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This week Bruce is joined by Mike Cantu and Tony Alvarez. Both of them are very successful California real estate investors.
At the end of 2006, Mike made a list of people that he thought would be out of business in a short period of time. Later he discovered that his predictions were true. Bruce asks what was wrong with their business plan that caused them to fail. Mike said that these people did not know how to adapt to market change. They had unsustainable lifestyles. They were spending between $10,000 to $20,000 dollars per month, and that lifestyle ultimately brought them down during the rough times. Many had negative cash flow on their investments, they were too optimistic, and they were speculating too much. Some people have a hard time understanding the difference between speculators and investors. Mike labels himself an investor in the rental market, and he labels himself a real estate entrepreneur in the buy/sell business. In the late 1980s, people were speculating how high prices would go, and they thought prices were going to keep going up, and many of them were hurt badly. Mike has a much more conservative business plan than those people.
When Bruce and Tony met in 2003, he was considering leaving the real estate market. Bruce made a list of similarities and differences between Tony and Mike. Tony chose to unload his properties, but Mike did not, and both of them are very happy with their outcomes. Tony had a variety of properties, and he felt that his assets would be more difficult to manage. He was also facing high taxes, so he chose to 1031 exchange into commercial property. He had a good friend who was involved in the building of shopping centers, so he had the right relationships to make good commercial deals.
When Mike saw properties go up in 2006, he chose to hold onto his properties, and he is still proud of his decision. Mike wanted to have enough rental income to live life on his terms. After he made his big mistake, he just wanted to have one more chance to achieve his goal of freedom, and he didn’t want to take the risk of losing it. He realized that he had everything he had hoped to obtain, so he felt no need to trade his properties for more money. He also realized that if he decided to sell his properties then he would eventually choose to reinvest that money back into real estate. He already had all the real estate he needed, so he just decided to keep it. However, he has made upgrades on the properties that he owns. He traded his lower quality houses for good houses in good neighborhoods. These houses take care of him, and now he feels that the rest of his life is an open book because those homes take care of all his expenses.
Bruce has watched people made desperate decisions over the last few years. He met one man who had $16 million worth in real estate, $12 million of debt, and $30 thousand dollars of negative cash flow. Bruce knew that this man had $4 million in equity, but he was very glad that he was not in the same position. That man lost a lot of what he had. Decisions made in desperation don’t work out very well. The philosophy of buying, holding and paying off assets saves you from making desperate decisions.
Bruce asks Tony what he would do if he had lost everything and he had to restart from scratch. Tony did a little experiment in which he asked himself, “What would I do if I was starting from nothing in San Diego.” It took him 2 days to analyze everything in the MLS, and use the same concepts he teaches in his books. He called agents and did not tell him that he was an investor. The agents quickly decided to work with him.
Tony received a negative response from an investor who had attended his classes. This investor told Tony that he had been working in San Diego, because there was no opportunity there. He told Tony that he could not get a deal. Not long after that, Tony got an email from two men in their twenties. They had done 8 deals within the last 12 months and gained about $200,000. Tony discovered that they only $1,000 dollars to start out with.
Tony tells Bruce that if he had to start over, he would take whatever resources he had and go back to the Antelope Valley. He would use his knowledge about real estate to do exactly what he had done before. He would look for inventory that would provide him with positive cash flow.
Bruce noted that both Mike and Tony have a sense of humor. Bruce thinks that Mike’s humor has been a big part of his success. Mike has zero expectations from his close friends, but he wants to have a good laugh every day. He does not want to take life too seriously. Bruce’s business involves taking peoples’ expectations down from the sky, and bringing it to earth. Bruce and Tony both enjoy a show call “The Pawn Shop.” Bruce noticed that there are three negotiating types displayed in the three characters. There is one character with a good sense of humor, and he easily gets people to reduce their prices by making sellers laugh.
If Mike was starting from scratch, he would hunt for a partner with money and credit. He would present a detailed plan to this partner, and continue learning about the investment that he wants to get involved in. He would do his best to become an asset to his partner rather than a liability.
Tony made a partner out of a hard money lender. He was just coming out of bankruptcy, but he was able to show the lender what he had going for him. He showed the lender his knowledge and ability to find deals. He had a mindset that he was going to walk out of the lender’s office with money.
Bruce asks Mike who his important mentors have been, because he has spent a lot of time getting an education. Mike feels fortunate that his first mentor was Mick Blackwell. He was not an easy man to do business with, or getting along with, but he pushed Mike very hard to do his best. Mick’s usual response to anything Mike did for him was, “Is that the best you can do?” This made Mike want to do his best to impress Mick. Mick also lived very conservatively. His wife has a lot of nice things, but Mick could be satisfied with a trailer in his backyard.
Tony considers his first two mentors to be his mom and dad. His dad encouraged Tony to integrate into American society. His dad taught him to be persistent and to do hard work. His mother taught him how to negotiate and build relationships. They did not have money to go to Catholic school, but Tony’s mother negotiated the school leader to let them in for free. Tony’s first business mentor was Victor Ayela. Victor told Tony that appraisers were making a fortune, and that he would be crazy not to learn about that business. Tony learned negotiating skills from a liquor buyer named Al Rudolph. Tony learned a lot about business integrity from a man named Joe Germaine. Many of his mentors were not in real estate. Most of the people that Tony enjoys doing business with are people who are true to their word, and they look for solutions to problems rather than let themselves be absorbed by problems.
Bruce believes that Tony, Mike and himself are going to be some of the main trainers for the next generation, and he takes that very seriously, because he was given the opportunity to learn from people like Jack Miller. Bruce remembers that he is the example for the next generation. Mike has always felt that he has an obligation to give back because of the help he received from other people. Mike wants to leave the better place than the way he entered it. He feels that it is very rewarding to help other people, and he enjoys the notes he gets in the mail about the way he has affected other peoples’ lives.
It was not easy for Mike to transition into his role as a teacher. The first time he was going to give a public speech, he threw up from his jitters and he considered bolting, but he felt very good after he gave his speech.
Thank you Mike and Tony for taking the time to do the interview. Happy holidays for those reading. Look forward to more interviews in 2010!
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.