Posted on: March 01, 2021
WI 634 | Real Estate Lessons

 

This episode is the first part of the two-part series that talks about lessons from the legend, Mike Cantu, on becoming a Million Dollar Real Estate Investor.  He is behind Lauren Hardy’s explosive success in real estate.

Mike is a full-time Real Estate Investor and Real Estate Entrepreneur for 39 years and runs a buy or sell operation in Southern California, wholesales properties, and manages a rental house portfolio. He is the author of the first piece of real estate education for Lauren entitled Don’t Get Voted Off Real Estate Island, released in early 2009. He also offered a course that covers everything you want to know about real estate.

In this episode, Mike Cantu will dig deep into the topic to let listeners learn the strategies on how to get started with real estate when you are dead-busted-broke — starting with nothing from nothing. He will share his views on building a massive rental portfolio to become a million-dollar investor. Along with the topic, he will also share how to adapt to any market and still make money.

This series is a big one in getting investors going towards being a millionaire! Start learning the lessons here! Listen to this episode, and be sure to take notes on the valuable inputs from the legend!

Lessons From A Legend – How To Become A Million Dollar Real Estate Investor With Mike Cantu – Part 1

Episode Transcription

Before we get in this episode, which is a doozy, I might add, I need your help. We work very hard to make this the number one real estate wholesaling show out there and we don’t hold anything back. In fact, we give away more content on this free show than what many other people out there are charging thousands of dollars for in the form of courses and programs. That’s something we’re proud of because we know that there are people who follow the show, take what we are sharing and are making money with the information that we give away here.

The show is free of ads. We don’t want to bombard you with a bunch of ads like so many others out there. Think about how many times have you tuned into a podcast and listened to six minutes of ads? I hate that. We hate that. What we’re asking is that if you have gotten value from this show, please be a go-giver and share the show with anyone that you know who can benefit from this information. I’m sure there are probably at least five people you’re thinking of who you can share this with. Be a go-giver and spread the word for us.

If you haven’t by now, please go and leave us a rating and review. We have tens of thousands of followers. We’ve only got 1,200 reviews or something like that, so what are you waiting for? Leave us a rating and review if you have gotten some value from this show. That helps the show get in front of more people and it helps with the algorithms too.

In this episode, which is part 1 of a 2-part series, Lauren speaks with one of her original mentors, real estate investing legend, Mike Cantu. Mike is one of the primary reasons behind Lauren’s explosive success in real estate. They go deep on this episode. Here’s what to expect from this series. You’re going to learn how to get started when you are dead-busted broke. Mike shares some incredible strategies from starting from nothing with nothing. You’re not going to want to miss what he has to say about this.

He’s also going to share the secret to building up a massive rental portfolio and becoming a million-dollar real estate investor. He also shares how to survive a real estate crash and adapt in any market and still make money. This is an incredible episode that is going to blow your mind. Sit back and be sure to take good notes on this one because I have a feeling you’ll be going back to those notes often. Enjoy.

This is a huge day in my life and career because I am interviewing someone who has made such a huge impact on my career. This guy is my number one mentor. Even though he didn’t know me, I knew him. He is the author of the first piece of real estate education I ever got my hands on. He had a course called Don’t Get Voted Off Real Estate Island. Right, Mike?

That’s it. That was my big gift back to the real estate world.

It was the first piece of real estate education I got into before I had flipped a single home or even knew what house flipping was. Someone had given me this course in a binder. It had a bunch of CDs with Mike Cantu’s legendary voice on it. This binder full of CDs taught me everything I needed to know about real estate. It covered everything. I am so excited to introduce Mike Cantu of Southern California. He’s a legend with years of real estate experience. Mike, welcome to the show.

Thanks for having me.

I am so excited to have you. I need to take everyone back to how I ended up getting in touch with you. I had always wanted to get in touch with you. This was a dream of mine that I could talk to the man who taught me this business one day. I remember I saw you one time at a real estate investment association that you spoke at. I was too nervous to go up to you and tell you. I was so chickened and starstruck. I was like, “I can’t do this.”

WI 634 | Real Estate Lessons

Real Estate Lessons: Don’t ever bet more than 10% of the farm on any one venture.

 

I’m humored by that, Lauren, because I am such a normal person.

I’ve learned that but I was so intimidated, so I missed my opportunity then. Fast forward maybe six years, I’m hosting a show with Wholesaling Inc. I’ve done some cool things in this space. I got in touch with Aaron and Bruce Norris. I thought, “I know they know Mike. I’m going to try something out and go out on a limb.” I typed up a nice email that buttered you up so bad that you would have looked like a total jerk if you said no to being interviewed on this show. Here you are. It turned out that you are a very cool guy, so I’m so excited to have you. Mike, let’s get into the questions because a lot of people probably don’t know who you are because this is a national platform but in Southern California, you’re well known. You’re a legend here.

Lauren, that was never my intention. I’m always enjoying doing what I do, keeping a low profile, and somewhere along the line, I got exposed. It was part Jack Miller, part Bruce Norris and next thing you know, I found myself up on a stage teaching people and I thought, “How did this happen?” I’m thrilled to do it but that was never in my plans.

It’s because you have the most down-to-earth relatable story, so I’m going to get right into it. How did you get started in real estate?

I watched a late-night infomercial. It was a guy sitting on a surfboard in San Diego and I recognized Pacific Beach in the background. My good friend, Chuck, lived in Pacific Beach and I thought, “I know that street.” I’m listening to the guy’s story and he said, “A year ago, I was a broke loser surfer guy and a year later, I was a millionaire.” It got my attention and it was late at night, so I believed every single word of it. It was a pitch for a two-day class that I had to go.

My roommate watched it with me and sure enough, that weekend, we showed up. It was $395 or $495 and we did not have the money. We talked our way into the class. First, we asked for a good student discount. We’re both community college C+ students at best. We asked for a AAA discount and a corporate discount. When we got all of the discounts, we’re down to $300 and we said, “Now there are two of us.”

I said we would sit in the back row. We would take turns using the chair. We would timeshare it. We only needed one manual and we would pretend we were one person there. Our final cost was about $300. We spent the weekend learning 101 ways to buy a property with no money down. I remember on the way home, I asked my roommate, “Chuck, any idea what that mortgage thing they talked about all weekend was?” He looked at me and said, “I haven’t the slightest idea.” We learned 101 ways to buy with no money down but we didn’t know what a mortgage was.

That started my obsession with real estate education and information. Right after that, I went to community college at night and signed up for real estate principles. I remember I read the book in two weeks and finished it, re-read it, underlined it, marked it up, wrote down all the important words and then I ended up taking the rest of the real estate classes over the next couple of years. I also bought every book that I could get at the bookstore. I knew that this was the path to the promised land. I believed every bit of the seminar and the infomercial. I was the bubbling optimist and it all worked out great.

You say that it all worked out great but it wasn’t always sunshine and roses. You get started. What were you doing at the time? Weren’t you a professional skateboarder?

Yes. From the time I was 16 to 21, I was a professional skateboarder on the Pepsi Skateboard Team. It was what I did for a living seven days a week. During the week, it was junior high and elementary schools. On the weekend, it was car shows, halftime shows, whatever they had scheduled. I loved every minute of it. I earned a living doing what I was so passionate about.

Real estate is the path to the promised land.

You are somebody who had no experience in real estate at all. It wasn’t like you were given your family’s rental portfolio or something. I had no industry, didn’t even know what a mortgage was and then you got into real estate. Let’s talk about your first experiences. How did the first ten years go for you in your career?

It was rough. I was looking to find my way. I tried lots of stuff. I had a great partner, Mick Blackwell. I had done some construction work for him when I was younger in the summertime. Mick was a buy and keep guy and a builder. I went to work for him but that didn’t last long. I ran into him again and he asked me what I was up to. I said, “I was in real estate.” We had an interesting conversation and sure enough, he said, “If you find a good deal, give me a call. I’ve got some money.”

The next day, I called him and we went to a trustee sale. We bought a property. We paid $16,000 for it and we were in business off and running. I was still renting a bedroom in a house, $150 for the rent with the utilities and everything. I started collecting rental properties. I couldn’t afford to live in any of them but they cashflowed. I was up to nine rental houses before I moved out of that bedroom that had a desk in it and had a bed. That was my world in there.

You started buying rentals with Mick. What year is this?

1982.

Things were looking good for a while but was it always good?

Mick had lots of cashflow. He had fifteen fourplexes and about 50 houses. He was a builder and he also did copper re-pipes. He was a plumber. Mick had money coming in from everywhere. I asked him about his apartments. He said he made $989. I said, “That’s a lot of work you do for that little bit of money every month.” He said, “No, that’s every day.” He was making $1,000 a day. He also built spec homes and I asked lots of questions about the spec homes. He’d do 1 to 4 at a time and I figured out he was making $1,000 a day doing that.

When we did the plumbing re-pipes, he always started early in the morning and never went past noon. He was always done and would go to lunch. I asked him how much he was making doing copper re-pipes. He said about $1,000 a day. I realized Mick was making about $3,000 a day. In simple math, he was making $1 million a year. I thought, “I need to pay attention to what this guy is doing.” My challenge was I didn’t have the cashflow. I had to eat and pay my bills. I was having to carry my own weight with Mick. He never once donated $1 to my cause, so I knew I had to be an asset.

I would talk him into selling something and he would usually buy my half of it. It always hurt when he would say, “I’ll buy your half. I’ll give you a small check for a big piece of your future.” It’s done when he said that but I thought, “Now that I’ve got some gas money and grocery money, I can show on the road here.” Eventually, I got Mick to flip more properties. For years, I would wholesale Mick two houses a month that one would keep as a rental and one, he would fix and flip to pay for the rental property for the fix-up and whatever else he got into it.

WI 634 | Real Estate Lessons

Real Estate Lessons: If you know you could sell them on, take it.

 

Every year, I’d check in with him and make sure he was still on board for two houses a month. That program worked for years and years. We ended up with a bunch of houses together. We started building houses and then we started developing land. Things were going great until about 1989, when the economy dropped off a cliff. That started the roughest eighteen months of my life.

Tell us about the roughest eighteen months of your life. What happened?

We had lots going on. Besides the rental stuff, the fix and flip, we had half a dozen spec homes under construction. I used to do lots of splits up in the high desert. I’d build on these 2.5-acre parcels but would start with a 10 acre or a 5 acre and split in 1/2 or into 1/4 and build out the lots. I had about a dozen lot splits going but I also had a 160-acre subdivision. It was 54 2.5 acre lots. I had two condo projects in West LA. They were four stories, subterranean parking. One was a 7-unit and one was 11-unit. I had lots going on.

Everything dropped off of the cliff and nothing. That was 1989. The economy came screeching to a halt. I looked at the mess that I had going on. I never thought of it as a mess until then. I did some simple math. I looked at my bank account and my daily outgo and I realized I had about 2 months, 1 week, 2 days and 4 hours until I had to file bankruptcy. I thought, “We’ve got to turn this thing around.”

It took eighteen months. I got out of all of the projects, finished everything, traded off most of the stuff to get out from under the debt and got creative doing it. I ran an ad in the LA Times for a year that said, “Custom home lots. We’ll trade for anything of value.” They had debt on them. I had a release clause where I can release the lots and pass the debt on. I traded for one thing after another. Some of the weird stuff I got was a 40-foot Winnebago that had a slipping transmission and I got a six-seater Cessna airplane with a bad engine. I sold that to the mechanic at the airport.

I would make deals to get rid of all of the stuff I took in trade before I accepted it. My plan was I would take anything that I could convert to cash. I’d get rid of the real estate, lots of cars, lots of trucks and a lot of strange stuff like mobile homes. Anything I could convert to cash, I would trade a vacant lot for. Eighteen months later, I looked back and I thought, “It’s all cleaned up.” I was not the same person I was eighteen months prior. I learned more lessons, Lauren, during that eighteen-month period that still governs how I run my business.

I made lots of rules out of that. I realized, “You never bet more than 10% of the firm on any one venture.” There was a point when I figured out that I was running about $3,000 a day in interest costs. With just holding costs, the big development loans have built an interest reserve but it was still accumulating. It would cost me $1,500 per foot to get out of bed in the morning, $3,000 in accumulated interest. I thought, “This isn’t how I thought things were going to be. I’ve got to turn this around.” That was the end result. I did get out of it and ended up with some good houses. It was the rental houses I had acquired early on. Had I not had those, it would have been uglier than it was.

To help me even understand what you did, you had many development projects that you had financed. You had a bunch of construction loans out there and you had debts to pay but real estate didn’t have that value that it did before the economy took a dump. All of a sudden, real estate is worthless. It’s not cool to be hanging on to these lots. You traded those lots along with the debt that you had for other items that you could sell, like a plane and a Winnebago. Didn’t you have a boat?

There were a couple of boats on there. They were small boats but if I knew I could sell them, I’d take it.

You could sell a boat but not real estate at that time?

Exactly. You couldn’t give the real estate away.

Nobody wanted real estate. Real estate wasn’t cool.

When a guy is making a million dollars a year, you need to pay attention.

I wrote a few checks to get rid of the last few where it came down to it and I thought, “I’m almost there.” I had offered some of the lots to take over my debt and it was Blackwell on the last two of them. I said, “Mick, would you give me $1,000, please and take over the debt?” He said, “No.” I said, “It’s your lucky day. I have a gift for you. These lots.” He said, “I don’t want them.”

I ended up writing them a check for $2,000 per lot to get rid of the last few lots and then Mick hung onto those lots, so he ended up with four of them. It was a very small debt, less than $30,000. He hung onto those for a long time. I know that when he went to sell, he sold them for $250,000, $275,000, $300,000 and $320,000. He made $1 million off those last four lots that I sold him.

Isn’t that crazy to think? Help people who are reading put this in perspective for them because many of our readers are quite new. They may have less than a year of experience or they’re just getting into wholesaling, real estate or house flipping. We’re at a completely opposite time. We are at a time where everybody wants real estate. There’s a shortage of inventory and real estate is so hot so it’s hard for people to conceptualize this. Try to explain it so they understand that this is a cyclical thing. We run in cycles in our business.

Everything runs in cycles. I’ve always heard seven good years are followed by seven lean years. Looking back, the cycle is about seven years each way. I’ve seen it go as far as ten years and as short as five years. Everything cycles and I’ve been through three recessions. During the first downturn, I learned that the first ten years saved me for the 2nd and 3rd recessions that I went through, where I’ve always played a conservative game after that.

I watched a lot of friends do a lot of big things and then when the downturn comes, a lot of people get rinsed out of the marketplace and they go figure out something else to earn a living. I could never imagine doing that. All I ever wanted out of real estate was enough income coming in to where I didn’t have to go answer to somebody at a job. I had never been afraid of working but all I’ve ever wanted was to wake up and do whatever I want to do. Monday through Friday, that was always work-related but it was my schedule and my plans. I figured if I pulled it off, that would be great. If I went down in a flaming ball, that was my doing, so it’s all worked out.

What is the conservative game? From what you had learned, what would you have changed? What did you learn from that? Give us some tips.

Keep the good stuff. I have a theory, my parts and tools theory. I’ll explain that. The parts are what you keep to assemble your retirement. The A neighborhood rentals, the good stuff, the stuff that when you look at it, you know you’re supposed to keep it. The tools are everything else, all other real estates. It can be a wholesale deal, a retail fix and flip, a short-term rental or a long-term rental that you’re growing up in value amortizing down the debt but the tool’s job is to eventually be harvested and pay off the debt on the porch.

What I wanted were ten free and clear houses. After I went through the first ten years, I became obsessed with real estate education every day. I got the ten free and clear houses. I was so disappointed over what that income would not buy me. I’ve always said, “I can screw up anything. Any real estate deal, bring it to me and I’ll show you 60 ways to screw it up in ten minutes.” I figure I’d better get some spare sets of ten. That has been my passion.

First and foremost, I’m a landlord. I love the landlord business. As long as you have the right inventory, you’ve got to have good houses in good neighborhoods that if you’re in the wrong neighborhood, best case scenario is you’re going to get the cream of the crop. You want good long-term tenants. I love a two-car garage and a good school district. Once you get good people in, they fill up the garage with their stuff and they get the kids in the school district. They stay for a long time.

WI 634 | Real Estate Lessons

Real Estate Lessons: Mike’s Parts and Tools Theory: The parts are what you keep to assemble your retirement; the tools are everything you’re growing in value. The tools’ job is to eventually be harvested and pay off the debt on the parts.

 

I’ve got lots of tenants that have been with me for over ten years. I’ve got several that are past the twenty-year mark. I have houses that I bought years ago that came with long-term tenants. I’ve got one house in Claremont. I bought it in the year 2000. A couple had been tenants in that house for years. The man passed away a few years ago but the lady is still there.

I’ve got several other ones not quite as long as that mark but I’ve got another one in Montclair that I also bought in the year 2000. Sherry was a tenant for fifteen years before I bought it and she’s still my tenant. A good house in a good neighborhood has been the key and then removing the debt. When I taught my daughter years ago in the business, I explained to her that we play multiple games with these houses. One, we’re trying to get the best of the best paid off. There’s another pile that we’re going to leverage, that we’re going to borrow private money and we’re going to hang on to them. The third pile is the fix and flip or the wholesale stuff. We play multiple games.

As a real estate entrepreneur, every month, my goal is to outearn my net rents. Quite often, I come up short. Most of the time I do but it all ends up in the same place. I’m always amazed at how these houses can outperform me even at everything I got Monday through Friday. The best advice I could give anybody in real estate is keep the good stuff with the goal of getting it debt-free.

I like souvenirs. When I go somewhere, I like to get a souvenir to remind me I’m drinking out of a coffee mug from Tampa, Florida. That was from a Jack Miller seminar. I like a free and clear house for every year that I’ve been in business, a good house and that is the souvenir. I ask my friends, “Where are your 1993 earnings?” They look at me like I’m from another planet. If anyone were to ask me that, I would jump in my truck and drive them over to a house and say, “Most of what I earned that year went into getting this house paid for. Here it is and it’s paid me back many times in the rent than what I paid for it.”

Explain to us how you can use wholesaling to get to the goal of a free and clear house.

First of all, I wholesaled because I needed a regular income. When I realized I can do it over and over again, I thought, “I’m onto something here.” I always have house of the month, house of the year, my target house, whether it’s retail money going into it from a retail fix and flip or wholesale money, depending on who the lender is. If I took over a loan or if it’s a bank loan, you can pay that down. If it’s private lenders, I always have the conversation about the amount of money in chunks they are comfortable with. Whether it’s $50,000 at a time, I would keep saving the money until I have that chunk available and pay for it.

Back in 2002, Mick sold his apartments, these fifteen fourplexes. I remember he came to me and said, “I need twenty houses from my exchange.” I went through everything I had and I was only willing to get rid of ten that met his criteria. I offered up ten. We settled at fourteen. I remember when I got escrow closed on those fourteen houses. I was a tiny bit south of $1 million net. I knew exactly what was going to happen.

I remember a couple of days later, when I ran into Mick, he was all excited and said, “What are you going to do with all that money?” I said, “I already spent it.” He got even more excited and said, “What’d you buy?” I said, “Nothing.” He got concerned and said, “What happened?” I said, “I paid off nine more houses.” I remember the look on his face. His face started winding up like a piece of tinfoil.

With the most disgusting tone of voice I’d ever heard, he said, “What seminar was it that you went to that taught you to take your hard-earned after-tax dollars and pay off single-digit fixed rates, amortizing positive cashflow rent house mortgages? Can you refresh my memory?” That one hurt. I remember I walked around for two days looking at my shoelaces thinking I’ve blown it and did it again.

I remember Saturday morning, I woke up. I had a busy day. It was pouring down rain. It was coming down sideways in the bedroom window. Right then and there, I realized that I was financially free. I was out of the rat race. I never had to work another day if I didn’t want to. Given the chance, I would have done the same thing over again. After that, I paid off many more houses. I just didn’t tell Mick. It all worked out great.

Everything runs in cycles. There’s always seven good years followed by seven lean years.

That’s the different psychology. I always tell people, “In this business, you’ve got to start with what you want.” For me, it was always time freedom. That’s why I related so much to you getting your course and listening to your voice. With everything you said, I was like, “That’s me.” I never aspire to have a jet plane and have a bunch of things. I didn’t care to be overly wealthy. It was what I wanted to be able to take my kids to the park at 10:00 in the afternoon if I felt like it. I wanted time freedom, control of my time. That was it. I didn’t want anyone to own me anymore. I was tired of having a corporate job.

I listened to you and it sounded like our goals were much aligned, that idea of you can go to sleep and you don’t have to work now if you don’t feel like it because you have rental income or mailbox money coming your way. In this idea, what I’m hearing from you is I should set a goal of, “This is my goal. I’m going to have an A neighborhood house a year.” That’s so easy when you put it like that. Dummy it down for us. “I’m going to have one house, and A neighborhood home, and my goal is to flip or wholesale enough homes so I can pay down that A neighborhood home but also pays my monthly expenses.” That’s the goal.

Lauren, you nailed it. I’m going to give you an example. For a long time, I said, “If I add a new one, it’s got to be a huge upgrade. I still do lots of deals and I still get excited over a good house. I don’t need any more rentals. I’ve got to get rid of my least favorite.” I have no least favorites anymore. Those have been gone for years and it’s all good stuff. I’m always asking myself where I want to take on the management.

I bought a great A neighborhood house that I got excited over. It was a 3-bedroom, 2-bath, 1,700 square foot, single-story, built in 1978, two-car garage, and lakefront at Lake Elsinore. I thought, “I like this house. I love the view.” I said, “I can’t sell this. I’ve got to keep it. How am I going to keep it?” I borrowed private IRA money to capture the equity. Let’s say I paid $275,000. It’s a $475, 000 to $500,000 house. It needs cosmetic repairs. It’s got a new roof on it. That was a bargain in itself.

I captured a bunch of equity but I thought, “I don’t want the debt. What’s my next move? Tomorrow, I am closing escrow on a house that I’m paying for $130,000.” I figure it’s in the high 2s, low 3s and comes with a tenant. That is a tool, not a part. The first house is a part and there’s enough equity between the two deals. I’m going to wait a year to get it into the capital gains, probably sell both of those houses and pay off the first house so it’s three houses. There’s enough equity in the other two to pay off the best one and keep on going.

That’s an amazing way to look at it and it makes it seem so much easier even the new investor or even myself. When you think about it that way, you reframe your thinking. You make it seem so easy.

There are lots of ways to get stuff free and clear. My least favorite is the 360-payment route and 30 years later, you make the last payment that’s paid for. I can be very impatient on stuff like removing debt so I want it done while I’m still here and not way down the road.

That concludes part one of the series. I hope you got a tremendous amount of value from that episode. In part two, Lauren and Mike deep dive into his portfolio and he shares an incredible strategy for getting one house per year free and clear. It’s crazy, I know. We’ll see you next episode on part two of the series. See you next time.

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About Lauren Hardy

WI 734 | Cash Buyers ListLauren Hardy is a Virtual Investing expert and Real Estate influencer who owns multiple companies in the real estate industry including real estate investment, coaching, and software companies. She is also a Wholesaling Inc coach and co-host of the Wholesaling Inc Podcast.

Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community. If you are interested in investing in real estate virtually, house flipping, or virtual landlording, Lauren’s your girl.

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