation and emotion that has driven him along the road he has been on all these years. Bruce remembered specific instances where somebody said something that was the tipping point. When he broke his Achilles tendon and came back on crutches, somebody told him, “Well, that’s the end of you.” Somebody thinking you cannot do something sometimes is a really good starting point so you have something to prove.

Mike wanted to prove something to his dad, and shortly after he was exposed to Mic Blackwell. He knew Mic had things that could further his goals, and this worked out wonderfully over the years. It was 1982 when he met Mic, and this was at a time when interest rates were at about 18%. This was a very similar starting point to Bruce’s experience. Mike remembered the first loan he received in this time. Mic set him up, they bought a property, and they were going to refinance and keep it as a rental property. It was a terrible house and neighborhood; and when he explained the deal to his dad, he was so shocked that it was 17 ½% interest and 8 points. He was shocked that Mike made this transaction. Mike told him it was because he could not get 17%, which was the going rate.

Bruce asked about the 8 points and if it was a hard money loan. Mike said it was actually an FHA loan through a mortgage broker. Bruce did not even think hard money was there at that time. This was his first loan, and who knew how many people had their hand in this deal? He remembered looking at the closing statement and thinking that 20% of the loan amount is not here.

Bruce asked Mike if he found the business easy or difficult when he first got started. Mike said to this day he does not every want to say it has been easy. Over the years he developed systems that made things happen regularly. However, he would call it simple; he has always tried to have a simple plan that one would be able to explain to a sixth grader. He would not call it easy, though, because it does involve a lot of hard work and persistence more than anything. Bruce thought of Mike when he was watching the movie The Score. In the movie, the older and experienced guys who are getting ready to give some advice to the younger one. He told him to write down everything he wanted in his life, then spend the next 25 years getting it.

It does not happen quick, and Mike often says that he will have good news and bad news. The good news is you can accomplish everything you need and more to set yourself up for the rest of your life by buying and selling and being a real estate entrepreneur in a 5-year period. This is the good news. The bad news is that it will most likely not happen in the first five years. There have been several overlapping 5-year periods to where Mike said if this was all he did in real estate, he would be home free.

Bruce and Mike next went on to talk about dealing with really big downturns. He was involved from 1982-1989, and Bruce said he was probably pretty good and saw continuing success. However, Mike said this was actually his learning curve and he made a lot of mistakes during this time. However, at the same time he was ahead up until 1989. He had several little houses and had made some decent money, but he stumbled several times along that road. Then 1990, and Bruce wondered what the majority of the holdings were that ended up becoming a problem. Mike said one thing was land he was developing which he had sub-divided into vacant lots. The other was not-quite-finished condominiums in West Los Angeles. These are now things he never wants to own, no matter what the economy is doing.

Most people would not survive if they got stuck with what he had. These were all projects with which he was involved with Mic Blackwell. He had a lot of spec homes that were almost done or done and could not be sold. He was splitting up ten-acre parcels into 2 ½, and he had two big condo projects and a major sub-division. These were the boat anchors that were taking him down. Mike traded out a lot of this, and Bruce asked him how he learned about trading and what made it successful. Mike said he originally wrote something down completely wrong that he had heard in a seminar by Pete Fortunado. He found out many years later what he had actually said after he had executed it the way he thought he was supposed to do it. What he had said was, “Use what you want to get what you need to get what you want.”

The example was a house. Use what you want (the house) to get what you need (the money) to get what you want (the house). Somewhere along the line he was not paying attention and instead wrote down, “Use what you have to get what you need to get what you want.” He thought he had a lot of dirt, and for over a year he ran an ad in the LA Times that said “Custom Home Lots, Will Trade for Anything of Value.” He ended up with some interesting things out of this. Before he even contemplated some of these trades, he made sure that he could liquidate the cash for whatever he was trading. The number one priority was to trade off for anything of value that could be liquidated for cash.

Bruce asked Mike how long it took him to go through the inventory, to which he said it was over a year. This is ridiculously fast. Bruce asked if trades work when both parties really don’t like what they have. Mike said yes, and he had a lot of trades to where he really wondered if he was trading from one thing to another, or if he was going for something that was more sellable. Bruce said he was in the same plan at that time, trading custom homes for 60-foot yachts. Mike did not get anything out of it that was good-looking except an old truck. Bruce remembered one of the trades was a pile of fine art, and it was a pile of art. The word “fine” really should not have been attached to it, but he was happy to get out from under $3,000 a month payments and interested in trading for things he could liquidate.

Bruce actually did a seminar with Peter Fortunado a few months ago in Florida, and before he had never heard him speak. Mike said how Pete had been one of the big influences in his life from the creativity standpoint. He is so adamant about not using cash unless it is necessary. This sparked the big creative side of his real estate, and Mike said he can thank Pete for this. He went to his class in California back in February, and once again he ended up with pages and pages of notes. He was thrilled he was still teaching because what he has to say is really good. Bruce is in his backyard when he goes to do work in Florida. He is very well-known and highly thought of, so this was a good experience.

Bruce asked Mike who his three most influential trainers were. Mike said first and foremost would be Jack Miller. He followed him around the country for well over 20 years and thought of him every day. He would do a dozen seminars a year on totally different topics, occasionally repeating them over the years. He used to refer to it as his Jack fix, and he would attend at least four seminars a year, sometimes as many as 8 or 9. He would fly to him wherever he was and ended up in some very strange places. He ended up in Minneapolis, Minnesota, where he normally would never have gone in his entire life had he not been speaking.

John Schaub was the next person who influenced Mike. Both he and Jack were good friends, and they were so different in their thinking yet so alike. It was John who really shaped his rental portfolio. One of the things he would say was to take your worst house out to pasture and shoot it, replace it with a better house, and eventually, you will have no junk. He remembered the top of the market in 2005 and combing through the file cabinets looking for anything he could sell since prices were absolutely ridiculous. There was nothing in there he was willing to get rid of because it was all good. At that moment he remembered thinking John was right, and eventually, we will have no junk.