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.
Mike did a couple of things that Bruce did not do, one being he pursued education a lot. The first seminar Bruce ever attended was one he gave, so that’s how suspicious he was of education. He and Mike came at it from very different directions. One of Mike’s goals was he always wanted to own a rental portfolio. Bruce wondered how he got the word this was the ticket and what made him want to do this. He said he originally wanted a fourplex. Mick had built a fourplex, they went over the numbers, and he said you can live for free and actually make money living there. Mike started playing with the numbers thinking he could actually probably make enough money to not even have to work.
Mike thought it sounded really good, and Mic had the houses. He had a rental portfolio, and Mike started asking questions again. He got the idea that life has the recurring expenses; and as he started getting rentals together, he eventually became a single parent. He thought since they had these recurring expenses, he loved the idea of having a house to take care of each one of life’s expenses. From here, he set out on a goal to have some free and clear houses. The first one was to take care of the food, so they had a food house. Then, they had an insurance house that took care of auto insurance, homeowner insurance, medical insurance. They had a utilities house and a gas house so they could drive anywhere, and eventually, they got a house together for each of life’s recurring expenses. He realized at that point he was home free, and it was mission accomplished. He got a lot more houses besides that, but that was one of the original plans. It was to live in a fourplex and not have to work.
He had been planning his retirement since fourth grade. He would sit in the class, look out the window, and think how it was a great big world out there with all kinds of things to do. He asked himself what he was doing here. He’s never been a fan of being told what to do and working for someone else. He realized a long time ago that you only have two choices in this world. You’re either captain of your own ship or you’re a deckhand on someone else’s. Growing up with the discipline that he did, he did not want to spend the rest of his life being told what he does. All he ever wanted to do was wake up every day and have the freedom to choose what he wanted to do. On Monday through Friday, it’s always been disciplined towards work, but at least he gets to do it his way. Early on, he realized he had a big blank slate in front of him, and he put some serious thought into how he wanted to paint this thing up. It all revolved around creating an income stream that would grow. Early on it was just the income stream, and then as the years went by he realized that the quality of income was much more important than the quantity of income and what you have to do to get it to come in monthly.
That shaped the direction he went, and he realized that a nicer house in a nicer neighborhood gave you a better tenant selection. Looking back, he has lots and lots of tenants who have been with him for ten years and a few over 20 years. His record was a house he bought in 2002 where the couple had been there thirty-nine years. They were both retired. The husband passed away several years ago, but his wife has passed the 50-year mark and going on 20 as his tenant. One of the big things is the turnover. Early on he believed everybody. He didn’t do proper screening, and it’s a miracle he is still in business. When people ask him what he does for a living, he tells them white paint, beige carpet every day and all day.
Mic Blackwell had an interesting reaction when Mike said he wanted free and clear houses. It was because Mic did not agree with that since he is a leverage person and it’s worked extremely well for him. However, early on Mike just wanted to get his core income set up so that he had choices. He did a big exchange and got rid of his apartments. He wanted 20 houses, Mike offered up 10, and he ended up selling him 14 houses. He got just a hair less than $1 million out of it when all the dust settled. He only missed it by about $4,000. However, when he ran into Mic two days later, he was excited and asked him what he was going to do with all the money. Mike smiled back at him and told him he spent it. Then he got really excited and asked him what he bought, to which Mike said nothing. Mic got concerned and asked him what happened. He said he would pay it off nine more houses and was officially out of the rat race. He was financially free. He went off on a tangent, and once again his face wadded off like that piece of tin foil. Using the most disgusted voice he ever heard, and he said he didn’t remember what seminar it was that they went to that taught you to take your hard-earned, after-tax dollars and pay off single-digit, fixed-rate, amortizing, positive cash flow, rent house mortgages.
After this, Mike walked around for two days studying his shoelaces, thinking he let it slip through his fingers and he blew it. When Saturday morning came, he was supposed to be working. He had plans, and it was raining, coming down sideways, and he just realized he was out of the rat race and did not want to do anything he did not have to do for the most part. He was happy to have paid them off. Since then, he tells people he has paid off lots and lots more houses; he just doesn’t tell Mic because of their different philosophies. Mike does give Mic credit for paying off a boatload of his houses at his age. He has played the leverage game, but Mike said he would be willing to bet that he still has some loans out there because the thought of Mick being unleveraged would just be too much for him to handle. He’s done so well with it over the years that it’s a part of him.
You have to be a little competitive, so when Mike mentioned “free and clear,” he thought if Mike could do it, maybe he could do. If you get enough of them, then you have the choices and it becomes a game. Mike loves being a real estate entrepreneur, and he plays a game every single month. He wins no matter what because the game he plays is, as an entrepreneur, can he out-earn the net rents he brings in? Sometimes they do, but quite often he doesn’t, and he thinks it’s all good and ends up in the same place. However, he is competing against the inanimate objects and asks himself if he can do better than the objects. It’s a little bit humbling sometimes when he doesn’t, but he is glad they are in his world. It’s funny that he is competing against himself.
There is a lot of satisfaction when he outearns the rents. The next thing after that is what house he can pay off. At one of their lunches, Bruce asked him what the one thing is that’s non-negotiable in his day. He thought it over for a day or so before he responded. At first, he was spouting off stuff and saying if you write a big enough check you can buy several different things. Pretty soon, he realizes the better part of his day was for sale if you really wanted it and were willing to pay for it. However, the one thing he will not compromise on is his reading. He reads for an hour a day, and the biggest game-changer was seeking the alternative thought processes that are out there versus the script of life that we are taught in school. This includes going to school, getting a job or going to school and then to college and get a better job. You then work until you’re 65, get a gold watch and a frozen turkey, and about half the pay.
Since then, he has been in search of alternative thought processes and came across some great minds to where he thought he was glad he didn’t have to figure this out by trial and error. He is an avid reader. It’s a lot of self-improvement, a lot of real estate, and an occasional biography with very little mixes in it if any at all. It reminded Bruce of the time someone was in his car going through his tapes and CDs and wondering why he did not have any music in there. Mike does have one mixed CD that his daughter made him that’s in his truck, but it’s in a stack of about 40 that you’re going to have to sift and sort through to find it. There’s probably 39-40 CDs in his truck, and it’s all educational.
Mike Cantu has a morning ritual. The bed doesn’t get made until right before he gets in the shower, so it goes for about 45 minutes to an hour unmade before he leaves the house. One of the things his dad said was you accomplish something by making your bed. Start the day off with an accomplishment, and build on it from there. He has tried most of his adult life to be an early morning person; and unless he goes to bed while the sun’s still up, that’s not going to happen. He typically gets in bed between 11:00 and midnight, closer to midnight. Probably four or five nights a week his watch will beat midnight. That’s when he realizes it’s time to throw in the towel and call it a day. He gets up by seven o’clock every day. He goes through a metamorphosis from a waste of skin into a human being, and it takes about an hour to an hour and a half from start to finish but. He will wake up at 7:00, make a pot of coffee, walk out the long curvy driveway, get two newspapers, come back, make a cup of coffee, and start reading the paper. Then he ends up writing in his journal.
That hour of reading every day rarely gets all connected to one hour. There is a cooking timer on his kitchen table that is always set at 60, and he just hits GO and reads. If he gets interrupted, like if the phone rings, and he hasn’t blocked out the time for specific reading, he uses the cooking timer. He finished his reading the day prior to the radio show at around 6:30 in the evening. It started in the morning, and he got his hour in and by the time the day was over, so it wasn’t the full hour in the morning. He always writes in his journal a page or two to reflect on life, good or bad, what his feelings and thoughts, and he does this every day. He might miss one or two days a week, but typically he gets at least five days a week in his journal. He has done this for years and years. He tries to do a whole page. He is grateful for many things, and he usually recaps at the end all the gratitude that he has for everything in his world. It’s an amazing and beneficial ritual. It’s not rocket science, but it’s probably the basis of a lot of his success to having thought so carefully about how to spend his day.
Mike said his least favorite part is the exercising, but that’s mandatory. It goes back to the little disciplines, it is easy or not easy to do. A lot of what he does is easy to do, but the exercise part isn’t all that easy and what he struggles with. However, he makes it a point every day get in his exercise. He would also love to meditate, although he’s only good for 10 to 15 minutes. He has tried that in the morning, but he finds that in the afternoon if he’s having a rough day, around 3 or 4:00 he will come home and spend 10 or 15 minutes meditating just to clear it all out. It’s almost like he is regathering himself back together, putting it back together for the second shift. That does wonders for him too. He spends fifteen minutes of silence, although he does not get in the lotus position. It’s more Indian style.
Bruce next asked Mike if he still has a goal list. His friend Dante had asked him a similar question regarding how many lists he had. Mike said his wife is a list, and he has lists to manage his lists. If he can’t check stuff off and make reasonable and measurable progress and time, then he has to ask himself what he is doing with his days. The lists help with that. Nothing excites him more than running along through something that he set out to accomplish or get done. That morning, he went through his daily and weekly job list to get done this week. Although he didn’t get everything done, he scratched off a lot of things. From there, he went into his goal book. Every day, he spends somewhere between five and 15 minutes in his goal book looking at pictures and updating it. It makes him think about what he wants to do with the rest of his life. What does he want to be, do have, and see, and he gives this conscious thought.
He gets lots of opportunities brought to him, and some of them are pretty lucrative sounding or looking. The first question he asks himself is how this affects his day to day reality. What’s involved to him? Does he have to come back here and be involved on a daily basis? Who is he involved with? These are the questions he runs by himself. It’s not about how much money he can make. It’s what else is involved with his time, whether he will get frustrated, and if he has to do traffic to get there. These and lots of other questions are important to him at this point in his life. It’s the quality of his days, how he spends them, and what he wants to accomplish. He puts a lot of thought into this.
A lot of this came into play when the Crash happened. Since he had been affected by the 90s downturn, he was aware that after 2006 or 2007, things could get pretty ugly. Yet, he decided to keep all of his rental houses. He remembered thinking the only way that he did that was he had written a job description on those files. He didn’t see a reason to change the job description, which Bruce found fascinating. Mike said if they have a food house, the last thing he wants to do is sell that place. He would get skinny really quick. If he gets rid of the gas house, he is not driving very far. It didn’t matter to him whether it went up or down. What mattered is that it kept sending him a check every month.
However, Mike said the whole rental portfolio was based on cash flow. That was his vision. He tells people there was a very interesting byproduct of the cashflow that happened, and that was millions and millions of dollars of equity fell out of the sky and landed on the warehouses, but it didn’t change the cash flow part of it. Mike remembered talking to Bruce at the beginning of the downturn, and Bruce asked him if he was going to sell. He explained to him how almost 30 years of his life was getting that portfolio together, how it was the best of the best, and he would have to pay 15 percent capital gains tax at a time I think it was 10 percent state tax. He was going to have recapture on depreciation. When all the dust settled, he was going to end up with $.60 on the dollar. To break even and get back in on the game, he would have to buy in at $.60 on the dollar just to get back to the same place. He thought, “why not just sweep this whole pile off the table and start over with a new pile.” This is exactly what he did. Millions of dollars of his equity grew wings and flew away, but the cash flow didn’t change. During that downturn, rents didn’t skip a beat. They came in and kept him very comfortable. In the last several years, he watched every bit of that equity and then some return. That still doesn’t change anything because the intent was never to harvest the equity. It was to be free with the cashflow.
Bruce remembered one time they were having lunch together, and they were both eating with people who had quite different experiences. They had a lot of leverage or they had lost a lot of their belongings. They hadn’t expected a downturn. With everything that was going on, Mike’s first thought was what to have for lunch. It was their reality. They had to escape that because they had prepared to not be affected by it. In fact, they were prepared to take advantage of it. Mike was very aware of where they were headed, looking at it, and wondering if there was anything else to get rid of. Mike used to get frustrated in 2004, 2005, and 2006 when things were going up by the hour. You had to look at your watch to see what the value of a property was. Mike would start his day opening file cabinets and going through the folders, seeing what was there, shutting that one, and opening the next one. On top of that, there was nothing to sell that he wanted to get rid of.
Early on, John Schaub said every year you get rid of your worst property, take it out to pasture and shoot it, and replace it with a better one. Eventually, you will have no junk. This was one of the best lessons Mike heard. It dawned on him somewhere around 2004 how this had come true. He had no junk or anything he wanted to sell, and he has sold very little of it since then. He has even replaced some of it with the better property. In a recent lecture, Mike talked about how he has flipped mostly wholesale properties, but he has plowed through over 1,500 houses in 38 years. In looking at the pile of houses that he kept, the value of them is worth more than all of the dollars he made flipping and wholesaling combined by far. The moral of the story is you can get rich flipping houses, but you can create some tremendous wealth by keeping them.
There was a project that Mike either walked by or rode his bike by every day. The project had to do with something that went wrong with land. Mike said to himself how somebody needed to do something about that. Mike said it was right down the street from his place in Huntington. He would walk or ride his bike down Huntington Street two blocks to get to the beach. He had to go past this huge hole in the ground that was a development project that was started in the early 2000s, and it was going to be a huge townhouse and commercial project. It is now known as Pacific City. Then, it was just a big hole in the ground fenced off and he would go down Huntington Street on his way to the beach and come up First Street the other side on his way back. That was just the route he always took. Every time he would say somebody needed to do something with this. Sure enough, in 2012 somebody did. It was a guy a year younger than Mike. The banks were already into this project – $880 million. This hurt, so he discounted everything.
A guy a year younger than Mike bought the property in 2002 for $80 million. Mike was shocked when he read the article. Then, it said six months later he flipped it for $135 million to a guy that was a year older than Mike. The first guy was a year younger, the second was a year older. They both had investment groups, and Mike was shocked that he made $55 million. The guy who paid $135 for it broke it into the three original pieces and sold them off to the three developers for $400 million. To this day, that article really stings when he goes there because when he told on of his friends that story, he said he had the money to do that. There’s still opportunity we could be walking by every day. Mike has thought of that for years and years and has watched the rebar get all rusty and turn into a war zone looking place. There was some serious money harvested from that, and Mike knew better.
Bruce ended by asking Mike who his biggest influence is as far as a teacher in real estate. He said one was Jack Miller, who is no longer with us. Jack influenced him more than anybody by far. He followed him around the United States for over 20 years, and he remembers the day passed away. He took the afternoon off, went into his office, counted about 56 manuals from seminars he had been to, other 40-50 booklets that he had written, and he learned so much from him and more. It was not only the techniques, but it was also the attitudes that went with it.
Then, there was John Schaub, whom Mike has written and studied everything he has taught. He also loved learning from Pete Fortunato and Bruce Norris himself. It is a small group that has had a major influence on him. But, Jack was head and shoulders above everybody. Mic was another who was a great teacher for a one-on-one. Now that Mike has gotten into public speaking; and Bruce said when he speaks there’s more information per minute from him than anybody he has ever heard. It’s an accumulation of his constant education. Bruce said this has always been amazing to him. Interestingly, Mike had just gotten a call asking if he wanted to sign up and get the discount to John Schaub and Peter Fortunato’s class in the fall. He said absolutely and he would not miss it. Bruce jokingly said he would go with him to get the 50% discount with AAA and timeshare the chair.
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.