Posted on: March 08, 2021
WI 639 | Million Dollar Investor

 

This episode is the second part of the two-part series that talks about lessons from the real estate investing legend, Mike Cantu on becoming a million-dollar real estate investor. Mike is a full-time real estate investor and 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 Hardy entitled Don’t Get Voted Off Real Estate Island, released in early 2009.

In this episode, Mike shares the three-step process for getting real estate deals. He also talks about how to get deals without spending a dime on marketing and breaks down his entire offer process step by step and his five-page offer letter. Finally, he shares the only marketing channel that he still uses up to this day for over 45 years now.

You are a step closer to being a millionaire! Complete your lessons from the legend himself! Listen and enjoy!

 

Lessons from a Legend – How to Become a Million Dollar Real Estate Investor – Part 2

Episode Transcription

Welcome to part two of Lauren’s interview with legendary real estate investor, Mike Cantu. If you haven’t read part one yet, go back and do that right now. In part two of this episode that you’re about to read, Mike shares his exact three-step process for getting real estate deals and talks about how to get deals without spending a dime on marketing. He also breaks down his entire offer process step by step and talks about his five-page offer letter. Not only that, but he also talks about the one and only marketing channel that he does still use now. He has been using the same marketing channel for over 25 years. He goes into all of that and why he still uses this channel. You’re going to love this. Enjoy.

How many rentals do you have right now? What’s your real estate portfolio look like?

It’s 40-some odd houses, all great neighborhoods, Southern California, paid for stuff.

Southern California is a good note. This isn’t your Midwest $50,000 home. These are high-end expensive houses. You own a couple of duplexes in Huntington Beach.

Right downtown, right in the middle of everything, that’s my weekend spot. Double lot was one of my best real estate deals ever. I’ve got another little house on the north side of the pier. I love Downtown Huntington and I spend a good chunk of my life there.

One thing for you guys to remember, when you have that idea of one house a year free and clear, that doesn’t mean that you’re just going to do one house a year free and clear. You might come up with other deals.

In order to get a house free and clear in a year, you’ve got to do lots of stuff to generate money to get the debt removed.

Everybody thinks that they need to use technology and you have to use all the things. There are so many technological platforms being offered and thrown at new investors and new wholesalers. How do you run your business? You can’t even send a text message.

Lauren, I have never sent an email. I get them every day, all day. My secretary, Kim, prints out what she thinks is important and puts a stack on my desk. I sort them over to the trash can. What’s left, I handwrite on them and I slide back to her. I ask people all the time, “What do you need to make a real estate deal?” Quite often, people throw out the word computer. I do not have a computer on my desk in my office. Kim has two of them and I’m not allowed to touch either one. I have no idea what’s going on there. I do have a computer at home that I Google stuff from and I drive the Google car around, but I don’t do text messages, emails or computers. My MO is a telephone, a yellow pad and a pen. That’s how I’ve always operated.

I tell people, “There are three things you need to do to make a real estate deal. Three things involved, two humans and one piece of property. That’s it. Also, a meaningful dialogue with the person that has what you want. That’s what it boils down to.” I’ve always said, “The only thing standing between you and everything on this planet that you’ve ever wanted is a meaningful dialogue with the person that has what you want.”

It’s the what and the who, not just the what, which really helps. Once again, that’s back to the marketing.

I go after the people that have what I want. The goal is to have a meaningful dialogue. I do lots of direct mail. Calls come in, Kim sifts and sorts the calls. She answers them, not me. I don’t take seller calls anymore. She puts together a nice package for me, a profile, the comps and her opinion of value. She does a great job on it. I call the sellers back to try and have that dialogue and make a deal.

During the conversation, I hardly ever make a verbal offer. I am there on a fact-finding mission. I want to get all the information I can and tell them, “I will digest it. I’ll do my homework and I’ll get back with you either this afternoon or tomorrow morning.” I always put my offers in writing. There are four pages. I start with four blank sheets of paper. I have a cover letter reiterating what my original mail piece said, what I was out to accomplish, and a little bit about our conversation.

The next page is an estimate of the fix-up on the property. The third page is how I arrived at my offer price showing them everything. Starting at one number, deducting what they’d pay if they sold it through a realtor, deducting the fix-up, down to my margin, explaining what my margin covers, and down to the net cash to them price.

The fourth page is an offer. If it’s an occupied house, there are seven items. If it’s a vacant house, there are five items. I send that out in a two-day Priority Mail envelope. I don’t use just one stamp on it. We make a collage and use up about 1/4 of the envelope that looks like you put a lot of money on that envelope when I’m serious. My offer is in writing.

If I don’t hear back from them within a week or so, I usually send out a follow-up before I call them. It’s the same Priority Mail envelope, a short cover letter that says, “I didn’t hear back from you in regards to the proposal or the offer that I made on your property,” of whatever address. The second page is almost all blank but it says, “The net cash to me price for the above-referenced property that I will accept is,” and it’s their chance to make me a counteroffer.

The first time I sent that out, Lauren, I thought I had made a deal on two houses. The guy just went dark on me and I couldn’t find him. He wouldn’t take my calls so I sent the follow-up. I was $2,000 away on one property and $3,000 away on the other. $5,000 between the two houses. It was well over $100,000 in equity and I thought there’s something to this follow-up. I make an offer, and then I follow up. I also put a self-addressed stamped envelope in the follow-up package so all they have to do is write a number, sign their name, and stick it in the mail. If I don’t hear from them, then I will attempt to get them on the phone.

How do those conversations go? A lot of students that I have delivered what they call a low-ball offer and the seller is like, “No.” The seller always says no at first. How many times was the seller ever say, “Yeah,” to your first offer?

Before I started putting the how I arrived at my offer price page in there, I got kicked around good. I tell people, “If they’re having a problem with my proposal, can you go grab the page how I arrived at my offer price, help me out here, and show me where I went wrong?” People love to help people. I said, “Start it at this value. Are we close here? Did I mess that up?” I said, “My supporting data tells me that this should be about where we started, then when we deduct the fix-up, sometimes I get static on the fix-up.” More than once I’ve said, “If I stole the materials and did the work myself, I could probably bring it in a bit cheaper but that’s not how I operate.”

We go over the breakdown of the line items I had in there. Normally, I’m not in the house. I’m always at the bottom of the fix-up page so I’m guessing any inside work to be done. Anything that I budgeted for that doesn’t need to be done can be added to the purchase price. That never happens. Once or twice, I’ve added air conditioning and they said, “No, we have new central heat and air. Scratch that one,” and the numbers still work.

WI 639 | Million Dollar Investor

Million Dollar Investor: There are only two kinds of houses: the owner-occupied and the non-owner-occupied.

 

Occasionally, you get beat up but not so much. It’s the tone and the rapport with the seller. Usually, in the first conversation with them, I always ask the seller, “What do you want to see happen? Paint a picture for me.” Quite often, they do and I know which direction I’m going. Sometimes they just give a ridiculous number. They paint the wrong picture, and then I’ll ask them politely, “What’s your second choice?” I try and keep them engaged. I throw some humor in there, but I’m not a motivated-motivated seller. Yes, I want to buy but I don’t give off those fumes. This is another prospect. It’s an opportunity. Hopefully, we can make something work out of this. I always ask them, “What would you like to see happen?” That happens early on.

The first question I ask is, “Is there any interest in the possibility of selling this property? Let’s make sure we have a seller on the phone.” I’ve had plenty of people say, “I’m just looking to see what you had in mind and value.” They want somebody to talk to. First, I’d make sure we have a seller on the line, then I ask them what do they want to see happen. I start probing from there. I’m on a fact-finding mission to get all the info I can to present an offer that hopefully was going to work.

It sounds like you’ve built so much rapport with the seller that by the time you get to giving them an actual offer, you already know why they’re selling.

Sometimes people say, “Just make me an offer.” The grumpy old man, I get him all the time to where he says, “Just make me an offer.” “Can you tell me anything about the house? I’ve got a few questions. Is everything original or do you have any upgrades?” That’s an important one. Some people will tell me, “It’s terrible. It beats everything.” Other people think that they remodeled it fifteen years ago and it’s in perfect condition. Not all my offers work, but I put enough of them out there to keep Kim going in my office. She does my direct mail and she’s got to stay busy. We get enough deals out of the direct mail until it doesn’t work. I’ll forever be mailing. I’ve been mailing for 25-plus years.

That’s crazy to think. You were one of the OGs of the direct-to-seller game. It wasn’t as well-known because when I first got started, I remember being able to send 2,000 mail pieces and get a deal. Now you have to send a whole lot more to get a deal.

Out of my office, I do about 500 letters a month. I do letters, not postcards. I’ve been a student of marketing as long as I’ve been a student of real estate. I’m fascinated by how you can start with a blank sheet of paper, put some selected words in the right order, and get a complete stranger to respond and react to my efforts. I love the marketing part of it. I’ve studied probably as much marketing as the real estate part of it. What makes people do what they do?

You’re only sending 500 letters. You must be mailing to a very niche list.

Lauren, there are only two categories of houses. There are owner-occupied and non-owner-occupied. I don’t mail to owner-occupants. I tell people I buy houses, not homes so it’s all non-owner-occupied. From there, I have 38 niche lists in the non-owner-occupied arena. My marketing message is going to be tailored to that list. I tell people, “Not only do you need to know the what, it’s what you’re going after.” I go after a very specific property. I don’t go after new stuff. I don’t go after the big stuff. I don’t go after ghetto stuff.” I’ve always explained I skip the bottom 20% of the market and I skip the top 40% of the market. That lower-middle 40% is my sweet spot so that’s the what that I go after. Over the years, I figured out who owns that and who responds. I also go after that market. It’s the what and the who, not just the what, which helps. Once again, that’s back to the market.

Your technique is more of a sniper technique than a throw crap on the wall and sees what sticks.

It all depends, Lauren. I’ve got two programs. When I do a regular mailer, I call it blind archery. We’re shooting arrows in the sky with a blindfold hoping to hit something. That is the what that I’m going after. In other properties, I use the rifle approach. The letter is all about that specific property. I’ve been known to include pictures of that property, but it’s tailored to that property. It’s a whole different approach. We do lots of those too.

The best use of your money is investing in yourself.

One thing that’s always blown my mind about you is that you are able to convince sellers to creatively finance their homes in one of the most expensive real estate markets. It’s full of savvy sellers that don’t get themselves in situations as often as other areas of the country. How do you convince sellers to sell their homes either subject-to or straight seller financing to you in Southern California?

You used the word convince, Lauren. I don’t think I’ve ever convinced anybody of anything. I ask them, “Is it the cash that you’re motivated by? Is it the income? Are you going to miss the rental income? How is your tax situation?” We go over a variety of things, and then I throw it out there. Quite often, I’ll make a cash and a terms offer. I’m always humored when the cash price is lower. The seller calls back and says, “I’m going to accept your offer.” “Which one?” “I combined the two of them. I want the cash deal at the terms price.” Usually, that doesn’t work.

When we were talking, I told you about the property that I got zero-interest financing and it pays itself off in four years. That was the same amount in net rent the seller was getting every month. I replaced the rental income. We never talked about interest and he’s okay with it. He was motivated. He wanted out and it worked for him. I have a mobile home park in Tucson and it’s with a lifelong friend of mine. I grew up with Mark and he’s been there for over 30 years. That’s what he does. We bought a great turnaround project and the seller wanted cash. We asked him if he would take terms or if he’d take some monthly payments. We got into that conversation and it ended up where we put 1/3 down. He financed 2/3 of it at 5% interest, fixed-rate, fifteen years, no payments for the first six months.

I thought, “That was from asking him.” Our starting point was going to be $1.4 million on that park and we were going to go up to $2 million and pay cash if need be. I always ask people, “Do you have a ballpark opinion on what you think the property is worth?” I want to find out what they’re thinking. Bob came back and he said, “Somewhere between $900,000 and $1 million.” I said, “Would you split it at $950,000?” He thought about it and said, “Give me $975,000 and we have a deal.” It was $425,000 below what we were going to bring in and what we thought was our starting point low offer. I ask people what they want, what do they want to see happen, and take it from there.

How do you ask them for terms? We’re getting the hang of it. I’m trying to coach my team on asking for terms. The conversation is not as fluid as a straight cash offer. Let’s roleplay a little bit. Let’s say I’m a seller and you made me a cash offer and I said no. Now, you’re going to go into the terms.

Is there any interest in a chunk of money down with monthly payments?

What do you mean?

I give you X amount down and I pay you payments monthly until we’re paid in full. We can drag this out for a long time and you’ll get the same or close to the same or more, depending on the circumstances. You’re collecting rent without the hassle, without any part of that. It’s going to help you in your tax situation from the installment sale. You’re only taxed on your profit as it comes in rather than all at once.

What would the price be for the home? How much money am I getting?

Lauren, you’ll never get that out of me over the phone.

WI 639 | Million Dollar Investor

Million Dollar Investor: The only thing standing between you and everything you’ve ever wanted is a meaningful dialogue with the person that has what you want.

 

When they start asking for details, you stop, and then you analyze it and you do it in writing.

Yes, and I say, “I’d like to put it in writing, and then we can go over it and start modifying from there. If it doesn’t work for you as it’s written, then we’ll figure out each part of it. What do you need to see happen here to make it work?” When we’re almost there and we’re headed in the right direction, if we get hung up on something, I ask them point-blank, “Is that the only thing standing between us in doing business?” If it’s a zero-interest and they want 6%, 4%, or whatever it is, I’ll ask them, “Is that the only thing standing between us in doing business? Let’s do it.”

It sounds like at first you introduced the idea, and if you feel like you’ve dropped a line and you got a little bite, you stop the conversation, and then you do a more formal offer so now you have line items to go and pick apart.

Every seller is different. Some of them will talk about all of it, balloon payments. I’m a fan of zero interest. I don’t get it very often but I ask for it quite often. Most of the time, they come back and say, “I was thinking interest only with a balloon payment and I’m at zero interest.” I ask people all the time, “Would you split it with me?” I love splitting things. “If we’re close, let’s split it.” Usually, I follow up with, “Would you split it with me? Would that be fair?”

In the case of zero interest, “No, I want an interest-only,” I ask them, “Would you split it with me?” Meaning that half of each payment is going to be principal, and half of each payment is going to be interest. It’s going to have a different interest rate every single month because that’s a tough one to figure out. On a normal 30-year loan, it takes to year 21 on the amortization schedule before you get to the half principal, half interest payments. Let’s skip the first 21 years and jump right into that. I love half interest, half principal payment. I’ve done lots of those.

I still remember some of the little lines that you put in your course. Give us your lines for when a seller doesn’t want to sell. You gave them the cash offer and they said, “I might hold onto it.” Do you still say your skip a season?

I gave the skip a season speech. If somebody says they’re not quite ready to sell or they’re probably going to go with a realtor, that’s when I throw the skip a season in there, which I’ll share with everybody. I explain to people, “Here’s my offer. I can close on Friday or you can take the old-fashioned route and skip a season or two to get you your paycheck.” They say, “What do you mean by skip a season or two?”

First, we’ll do a best-case scenario, then a worst-case scenario. The best-case scenario is you give your tenant who has been there longer than a year a 60-day notice and they move. Now, you’ve got a vacant house, then you get the contractor in there. You get a couple of contractors and you get your estimates. If they say they can do it in 30 days and they bring it in on time and on budget, now we’re 90 days deep. You list it with a realtor and they expose it to the marketplace. You get an FHA offer and then you get the appraisal. It’s a 45-day escrow that’s going to take 60 days. Something’s going to happen.

We’re into our second season here. In the worst-case scenario, you give your tenants a 60-day notice and they don’t move. You go through an eviction that can take 3 to 6 months or longer, then you finally get possession of it. You get a contractor in there who doesn’t do what he says he’s going to do and runs off with some of your money. You get a second one in there. Two or three months later, you finally get it to the marketplace, then you list with a realtor, get it exposed to the marketplace, and get an offer immediately. You go 30 to 45 days and the deal falls apart on the two-yard line. You pick up the pieces and you do it over. I can paint a scenario well into the next year. I tell people, “That’s your scenario. If you go that route, it’s probably somewhere between the best case and the worst case. That’s skipping many seasons or you can get your check next Friday.”

With where we are right now in the market and in the economy, the skip a season speech is something we should all hone into. We’re starting to feel like we could be on a cliff. I wanted to ask you, what do you think is going on with the market? What do you think is going to happen?

Three things involved in making a real estate deal: two humans and one piece of property. That’s it.

I have been able to answer that question spot on for over 39 years. I’ve never missed it. I’ve never been wrong. I’ll tell you exactly what’s going to happen. It’s going to go up, down or stay the same, and govern yourself accordingly. One of those three scenarios will happen this 2021. My gut feeling is it’s not going to be the middle one. It’s either going to be good or the other way, not so good. We’re going to have a good 2021, but I’m the bubbling optimist and always have been. Life beats me down into becoming a realist, but I wake up every day as a bubbly optimist. I’m optimistic for 2021. I run my business so that if things go South, I’m not going to get hurt. When I retail stuff, the inventory that I’m willing to fix up and flip, plan B, “Am I willing to keep it as a rental if I can’t sell it?” That eliminates so many properties that I considered for a fix and flip that I’m like, “No, I’d never rent that.” I usually end up wholesaling those deals. If I’m not willing to keep it, I usually don’t retail it.

That’s the mentality right now that everyone should have. What is your plan B?

Plan B and plan C. When a deal comes across my desk, the first thing I immediately look at is, is this a part or is this a tool? Most of them are tools, not parts. What’s my risk exposure here? How much money can I make if I wholesale it? If I take it all the way through the fix and flip, what is the difference between my wholesale fee and my retail fee? If I can make $20,000 on a wholesale fee and $50,000 on a retail flip, the real math equation is I’m doing the flip for $30,000 because $20,000 is already mine if I wholesale it. I’m taking the distance for the extra $30,000 and then, is that worth it? Would I rather wholesale two more houses similar and make more money or do the one fix and flip? It all depends on what it is, where it is, and what I have going on.

That makes a lot of sense. Mike, you have shared so much with us. It’s been amazing to have you and know your story. I am curious, you don’t need to work and you’re doing fine. Why in God’s name do you still do this business?

I tell people I truly am going to have to go through a twelve-step program to get out of deal-making. I love making deals. Wholesaling has always been my favorite. I saw a rodeo and the baby cow ran out of the gate. The cowboy on the horse is chasing after him. He roped it, jumped off his horse, tied up the cow’s legs, and threw his arms in the air. It dawned on me. That’s me in a real estate deal. It’s the thrill of the chase and the score. Once I have it tied up, most of the time, I don’t want to fix it up, rent it and babysit it. I want to get back on the horse and do it again.

It’s the thrill of the score that I still do 3 to 4 deals a month consistently. It makes my day when I put some equity on the table. Life is wonderful. Quite often, a few deals are more money than most people earn in a year. This is a great business. It all comes back to the education part of it. I ask my friends on a regular basis, “Did you eat today?” They tell me yes. I inquire a little deeper, “What did you eat?” I then ask them, “You got your physical nutrition. Tell me about your mental nutrition.” Our mind and our body are two entirely different things. You need to work on your mind and the mental nutrition every bit as much as the physical part.

I exercise every day and I always listen to either a CD, I have a cassette player for the old stuff, or YouTube videos, but it’s always on either my real estate toolbox, acquisition stuff, or personal development. I read for an hour a day. I’m a reading fanatic. I usually use a cooking timer when I do it. The education part of it is the critical part of it. I have always said I have an insatiable appetite for knowledge and there’s some great stuff hidden between the front and back covers of a lot of books out there.

Mike, you have delivered so much in this episode. I couldn’t agree with you more, the education part is so important to grow. I wouldn’t be here if it wasn’t for me getting your CDs or your course. I remember you saying in it that you invested an hour a day reading. Every year, you put away some money and made sure that you reinvested in your education. To this day, every year, I make sure I take probably at least 10% of my income and I reinvest it back into my education. Since then, I’ve not only grown as an individual but also, my bank account has grown. I thank you for that advice.

The best use of your money is investing in yourself. When I was a kid, there was a show, The Six Million Dollar Man. It was the bionic astronaut. I remember he got in a big crash. At the beginning of the show, they said, “We can build him better, stronger, faster.” I always thought that was me. With enough effort, we can build a better me. I’ve been on that mission ever since I got into real estate. Parting words, I do want to share with your readers, we’re in the people business, first and foremost. It’s the people you’re dealing with. You buy from people, sell to people, rent to people, and hire people to fix up the stuff. It’s all people.

WI 639 | Million Dollar Investor

Million Dollar Investor: To get a house free and clear in a year, you have to do lots of stuff to generate money and get the debt removed.

 

Real estate is in the second position. It’s the people business, first and foremost, and having people in the world is part of the piece of the puzzle to make it all work. Kim’s been with me for over 30 years as my secretary, personal assistant, whatever job titles she wants to give you is what she is in my world. She’s great. I can’t imagine life without her. I use the term, if your people don’t work out, go back to the people store and get some new people, but it’s people first.

Mike, thank you for coming and being on the show. I have to ask one last question before I let you go. Is that a rhino statue behind you?

I have rhinos everywhere. I am a rhino fan. I did write down, Lauren, you said the Rhino Tribe.

We’re called Rhinos here at Wholesaling, Inc. The rhino is our mascot.

There are no less than 30 rhino statues in my house. People give them to me as gifts. I read a book many years ago, it was 1 of 3. The first was Rhinoceros Success.

That’s what he named it after.

There was Advanced Rhinocerology and then Rhinocerotic Relativity. I still have those three books. The rhino is the king of the jungle. Everybody knows that. Not the lion, not the tiger. It is the rhino, 6,000 pounds, horn down, charging, nobody stands a chance. I’ve always had the rhino attitude. Scott Alexander wrote those books 30-some odd years ago. They’re in my library. All I have to do is walk up to them and look at them, and I know exactly. It reinforces my mindset. We have one more here that my grandson painted up for me. That was his gift to me. I love that one. There are rhinos everywhere.

When I first got hired on to coach with Wholesaling Inc., I’m still the only female coach so I got a rhino and I glittered it with gold glitter. I’m the glitter rhino of the group because I’m bringing a little female twist to it. That is such a small world that you are into that book as Tom Krol is. Mike, it was great to have you. Everybody who read, I hope you guys got something out of it. I know I did. I want to thank you guys for reading this episode. Remember that if you are looking to invest in yourself and you’re looking for a coaching program, I’m coaching the virtual real estate investing coaching program for the group. It’s VirtualInvestingMastery.com. If you guys are interested in applying, I would love to have you as one of my students. Thanks again, guys. Until next time.

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About Lauren Hardy

Lauren 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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