Real Estate Investing With Mike Cantu #654

Bruce Norris is joined again this week by Mike Cantu. Mike wears a lot of hats in the real estate world. He’s a wholesaler flipper and occasional builder and property manager of his own portfolio of well-selected rentals. He has trained other people, and after all this time is still a student. 

Episode Highlights

• What got him interested in the real estate investing world?
• When did he begin working in real estate with Mick Blackwell?
• How much money was he making when he first started out before going into real estate?
• How did he come to learn discipline and dedication, which he carried over into the business world?
• How early on in his life did he show signs of being an entrepreneur?
• How did he handle things when the economy went down and he was ready to back away?
• How did he learn from that experience?

Episode Notes

The radio station mentioned that Mick Jagger’s birthday was today. He is 76 and still on tour. This got Bruce thinking about how he is 66 and about to interview Mike Cantu. He does not think of him as being up there either. Where does the time go? Mike thought he would be done a long time ago with this game, but he loves the game that he plays. Here he is still up to his eyeballs in it. As a youngster, he always thought he would be done a long time ago, but he thoroughly enjoys what he does, making deals and dealing with the people that he deals with. Unless something major happens, he sees that going on forever. That’s what’s fun about having choices. You could also choose the same thing.

Mike said it’s the thrill of the score. It’s not so much the money. He does deals with close friends of his, and seeing them get ahead financially and getting equity into their life is just very satisfying. Once again, it’s the thrill of the score. It’s just making a deal; two humans agreeing on it, smiling shaking hands, and being satisfied.

When The Norris Group had Jim Rohn is as a guest speaker, Bruce was sitting next to somebody in his 70s, and he asked Bruce why Jim still does what he does. After the third standing ovation inside of the first hour, Bruce looked over and told him, “I think you just found out why he still does it.” Mike said he gets such a kick out of seeing other people’s lives changed. Watching somebody’s life take a turn for the better and knowing that he had a piece of helping it is great. Bruce said this motivates him when he teaches. He gets a big kick out of that.

Bruce asked Mike what his original introduction into this real estate investing world was. He wondered when he got started and which person got him into it. Mike said he was 19 years old. He was watching late-night TV after midnight, so he was probably very easily influenced. He was watching a Robert Allen half-hour infomercial. It was leading up to a free introductory to where they did the upsell for the class. What sold him on it was a teenager, 18 to 19 years old, sitting on a surfboard. They were interviewing him, and the camera was farther out than he was. He saw the backdrop, which was Mission Beach in San Diego, where a good friend of his named Chuck lived. He knew that beach and all the houses around it. But what really got him was when the kid said last year he was just loser surfer and had no money. This year, he had a net worth of over $1 million. Of course, they sucked up every bit of it, and Mike thought he was going to have that same story.

Sure enough, he went to the freebie class and talked his roommate into driving. He didn’t have enough gas to get there, so they drove his car, and Mike took notes. It was a two-day weekend class that was going to be a life-changer, and everything you wanted was going to happen. But, it was $500. They didn’t have even close to that between the two of them. They waited until the end; and when everyone was gone, they told the lady they were going to sign up for the class. She smiled, and they said “Here’s the deal. We need a two for one discount. We’re only going to use one book, one share. We will timeshare it and sit in the back row not to disturb anybody.” She went to have a discussion and said ok. Then, as soon as she came back, they hit her up for a AAA discount of $50. Then, they tried to get her for a fifty dollar good student discount. They tried for $50 apiece. They were both speech students in community college. The last one, GenCo, was the big membership store. She actually gave them a fifty dollar Gen Co discount because Chuck had a card, but she cut them off at $350.

They went from $1 grand to $350. $175 apiece, and they actually gave them two chairs and two manuals. They forgot about the deal, and he thought it was great. They didn’t even know they didn’t need a chair since they spent a lot of time in the back. The irony of this whole thing is they spent two days learning 101 ways to buy real estate with no money down. On the way home that night, he asked Chuck if he had any idea what the mortgage thing was about that they talked about all weekend, and he said no. He was hoping Mike knew. They learned 101 ways to buy real estate, but they did not know what a mortgage was.

Apparently, they already knew how to negotiate, although he wanted it over, around, under, whatever it took. It was mission accomplished, and all of a sudden he was very satisfied that Saturday morning thinking they pulled this off. Bruce wondered how this even started. That’s not a normal skillset to enter at 19. Mike truly believes it was the infomercial. He was going to be worth a million bucks in twelve months, so why on earth would he want to be doing something else? He just had to get that yes answer. They set that hook so hard, there was no removing it. He thinks that hook is still set, as is the negotiating skill too.

Bruce next asked how soon Mick Blackwell came into his real estate life. Mike said it was around the same time he got into investing. That was the first summer Mike had off. From the time he was 16 until 21, he was on the Pepsi skateboard team, and that was his full-time job. They did assemblies at elementary and junior high schools and had weekend stuff all the time, but in 1978 they passed Proposition 13. Everybody knows this as property tax, but it also cut out summer school, which was his Monday through Friday bread and butter skateboarding for Pepsi. He actually went to work for Mick around this time. He paid him four and a half bucks an hour, so he went from a couple of hundred dollars a day down to around $36 a day. He had never worked so hard in all his life, and he quizzed Mick up and down all day and every day. He was building houses. He asked him how much it cost, what he paid for the land, and how much he was paying that guy over there. All Mike heard all day long was “Shut up and get back to work. You ask too many questions.”

Mick would pick him up at 6:00 in the morning, come knocking on his window, so he had no choice but to go to work once he said he would work for him. Even if he tried to call in sick, Mick would look at him and tell him he’s not sick and to get going. Mike would ask lots of questions. He started writing down questions to the point where he annoyed him to no end because he knows what he was thinking about that day, in the morning, and figuring out how it was going to unfold. Mike had a list of written questions he would ask him and was very curious.

On two of his deals, he paid $5,000 a lot, spent $25,000 in materials and labor, had $30,000 in each house, and he sold them for $60,000. He did it in 60 days, start to finish. He was very impressed, and he realized he was making $1,000 a day while he was only making $36 a day. They were going to had to do some leveling out. At this time, Mike was only working half days with him, which Mike was happy about. Mick said it doesn’t matter if it’s the first twelve hours, the last twelve hours, or the twelve hours right out of the middle. To this day, that’s Mick’s idea of a half-day. He still goes half days quite often, and Mike thinks he is like the ever-ready rabbit. They wind him up, and he goes.

With Mike’s upbringing, this wasn’t really unfamiliar territory. Hard work and dedication was not new to him. He grew up with military discipline. They had a blended family from third grade on. There were seven kids, two adults, and eleven hundred square feet. By the time he was in fifth grade, he had been assigned every single household chore because of his behavior. Nobody else had anything to do. He took out the trash cans, brought them in on Monday, and went to the laundromat with his stepmom on Fridays. They had two dogs that belonged to his stepbrothers and sisters, and he had to clean up after the dogs. he had to mow the yard and empty the kitchen trash. Eventually, he had every chore. He was 10 at this time. Since his dad was in the military, there was no backing off on the discipline.

In fact, he was told if he didn’t make his bed to not expect sheets on his bed to sleep in. They just scooped them up put them in their bedroom, locked the door, and that was the end of that. That actually happened a couple of times. There was no negotiating that back. He tried. He was willing to do favors and extra work. Didn’t work. Bruce wondered how long the penance was for that, whether it was just a day or a week. Mike said he usually got it back the next day. The first time he was punished for not making his bed was in the middle of winter, and he ended up sleeping in a coat and jeans and no pillow. He wadded up a lot of clothes, and he did not like it. He got the message, and to this day he makes his bed every day.

Bruce asked if someone observing him in his school years would see signs of an entrepreneur. He said absolutely. He grew up in a neighborhood where he didn’t know they were lacking anything because he had not been exposed to anything. He had never felt central heat. They had the wall heater and no air conditioner of any kind. They actually had one fan in the house for 11 people, so that wasn’t great or anything. In third grade, he realized he could take his lunch money, $.35, and he could go to 7-Eleven and buy a pack of Starburst for a quarter. There were 11 Starburst in there, and he would sell them for a nickel apiece and turn his $.25 into about $.50 because he would eat a couple of them to get sale started. He would unwrap them really slowly in front of other people, and he always did a red one.

At this time there was a big apartment complex of about 600 units that they had put in, and it was across the street from a big park. On a regular basis, they had bottle drives for worthy causes to where they would have a story and fill up the wagon with bottles, go around the corner to cash them in, and they would always get Icees, Yo-Yos, and all the other good things kids would have in the summertime from their bottle drives.

Between the late 70s and the late 80s he gradually went from being an employee of Mick to a partner on deals. Initially, they had a falling out. Years later he ran into him at a hardware store, they were on opposite aisles talking over the aisle, and he asked him what he had been up to. Mike proudly told him that he was in real estate, that he had done two deals, and they hadn’t talked for a while. Mick came around the aisle to talk to him about it. They ended up going to each other’s sides and just swapped places. Mike knew Blackwell wanted a piece of him. They talked, and he actually cleared some products out of the way so they could have a face to face, one aisle to the other.

Bruce thought they came to a negotiated partnership, although it ended where he said he had some money, and if Mike got a real deal to give him a call. The next day, Mike called him on a trustee sale, and they bought a house on Sepulveda Street in San Bernardino. The opening bid was 13. They took it all the way up to 16, and they were the high bidder. At that point, they were partners. That was the first of hundreds that they did together.

In the late 80s maybe 1990, building and creating lots came to a halt. Mike was influenced by a book called The Art of the Deal by Donald Trump. Mike bought that book; and when he read it and remembered finishing it and thinking he couldn’t already be on the last page. He decided to start over and read it a second time. He thought he was going to be the West Coast version of the developer that he was, and he had big plans. That book lit a fire in him and he thought a lot was possible after reading that book. Mick was always a builder, so they started building houses in the high desert. He had a couple of friends that were building apartment buildings in West L.A. in the Brentwood/Westwood area. They ended up doing condo projects there and several infill projects.

He did lots of building with Mick up from the high desert. He then realized in the L.A. game that what he thought was the best money was taking a lot, getting it ready to build, ready to pull permits, stage with the condo map in place, and developers lined up with millions just waving their money wanting to buy them. They flipped a couple of those deals, and back then the first one they flipped was for $300,000 more than they were into it. The same week, they sold another project for $100,000. He thought this was how you do the business. They have never had another week like that since, but that was a good we.

Mike was off and running, and at 29 years old he was looking at all the projects he had and thought he had to just get across the finish line and he was done at 30. He thought from there he could figure out the rest of his life. Then, the economy dropped off a cliff. He spent the next 18 months, the hardest 18 months of his life, cleaning up one mess after another. But when all was said and done, he had cleaned up the mess, was still around, and he had learned a lot of lessons that to this day shaped the way he does business.

Bruce mentioned an interesting conversation that led him to bring up this point. Bruce asked what he and Mick were going to do if there was ever thought of people saying they did not have finish it and could just walk. Mike said he actually suggest to Mick that they just bankrupt the corporation that had all this debt and walk away from it. He remembered watching Mick’s face just wad up slowly like a piece of tin foil. In the most serious tone he had ever heard, he said they signed a promissory note, and the first sentence on that note was “I promise to pay.” He said these were people that took a leap of faith with us that put aside some of their hard-earned money for a better tomorrow to grow it, and they entrusted it to us. He said he was not going back to them with a story, and neither are you. He then asked him what Plan B is.

Looking back, that in itself was a huge lesson there. You have to take care of the people who trust you and make it happen. In one of his lectures, the term “self-made” came up, and he said that very few people who he has met that are self-made were truly self-made by themselves. It’s a whole bunch of people involved and the key people in his life. Looking back, he absolutely acknowledges that. The money that was paid back came back many times over, offered up to do deals.

Bruce said anyone facing down what seems to be an impossible task in real estate, especially during a downturn, should really listen to what Mike said. Sticking with that took a lot of guts. He had exactly the wrong inventory, lots and encumbered, unimproved land. It was all the way down the totem pole of what you don’t want, and they were at the base of it. But, just stick it out. Mike Blackwell was right. The only way you make it through that is you don’t have an alternative “get out of jail free card.” You have to face it.

Going through what they did, he learned so much in that 18 month period because land in itself is a different animal. You don’t go to the bank and put you’re 10 or 20 percent down and get a great loan. It’s all about the seller financing. He was dealing with a lot of private people and was just bringing the problem to the table. In the end, everybody worked everything out to where it seemed like every day was a negotiation with somebody over something to get it across the finish line. Even with the things they got behind on, everybody was made whole and everybody got their interest. Looking back, he just smiles over that thing, and that was a major accomplishment. This shapes the way he does business to this day. After that experience, he studied markets and the cycles. Since then, he has been 100 percent right on the money, never missed it by a minute. He figured out the market does one of three things. It will either go up, down, or stay the same. If you conduct your affairs with that in mind, you should be OK. Early on, he had no idea what a down market was about. He couldn’t imagine it leveling off or actually going down.

Bruce said we really didn’t even have a downturn when interest rates went nuts. In the early 80s when interest rates were really high, prices didn’t crash. It was just an interesting time, but Mike and Bruce both experienced something similar. Bruce was in Palm Springs with 7 custom homes with the mindset of not walking away. It was the best thing he could have ever done for himself. Mike was totally pleased with what he did that. For 18 months, during that entire time, they were doing a big subdivision in the High Desert with 46 lots. They were two and a half-acre lots, and he had been doing lot splits and taking ten acres and chopping them into two and a half acres. He would build houses on some and sell others to land bank them. But, when the economy dropped off the cliff, he couldn’t give those lots away. He ran an ad for over a year in the L.A. Times that said “Custom home sites: will trade for anything of value.” His plan was to use what you have to get what you need to get what you want. He had dirt that he didn’t want and needed cash, so he would trade lots for anything of value that he could liquidate for cash.

It became his three-step process, and he worked his way out of all the land and lots, and he sold very few of them directly. Most of them were involved in a trade of some sort, and he got a lot of vehicles out of it. He got the big Winnebago with the slipping transmission, but he had a buyer lined up before he took the Winnebago. I got a six-seater airplane that was sitting at the Apple Valley Airport with a blown engine. The guy offered that to him to take over the debt on the lot. Mike talked to the mechanic up there who said he would love to buy it. He ended up selling that for a chunk down, and he made his monthly payments on it for a while. Now Mike was on the receiving end of payments instead of on the outgoing end of them.

Through all this, Mike learned the art of trading. If he ever had a business card, it would definitely say “Mike Cantu: Horse Trader. Let’s make a deal.” Bruce had an offer on two houses simultaneously in Palm Springs, and it was trading most of the equity position for a 60-foot yacht. When Bruce read the offer, he looked at the guy and told him the deal would work. He almost fell off his chair. Mike pictured Bruce with a captain’s hat on, but he never started the boat. Mike ended up with a motorcycle that he tried to start one time, but the Kickstarter kicked back so hard his knee hit his chest. He got off and didn’t even ride it twelve inches. Bruce didn’t want to fill the gas tank on the boat since it was 2,500 gallons.

Mike asked him if he posed for a picture on it. Bruce said no, but he had offers from people asking if they could use it overnight. He thought this must be like a fantasy. He never turned it into a rental, but it could have been the original Airbnb. Oddly enough, he traded the boat for a piece of usable real estate and a pile of fine art. Mike thought the word “fine art” was very subjective, and Bruce could tell it was likely over appraised when he noticed it on a pallet in the corner. He ignored the value-added portion of that and decided he just wanted the house. He didn’t even know what happened to the art, but it was in fact part of the trade.

Bruce asked Mike if the phrase, “take what you have to get what you need to get want” was originated by him. He said the credit goes to Pete Fortunato, and Mike actually wrote it down wrong. He wrote it down wrong, took it home, reviewed his notes, and he believed that if Pete could do it then he could too. He used that as a business model. When he shared it with Pete about 10 years later, he looked at him and told him that’s not what I said. What Pete said is, “Use what you need to get what you want to get what you need.” He was referring to a piece of real estate. Use what you want – the real estate – to get what you need – a loan/money – to get what you want – the piece of real estate. Use the real estate to get what you need, the money to buy it, to get the real estate. Somehow, Mike wrote it down as “Use what you have to get what you need to get what you want.” However, that became his mantra for years, and he was really quite embarrassed when Pete told him that was not what he said.

About a year ago, somebody asked Bruce to speak in Florida all day, and he did not really want to do it. However, he said if he could take half the day and Pete Fortunato could take the other half of the day, he would do it. Pete agreed to do it, and they got to teach for half a day, which was really cool. It was here Pete came up with his statement, and Bruce thought he said it wrong. Not only did Mike say it wrong, but he also taught it to a lot of people, and they did very well with it too. His inability to listen correctly benefitted a lot of people.

The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.

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