Ep #255 – JC Castillo – From Silicon Valley to Sun Belt with
$50 Million Real Estate Portfolio

Here is some of what you will learn:

What to look for to identify hot markets
How to ride an economic downturn
The value of a long-term mindset
Understanding Cash on Cash returns
Why 2008 impacted so many multifamily investors
How to benefit from your failures
How to make your broker’s life simple
How to stay lean as you grow your business
The importance of focusing on the long term
The biggest reason why people fail
How to develop relationships that are meaningful
What schools are failing at today

Book Recommendation: Cashflow Quadrant by Robert T. Kiyosaki, Sharon L. Lechter

To learn more about our guest, please visit:

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Join us at a Multifamily Bootcamp, visit: MultifamilyBootcamp.com

Full Transcript Below:

JC Castillo – From Silicon Valley to Sun Belt with $50 million Real Estate Portfolio (Ep #255)

Rod: Welcome to another edition of “How to Build Lifetime Cash Flow through Real Estate Investing”. I’m Rod Khleif and I’m thrilled you’re here. And I know you’re gonna get tremendous value from the gentlemen we’re interviewing today. His name’s JC Castillo and JC is done you know, bought and sold over a thousand doors. His current portfolio exceeds 50 million dollars and we’re just lucky to have him on the show. JC welcome my friend!

JC: Thanks for having me I appreciate it Rod.

Rod: Absolutely. So let’s talk about you know the first thing I always like to get into is your background how you got into this business. You know most people are transplants from something else maybe you could speak to your history and how you ended up in in this exciting business.

JC: Yeah absolutely. I’ve got a 15 plus year background in the semiconductor industry. Started buying and selling single-family homes while I had a W-2 job back in the days made some money here in the Silicon Valley. And I decided to take that money after doing a lot of research and had a scale my real estate decided to take it and get into multifamily. So you know figured out that California wasn’t the place for me because of the constraints on cash flow went out of state. I found a great market in Texas, did a lot of research on Texas, started buying properties out there in 2007 with my own money and it took off from there.

Rod: Okay so like many people you started in single family, myself included, and Texas is the Dallas, Fort Worth, is that where you are is that where you ended up or all the weeks that

JC: Yeah we’ve really focused on the Dallas Fort Worth market for very specific reasons and we’ve grown our footprint in there in DFW over the last 12 years that’s right.

Rod: Okay well I’ll tell you what, let’s dig into the specific reasons why do you love that market because I’m sure that’ll add value.

JC: Yeah well there’s three big reasons right and all this comes down to doing a lot of research but you know it’s not all that unobvious to people that are seeing what’s happening the market but number one is you’ve got a huge population growth okay and population obviously drives apartment demand. Number two you’ve got you’ve got phenomenal job growth. Dallas Fort Worth consistently ranks you know topnotch for both job growth in the nation and population growth and the third thing that I always like to talk about is really sort of the I call it the you know the quality of life for dollar earned. And I challenge anybody to go and find more of a better ratio of that combination than really in Dallas Fort Worth and in Texas as a whole right. So if you’re looking in Texas you know that’s your market you’re going to think about that you know Houston, Austin, San Antonio, DFW those are your four majors. I went to DFW because I really liked the diversity of the workforce and the jobs were over there, we’re across many different sectors. We all know Houston is oil. So that you know is good when it’s good and bad when it’s bad, that’s not DFW.

Rod: Now you like the diversity of the population in coming and I guess just diversity in general. Do you focus on A assets, B assets, C assets, and what’s your criteria there?

JC: Well we specialize in value add B&C class we’re not in the A space. He gives us the optimal ability to come in take a property that’s really got a few things wrong with it but that you know fundamentally is in a great location and has good bones if you will and take that renovated you know do some exterior work, spruce up the amenities, put an interior upgrade package on the property and really look to push rents to what we feel would be an adequate market for return for those investments that we’re making.

Rod: Okay let’s talk about, let’s go back to your first multi-family deal how big was your first one?

JC: Well we actually bought two deals we bought 24 unit building and a 50 unit building from an owner directly part of a fluke accident I had actually targeted a property in in Denison which is right outside of Dallas Fort Worth and I had found a contractor to do the work. The deal in Denison fell apart and as I was talking to the contractor, he knows pretty bummed I said look we think the deal and he just happened to tell me says well you know you know I actually have two properties in Garland, Texas right.

Rod: Did the contractor do it himself?

JC: The contractor himself outright to properties and he was a painter and a rehabber it really really busy, wasn’t managing his property’s way he felt it could be and I happen to mention it to him he said he had heels I said look I’d love to take a look at him long story short, made an offer he accepted and I bought those two properties just completely by accident. That’s the way it happened.

Rod: That’s fantastic and that’s really just out there networking talking about the business and in this case you fell into that. So did you, I assume you didn’t do seller financing or anything creative you just went out and got financing for those first two and when were those?

JC: Yeah they were traditional loans through a bank.

Rod: Okay.

JC: We wrote the deals and the under wrote really well and all the assets. So the bank was happy to lend on.

Rod: What year was that?

JC: This was in 2007 oh wow actually bought those two deals, we’ve bought a third deal right before the market crashed.

Rod: Right.

JC: I think you know a lot of people have been in this business you know sort of over the last several years but you know I think riding a downturn is such an educational experience for everybody. That was an experience for me that was worth a lot of money back in the early days.

Rod: So let’s talk about that because I couldn’t agree more. There are a lot of syndicators out there right now raising money on deals that have never experienced this and frankly you know and I did a whole segment on this and in that you know passive investment is a great way to get started in this business if you want to be an active investor ultimately but you still need to educate yourself because there are some syndicators that have not gone through a downturn, that aren’t stress testing the deals properly, that that are rushing into deals and sometimes I’m astounded the deals that we pass on at the price they trade for and they’re tight and if there’s a hiccup these deals are going to have a problem and the people they’re gonna suffer the passive investors. So talk about some of the things that you experienced through the downturn and how you were able to you know and some of the things you had to do to make it through the downturn with your properties? Can you speak to that a little bit?

JC: Absolutely. Amd first thing I would say Rod is I completely agree with you. You know these days we’re on the sidelines for the most part and very opportunistic in this market we are looking for reasons to say no to every single deep deal we see and most deals are not deals these days, and so I would say to your base, your listener base, you know this is the time to be extra diligent, stick to your guns, stick to your underwriting parameters, and do not deviate in this market. Now that’s not to say there aren’t great opportunity that come around. They’re just way fewer and further between and you really have to have the right relationship find them. Now back in the days when I bought those first three deals and the market crashed, I always got into this business with a long term mindset and what I would say to everybody is look you know living off of a three to five year flip and calculating your IRR based on that everything looks great on paper. I always look to hold deals for 10 to 12 years if I can sell them earlier and we can hit our numbers great but we’re long-term guys. And so we’re going to set everything up as if we’re going to be in a deal for 10 to 12 years including the way we look at financing including the way we look at the property in terms of keeping it and making sure that all the deferred maintenance is there. So we start with that sort of a long term mindset. Now when 2007-8 hit, what I found out after going through the downturn was the problem was that if you ran your property and you bought on sort of false numbers and pro forma projections that you couldn’t hit, that’s where people got into a lot of trouble. We always fought on real numbers and so in a downturn hit, we had a great location, great property, we stayed full. We even managed to raise our rents. Now the equity in our deal was a look was a little shaky right we picked up those deals back then at 26,000 a door which I thought was a whole lot of money to pay for him.

Rod: Right.

JC: And after the downturn you know they problem with me 20,000 to 25,000 on a really really good day. So basically less than what we bought would. We never panic because our cash on cash returns were always just where we wanted them to be over 10% for the entirety of the whole period since we until we sold them in 2015. So for us, we never, I never worried because the deals were winners to me because they were putting cash in my pocket, they relatively stayed full, you know between 90 to 95 percent occupied. And so I didn’t really care about the equity piece, I figured eventually it would come back and I was really looking at long term. So yeah I mean the key is that, after we rode the wave out in 2008 you know and it’s let’s say the market started to recover in sort of 2011-12. Really what we figured out and we look back and did all the analysis was, the equity piece can go up and down based on the markets going but if you’ve done your numbers right you should be able to make some sort of a you know minimal amount of cash flow return to sort of keep you going through that downturn and that’s really what you have to be prepared for is, how skinny can I get this deal and still keep it and forget about the equity piece, you’re not gonna be able to sell if the market takes a dump, you’re not to be able to sell it for another five to ten years, are you gonna be okay in that meantime that’s what you need to worry about.

Rod: Right so what’s your break-even point and your debt position? So that if what happens in 2008 like what happened with you, you talked about your values going way down and you need to refinance you know that’s a bad day.

JC: I mean let’s think about it right, the classic example of what happened is a lot of people that had deals had an expiration on their loan, they had to refinance, they were underwater and the bank wouldn’t lend them the same amount of money that they would have needed to keep the deal going. So they had to recapitalize but you’ve got all these people that are investing these deals, you go asking for a million bucks in the middle of a recession, they’re not giving you the money, the property was still cash flowing. It may not have been great but it was still cash flowing. The bank took the property back even though it was cash flowing just because they ran over him on the financing and they couldn’t recapitalize.

Rod: That’s a bad day,

JC: If they have recapitalized that everything would have been fine.

Rod: Yeah that’s a bad day. When you’ve got a cash flowing asset that you can’t refinance. I mean man oh man that’s not–that’s that’s bad. Well and again back to what I said it’s irrational exuberance again right now. And it’s people that haven’t gone through 2008 that are out there you know taking down large numbers properties and I gotta tell you when the music stops and invariably just hope it’s not as bad as it was in 2008 God forbid but that’s my big fear. So let me ask you this, so you know as you said you’re looking at a lot of properties right now to try to find a deal and we wrote an LOI today we did one a couple days ago. They’re still out there but we’re looking at a ton of deals right now and you know let me back up here, do you have a favorite failure that you experienced that set you up for future success. Talk about a time you got your nose bloodied and you know what the lesson was.

JC: Well we’ve got their nose bloodied more times than I can count. Here it’s been happening way more times than I even care to admit. I think the key with getting your nose bloody is how do you fail? because the key here is that we’re all building relationships with the communities and the ecosystems that we’re doing deals in okay. Every time we make an offer to a broker, the broker is looking not only whether we win but also how we lose meaning that if we lose in the right way we’re building credibility with the broker and there always is going to be a next deal with that broker. And so we try to focus on always being people of our word and making sure that whatever we do, we do it on time and we do it without any sort of what I would call making the Realtor’s life difficult. You know you can still be a closer of deals and Realtor’s can still say you know what I don’t think I want to work with that guy anymore because he made my life miserable. The best way we explain it is when we get into contract with you, if you’re a broker, we want your deal with us to be on autopilot so you can go worry about all the other guys that are making the deals difficult. We’re going to make your life simple. We’re not going to ask a lot of questions. We’ve already done all our homework upfront and once we get in a contract, our objective is not only to close on time but to put the deal on autopilot for the broker and that is where we really have made a great name for ourselves in the DFW markets.

Rod: Yeah that’s hugely important, that’s usually important. They need to know you close that you don’t retrade every deal and typically unless something really was misrepresented or misstated or discovered that was unknown that you go to the closing table without any problems. So let me ask you this, what’s the most challenging part of your role right now?

JC: Well I think easily the most challenging part of my role is you know when I started the company, it was basically me yeah is my own dollars and so as we’ve grown over the years my challenge has moved from sort of the blocking and tackling of deal doing and by the way we’re owner operators so we actually own our own management company sort vertically-integrated. Challenge for me has become you know, how do we continue to find amazing talent and bring it into the company to sort of help us keep growing? but do that out of at a pace that isn’t going to put an unnecessarily high burden on our payroll because the other thing I’m a big believer in this market is we’ve got to be light on the payroll because a lot of times what happens with syndicators is they get so heavy with payroll that they’ve got to transact just to pay the bills and so I are very very careful about making sure that we’re lean and mean from a payroll perspective. So that we can sit in this market like we are doing and not really worry too much about having to do a deal just to turn you know keep the lights on if you will and that’s we’re very very careful about these days.

Rod: Yeah you know they’re syndicators that are living frankly acquisition feed acquisition fee and they’re not paying attention to the fundamentals and that’s I’m really glad that you brought that up because that has not been mentioned here before and you know it’s funny I have a mastermind it’s actually we’re meeting here next week in Vegas there should be about three billion in assets there and that’s one of the things I’m gonna be training is how to find the superstars, how to how to weed through them, and we’ve got some a new personality profile that we’re going to share with the participants but you know that is, every business is nothing but people and systems. And you want to find the best people you possibly can and that’s hard. And got to have mechanisms to do that. So that’s I’m looking forward to that presentation but the thing you said about staying lean and mean right now, very very important, very very good advice. So let me ask you this, what words of wisdom would you share with an aspiring multifamily investor? Maybe somebody that’s done some single-family like you started. They know they want more. They know they deserve more and they see that you know they can ramp much quicker with multifamily than they can in single-family and frankly in my opinion is much safer based on my personal experience in 2008 but what advice would you give that person?

JC: Well my advice has never changed. If I look back at where I was in 2007 and I would say I was sort of in a similar boat. Now I hope that if there is a crash it’s not anything like 2008 but I think that you absolutely have to look at the long-term picture of investing in real estate. Too many people are getting into this business now and they want to be you know flipping deals and in a year or two years from now. I honestly do not think that that’s the right approach. Actually in any market be it up down sideways I think you have to be committed to learning this craft and learning it and being a long-term investor who’s looking at not you know the three to five year window but looking at the 15 to 30 year window. That is the way that you’re going to be successful in multifamily because it trickles down to every facet of our business including building relationships, not focusing on deals I never these days I never worry about deals I worry about relationships. My relationships these days deliver all the deals that I need at the price points that we need and it’s going to continue to do that. If you’re just focused on deals that could be a one done scenario and in this sort of a market a peak that absolutely is the wrong way to go.

Rod: That’s fantastic advice and is the same thing I say from stage you know put on your long game hat, play this for the long game, it’s a relationship business, it’s a team sport, and these are lifelong relationships. This is not a get-rich-quick business. It’s a become incredibly wealthy over time business if you take on that kind of a mindset. That’s fantastic advice and they’ve heard me say it’s really great to have someone else say it and add credibility to it because it’s so absolutely true.

JC: That’s what I believe, I’m not just saying it.

Rod: Yeah no question. So let me ask you this, if you go back in time what would you tell your 20 year old self. What might you do differently knowing what you know now about this business.

JC: Well it’s a little bit cliche these days because a lot of people have read Robert Kiyosaki’s Rich Dad Poor Dad but you know just like everybody else that book really changed my life. If I look at where I was its 20-year old you know getting ready to graduate out of college and I wrote my goals down I always have. One of my goals was to buy a home by the age of 25 and I did that what I didn’t realize back then as 20 year old and I wish that I could tell myself this that you know assets put money in your pocket and liabilities take money out of your pocket and a house is a liability and as much as I love to own homes and I own homes and it’s been great and I’m not you know saying that owning homes is a bad thing, what I am saying is that if you’re going to be a young guy that wants to invest you’re young gal for that matter, look to buy investment properties and don’t really be too stressed out about owning a home because too many youngsters would get out of school, say oh I’ve got to own a home that’s what I’ve made it. Well I’m here to tell you that if you if you focus on investment real estate that’s where you’re gonna make it big time.

Rod: No question. Why do you think people fail to succeed in this business? they give up.

JC: I think the biggest reason why people fail in this business and I mentioned it earlier is because they don’t understand that this business is a relationship business just like any other business and sometimes you have to put the relationship ahead of a deal.

Rod: Okay.

JC: And if you’re really committed to building good relationships and you have to be a performer also given right. But I mean the relationships are the things that are your gold. And I think that I’ve seen the people that I’ve seen that have failed are always looking for the quick buck you know. For example there go to several different lenders and they’re going to go any which way the wind blows depending on whether they can get a small percentage break on the interest rate not keeping in mind that the relationships are it’s really going to drive multiple deals over multiple years. And if you become a guy that’s only focused on price and not value, you get put into the bucket of guys that don’t get the priority when it comes to getting deals done.

Rod: And that includes lenders like you just said, you brought it up for a reason. It’s not just the brokers, it’s the bankers and the lenders as well. It’s the lending brokers as well yeah.

JC: So that’s what I think is the reason now. You know people fail for a lot of other reasons like not underwriting properly all that stuff but I’m talking about you know long term what is the reason most people fail? I think it’s really not focusing on the relationships and not being long-term minded on this business.

Rod: What did you have to give up in your life to achieve the success that you received, you know that you’ve achieved? What did you have to sacrifice?

JC: Well you have to sacrifice your time basically. When I started the business I had a full time job in the semiconductor field. It was a lot of work. I did this at night and on weekends and at anytime I wasn’t focused on my job which was a lot of responsibility. And so for many years I kind of burned the candle at both ends and but I always knew that I would get to the point where I would be able to leave my job and once I did that, I could focus on one thing and I can have a lot more time to spend on the things that I really care about or love. And for me that time came in about 2012 and I haven’t looked back since but before that the sacrifice was really the time in sort of doing two things at once. And the reason I chose that approach was because I didn’t want to take a lot of risk. I didn’t want to just jump into multifamily and completely quit my job and everything because I really want to make sure I had a stable base in case something went wrong and in case the market turn.

Rod: How many doors did you have when you when you quit do you remember?

JC: Probably around 400 doors, I mean we bought and sold, but about 400 or so.

Rod: Well so guys I hope you’re hearing that okay, full-time job, family, I’m assuming you had a family.

JC: Yeah

Rod: You know full-time job, got to 400 doors before he quit his job so if that doesn’t encourage you or inspire you then go do something else okay cuz that’s a clue that’s what we call a clue. So you know if you could mandate, this is a little off topic but I’d love to get your opinion on this you’re a really smart guy. If you could mandate that schools taught something that they don’t teach well now, what would that be?

JC: How to build businesses.

Rod: Love it.

JC: And I mean it’s funny that you mentioned that because I’ve been thinking about a non-profit myself and in my nonprofit if I can start something myself and this is not something I’m joking about, is I would like to go around to high school-aged kids maybe even younger and start what I’m what I might want to turn the lemonadestand.org and my concept is pretty simple is we’ve got to bring this down to a lemonade stand and bring it out to these younger folks and show them that they have the ability to not only get an education because that’s important I’ve got my degree but figure out how to build businesses and figure out how financials work. How many people do you know even with an MBA that could tell you what the difference between a cash flow statement, a balance sheet, and income statement are? I can tell you right now there’s not many and that is an issue in my opinion in the United States.

Rod: No question. Absolutely no question. Its funny you use that as an example. I’m a big Tony Robbins fan. He brings a guy in named Keith Cunningham that uses a that uses a lemonade stand as an example to teach financials to aspiring business owners.

JC: That’s funny I have no idea.

Rod: Yeah and his name is Keith Cunningham and he’s a super super funny guy and I should get him on the show. He’s hilarious but he’s brilliant and Tony uses him at his business mastery. So what I got two more questions for you one is what’s the best advice you’ve ever gotten? and the other is the antithesis, what’s the worst advice you’ve ever gotten about this business? And I know I didn’t prepare you for any of this so, but you reacted real good.

JC: Yeah so the best advice I’ve ever gotten I can tell you it’s really really simple and the guy that told me it is Paul Peebles.

Rod: Oh that from both capital good guy. Yeah he’s spoken at my live events awesome.

JC: Absolutely. He told me you know “A thousand hell yes’es don’t make up for one oh shit.”

Rod: That’s awesome.

JC: Think about that. That’s a thousand yeses don’t make up for one oh shit. So it really is a beautiful statement it just means you know no matter how good things are going, one super extremely bad move, bad deal, bad something like that, can really set you back so many years that you really have to be focused on not only maybe on the deals you do but more importantly the deals you don’t.

Rod: No question very regularly the best deal you ever did is the one you didn’t do. You know it is avoiding that mistake because you know in the numbers that we’re playing in one mistake can be a deal-breaker for a decade you know it’s really know I love that one. Okay now what’s the worst advice you’ve ever gotten?

JC: The worst advice gosh man you know I probably have selective amnesia on bad advice.

Rod: That’s good. That’s fair enough fair enough.

JC: I think I couldn’t think of something that I’ve gotten bad advice and I’ve actually done it.

Rod: what book have you gifted the most to people you care about?

JC: You know I obviously the Rich Dad Poor Dad.

Rod: Sure sure that’s it okay. Yeah all of his books are fantastic. Everyone at Kiyosaki’s books is great.

JC: I love a lot of his books but the books that actually interests me the most are that one and also

Rod: Cash flow?

JC: Yes thank you.

Rod: Cash Flow Quadrant? yeah those are the two premier ones. He also wrote rich kid poor kid or something, fantastic book about children and how they all have genius and some of his you know Rich Dad branded authors are great. I’ve had most of them on the show here as well Ken McElroy’s fantastic guy.

JC: Yeah absolutely. I’ve read his book as well.

Rod: Yeah listen. Thank you so much for being on the show my friend and guys if you want to reach out to Jesse his website is multifamilypropertygroup.com and Jesse you’ve added a ton of value and I’m very grateful that you took your time to be on my show.

JC: Thanks Rod! I actually had a lot of fun.

Rod: Awesome! Awesome all right take care.


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