In “How to Invest in Tax Deeds,” Paul Castillo fills us in on the rest of his journey. From flipping fixer-uppers to over-the-counter tax lien certificates, and ultimately to tax deed investing.
Paul reveals the painful mistakes he made before he learned how to invest in tax deeds from Ted Thomas. He goes into detail about his deals, including the most profitable tax defaulted property purchase he ever made!
Paul tells it all, the good and the bad, what to do, what not to do, and provides a lot of useful tips for anyone wanting to learn how to invest in tax deeds successfully.
HOW TO INVEST IN TAX DEEDS
Narrator:
Welcome to Imagine Wealth Without Risk. This is How to Invest in Tax Deeds Part 2 with Paul Castillo. If you haven’t read the first part of his interview, be sure to check out From the Property Flipping Business to Tax Deeds Part 1 with Paul Castillo. Here’s your host, Ted Thomas, continuing his interview with Paul on how to invest in tax deeds.
Ted Thomas:
Did you like to buy rural counties, or did you buy in the more populous counties?
Paul Castillo:
Right, okay. I think I already answered that, right? I was talking on the thing about how my mentality at the time was to stay away from the more populous or urban areas.
Ted Thomas:
And so, how did that work out?
HOW TO INVEST IN TAX DEEDS WITH DUE DILIGENCE
Paul Castillo:
What happened is, this was my fourth auction that I participated in. The first three auctions that I did, I walked away empty handed. I remember this auction was on a Monday, and I had gone somewhere over that weekend.
Coming back early that Monday, knowing that this auction was taking place, and to be completely open, I didn’t complete all proper due diligence.
What happened is, I still jumped on the auction that morning, I remember. I thought, I’m going to at least jump on there and see what happens. Then I made a critical mistake. I see this mistake happen every single auction to this day that I participate in. That is that people tend to get caught up in the frenzy, and you know this.
Ted Thomas:
Yes.
Paul Castillo:
I mean, you’re going to know this better than anybody else out there. So I see these parcels that I was interested in getting bid on, and then bid on some more, and then bid up some more. I convinced myself that if everybody else is bidding on these parcels, if they’re as popular as they seem to be, well, they must be a good deal.
So I made a critical mistake. I decided, “Okay, I’m going to go ahead and start bidding on some of these parcels.”
I actually wound up winning the bid on two of these parcels that I had on my list and spent all the money that I had to start this business with, $70,000. That’s all I had to start.
Between the two parcels I went all in and was excited as can be, thought I just hit two home runs, and life is great. I’m well on my way, only to find out after the fact, that they were both duds.
Ted Thomas:
Oh no, oh no.
Paul Castillo:
I remember thinking, Ted, that I literally thought that I had just pissed away, $70,000.
Ted Thomas:
Oh, my God. Oh, what a shock. What a shock. Oh, your stomach was turning for a week. Your head was pounding, everything.
Paul Castillo:
Oh yeah. I didn’t know what I was going to do. I will say that I was at least wise enough to know that the mistakes that I had just made weren’t a reflection of the business. It was simply a reflection of the way that I had gone about things.
This goes back to when I told you that I was a little arrogant. I just took that mentality of how hard can this be? I’m a smart guy. I’ve been somewhat successful. I flipped 15 to 20 homes.
That was a big mistake. I knew that it wasn’t a reflection of the business or the opportunity itself. I knew it was my fault for just choosing the wrong approach.
If you recall, that’s when I started working with one of your coaches and really had to humble myself. I knew that I had a big mess to clean up. So, that’s when I reached out, joined your accelerated profit program and was able to start working with coach Bill.
Ted Thomas:
Oh, thank goodness for that. Boy, that was ooh, wow. And what’s the outcome? Did you finally get rid of them or break even, or did you lose? How did that work out?
Paul Castillo:
What happened is that Bill helped me put a plan in place where I won’t go off into the weeds and go into all the details of what happened, okay? I had two different projects here, properties that I had to decide what I was going to do with them.
He helped me put a plan in place, where on one of them, I wasn’t able to recover what I had put into that specific property. On the other one, after jumping through many hoops, I was able to make enough profit on that one to where between the two, I at least came out with my head above water. So I didn’t make money-
Ted Thomas:
You’re a savvy guy, that was savvy. Well, good for you.
Paul Castillo:
Yeah. It turned out okay. I didn’t make any money, but I also didn’t lose any money. What it cost me was probably about six to nine months of time.
Ted Thomas:
Yeah, but I think you learn more from your mistakes sometimes than you do from some of those great deals. I mean, you’ll never make that mistake again. You see, when you started talking there, you said, “Do you see that at every auction?”
Absolutely, I have to admit that I’ve seen people do this based on ego and not based on any financial consideration at all. Sometimes they made a lot of money, or they sold a house, or they sold something. They made a bundle, and they just think that they’re going to double it again on the next deal.
They might double it in the loss column instead of the win column because they don’t follow the step-by-step process that every coach will teach you. So, pretty amazing. Well, congratulations. You learned a lot on that. You’ll never make that mistake again.
Paul Castillo:
Never happen, never happen. That was over three years ago. I’ve never made that mistake again, but yet every single auction, I see several suckers that make the same mistake.
Because as you know, Ted, what you see, the pictures that you see of the properties, at least at the auction, the county, what they represent and what’s really there could be two very different things.
Ted Thomas:
Exactly.
Paul Castillo:
I have participated in countless auctions where the people are bidding, and what they see on the screen is a decent looking or a beautiful looking property. Yet I know for a fact, because I’ve sent somebody out there to look at the property, that that property is burnt to the ground. These people don’t know that.
I’ve seen people wind up bidding more. I mean, 80%, 90%, sometimes in certain markets that are very hot and popular, even retail value. I know for a fact that they just lost possibly their life savings. While you want to feel bad for them, I’ve learned not to feel bad for them because they didn’t do their homework.
Ted Thomas:
Right.
Paul Castillo:
To this day, I still see it. It’s really nice and self assuring, knowing that I’m not that guy. That I’m not going to find myself in that position again.
Ted Thomas:
You deserve to be a little bit smug at that point, don’t you? You’ve been there and done that. I don’t think I’ll do that, just let that one go and go to the next one. There’s always another auction, I tell people, but not everybody believes me. So the auction is unbelievable, yeah.
Well, tell us about some of the successes you had. That’s a heck of way to get into our call, that you basically humble yourself, not only in person, but you’ve done it here on the call. I think people like hearing that someone else made mistakes, and they’re not the only one that makes them.
I try to tell people for God’s sake, call a few people that know the local market and ask a few questions. Oh well, they tell me how they cheat me, and I say, “What are you talking about? Just ask them.”
If you’re worried about it, call a broker and tell them, “Look,” you’ll maybe use their services, maybe not, but you need information. Believe me, they’ll tell you what these properties are worth.
I always say, “Find out what it can be sold for in 60 days.” Anything over that, forget it because it’s all made up after that. If they can sell them in 60 days, then you’ll probably get a realistic price. I know you became an expert at that.
Tell us about some of the successful things you did.
LEARNING HOW TO INVEST IN TAX DEEDS
Paul Castillo:
I will say that the most important thing I learned is forget what you think you know. After that first experience having those two deals under my belt, literally feeling like absolute dirt and having to clean up the mess, again, it was a very humbling experience.
So, you’ve got to forget what you think you know because let’s face it, you don’t know what you don’t know. I found that … Kind of like sports, right? You could be a very good baseball player. It doesn’t mean you’re going to excel at basketball.
Ted Thomas:
Yes.
Paul Castillo:
Right? So I learned that lesson here, right? I had had some success in real estate, but it was a very different niche or area of real estate that I had been doing. So I had to just forget what I thought I knew and just humble myself.
I just can’t tell you how big of a blessing your system, and working with your coach, and just learning everything that I’ve learned from you and coach Bill has been.
Ted Thomas:
Thank you.
HOW TO INVEST IN TAX DEEDS SUCCESSFULLY
Paul Castillo:
I remember after recovering from those two deals and being back on my feet, the very first deal that I did was in the state of Idaho. I bought a manufactured home and was able to sell.
Ted Thomas:
You’re kind of a Maverick, you know? You really go for the gold and try stuff. Good for you.
Paul Castillo:
Well honestly, I would have never done that if I didn’t have coach Bill to lean on.
Ted Thomas:
Oh, okay. Well, yeah.
Paul Castillo:
Coach Bill’s the one that taught me. He’s like, “I love manufactured homes.” He shared some of the success he’d had with them.
So, at the end of the day, do you really care if it’s manufactured or if it’s a single family home that’s in disrepair, or if it’s beautiful, or if it’s just dirt. If the deal makes sense, it makes sense, right? If there’s money to be made.
Ted Thomas:
Right, exactly.
Paul Castillo:
That was the first deal that I did after having to recover from those original two deals. I bought this manufactured home in the state of Idaho. I’m not looking at my actual spreadsheets right now, but I do know that when I sold that property inside of a few months, I made about a $23,000 to $26,000 profit, somewhere right around there.
HOW TO INVEST IN TAX DEEDS & MAKE MONEY CAREFULLY
Ted Thomas:
That was nice. Yeah. So, what return on investment? You got $20,000. Did you have to put up $20k to make $20k? Or how much did you put up to make that?
Paul Castillo:
No. at this point, I’ve got my 70 grand back from those two deals.
Ted Thomas:
Oh, nice.
Paul Castillo:
Give or take a thousand or two, right? So I’m whole. I didn’t make anything, didn’t lose anything. Other than the time that it took me to clean that mess up.
Ted Thomas:
Now you’re making money carefully, you know? I have a course that I wrote. It’s called, Retire Young & Rich. You’re the Young & Rich guy now.
Paul Castillo:
That’s right.
Ted Thomas:
You’re not taking any risk. You’re watching what you’re doing. Okay, great.
HOW TO INVEST IN TAX DEEDS – PAUL’S 1ST SUCCESSFUL DEAL
Paul Castillo:
Yeah. So this particular deal, I believe my investment was somewhere right in the mid-thirties. $35,000, $36,000, something like that is what I paid for this property and really didn’t do much to it.
Idaho happens to be pretty close to where I live. I also happened to spend seven years of my life in Idaho. So, I didn’t go there prior to bidding on the property because I did everything from home with coach Bill’s help.
Once I was the winning bidder, I thought I would take a stroll up there. Because it was close enough where I could use it as a good excuse to get up there and visit some old friends. It was during the summer months, and so I could take my daughter up there with me.
Ted Thomas:
That’s so pretty there. Yeah, it’s pretty.
Paul Castillo:
Yeah. I thought it’d be cool, too, to teach my daughter. See what she can get out of it, too. Show her, dad just bought this home up here and yada, yada, yada.
So we went up there, and I remember meeting a locksmith up there and him pounding through the door and putting new locks in there. To my surprise, it was fully furnished.
I learned that what had happened is, there was an elderly man that had lived in the property. His wife had passed several years before that, so he was living alone in the home. The neighbor told me that one day he went to the hospital and never came back.
Yeah, I remember the calendar was still on the month of year where he had … Yeah. The place was fully furnished. I mean, there’s still coffee in the coffee pot from a few years earlier.
Ted Thomas:
Oh my God.
Paul Castillo:
Yeah. But cute little manufactured home in a good neighborhood in one of the fastest growing parts of Idaho. So I really didn’t do a whole lot to it. It needed a little bit of plumbing work, but I thought I would go ahead and repair, even though you say, just sell it as is.
I thought, maybe I can get a few more bucks out of this if I address some of the plumbing work. Did just a good cleaning and sold it as a fully furnished … I mean, washer, dryer, everything. Beds, couch. It had a China cabinet with china.
Ted Thomas:
No relatives showed up or anything? No relatives bid on it?
Paul Castillo:
No, no. In fact, by law you’re supposed to-
Ted Thomas:
What about the neighbors?
Paul Castillo:
Yeah. I mean, if a neighbor wanted the home and-
Ted Thomas:
But they didn’t want to pay for it. Why didn’t they go to the auction? Oh my God.
HOW TO INVEST IN TAX DEEDS – A LITTLE-KNOWN INVESTMENT
Paul Castillo:
You know, most people just aren’t aware of this.
Ted Thomas:
There’s never … I call it the world of the weird folks. If you’ll listen to this, it’s so truthful. It’s hard to believe. Even for me, and I’ve been doing it for 30 years.
Paul Castillo:
You know Ted, I was flipping homes for three years, and I didn’t know anything about this. Since then, learning more about your program and everything that you’ve taught me, it’s not crazy to learn why people don’t know about this.
Ted Thomas:
It’s amazing, it’s just amazing.
Paul Castillo:
People aren’t going to share. Most investors aren’t going to tell you about it because they don’t want you to come in and be their competition.
Ted Thomas:
Well, that’s part of it Paul, but there’s actually another side of it. This is your time in the sun not mine, but I can tell you it’s the government’s fault. The government doesn’t even tell the next county that they have properties.
If you hadn’t bought that property, it might’ve sat there and deteriorated for five years. I see them do that. They just let them go. The county and the local government does such a bad job of letting the world know about it. It’s just shocking.
So I agree with you, people just don’t know about it. All right, so you sold that. It seems to me, you made what, 50%, 70% on your first successful deal. So that made up for a lot of the pain you had before.
HOW TO INVEST IN TAX DEEDS – PAUL’S 2ND SUCCESSFUL DEAL
Paul Castillo:
Yeah. So now I’m on my way, everything’s great, right? I’m just on Cloud Nine. Then from there, for the next deal that I did, I went back to Washington, and I picked up a five acre parcel. This one had another manufactured home, go figure. Not just one, two manufactured homes on this five-acre parcel.
Ted Thomas:
Two?
Paul Castillo:
Two.
Ted Thomas:
Never heard of two on one. Yeah, that was okay.
Paul Castillo:
Well see, I came to find out that what had happened was an elderly couple was living in this home, and their health started to deteriorate. So the county made an exception and allowed one of their children to put a second manufactured home on the property in order to be the caretaker for their folks.
Ted Thomas:
Interesting. The world of the weird, the world of the weird.
Paul Castillo:
Yeah. I spent a few years in this business, and you’re going to hear it all. You know that better than anybody.
HOW TO INVEST IN TAX DEEDS FOR CENTS ON THE DOLLAR
Ted Thomas:
So, did you buy that one for 20 or 50 cents on the dollar? What did you have to pay for that one? Or do you remember?
Paul Castillo:
If I recall, this particular property assessed for about $180,000, $190,000.
Ted Thomas:
Nice.
Paul Castillo:
I paid about $75,000 for that one.
Ted Thomas:
Whoa. So you paid about what, 30 cents on it all?
HOW TO INVEST IN TAX DEEDS WITH A GOOD EXIT STRATEGY
Paul Castillo:
About that. The way that I’ve approached this hasn’t so much been a focus on X cents on the dollar, just the spread, right? You taught me that you’ve got to know what your exit strategy is. So, I’ve always made sure that I’m working with local people that know that market inside and out.
They can go by and look at the property for me, and not just look at it, but take pictures. Send me pictures. Report back to me on the phone. Tell me what they saw, and not just for that particular property, but what about the neighborhood?
What condition are all the other homes in? Then, what will this property sell for in its current condition, right? Let’s be conservative and not only what will it sell for, but what will it sell for relatively quickly? You taught me that there’s nothing wrong with leaving a little bit of meat on the bone for the next buyer.
Ted Thomas:
Oh, it sells much quicker if you do that. Sells quick. Those fixer-upper guys love those things.
Paul Castillo:
Exactly.
Ted Thomas:
All the flipper guys would buy it in a minute.
Paul Castillo:
Oh yeah, yeah. I can’t tell you how many times I’ve sold to other investors or flippers, rather than just always relying on your traditional retail market.
Ted Thomas:
Right. Absolutely.
Paul Castillo:
My approach, I guess I can’t really tell you how many cents on the dollar because that’s really never been the most important thing to me. The most important thing to me is knowing, “Okay, I can sell this property in its as-is condition relatively quickly for X amount of dollars, and I’m being conservative.”
HOW TO INVEST IN TAX DEEDS WITH A HIGH PROFIT MARGIN
Ted Thomas:
So you said it early. You’re looking for a margin of what, $25,000 or $30,000, or what do you look for?
Paul Castillo:
That’s been my sweet spot. My sweet spot or my plan going into this business was, if I can do four deals, four or five deals per year, that I could make between $20,000 to $40,000 per deal. That’s going to get me to where I need to be.
Ted Thomas:
How nice is that? Yeah, and it’s funny, you didn’t have to do that, isn’t there plenty of deals that you make? It’s when you try to make a hundred and get greedy that you get your butt kicked, right?
Paul Castillo:
Yeah, exactly. It just has to make sense. This particular one, I invested $75,000 or so, made about $35,000 on this one. There have been others where I’ve invested less. There was a vacant lot that I bought for about $19,000, and more than doubled my money on that one. Made about $22,000, $23,000 on that one.
Ted Thomas:
Gee whiz, on a vacant lot you made 20 grand.
Paul Castillo:
On a vacant lot. This was a six or seven acre lot that was being farmed when I bought this one, but it was in a growing community and in a desirable area.
Ted Thomas:
Life is good.
Paul Castillo:
Life is good. Yeah.
Ted Thomas:
No maintenance on those babies, right?
Paul Castillo:
Yeah. Absolutely nothing, it’s beautiful.
HOW TO INVEST IN TAX DEEDS – PAUL’S BEST DEAL
Ted Thomas:
Oh, I love it. Oh, geez. That’s really good. Good deal. Well, listen, I’m going to run out of time, but I don’t want to run out of time without asking you, what’s best deal you ever made?
Paul Castillo:
The best deal that I ever did was last year. For the first two years to two and a half years, I did nothing more than follow your, what you call it, your Walmart strategy. Buy low, sell low. Buy low, sell low. And it makes a lot of sense. For the first two and a half years, that’s all I did because I wanted to build up my reserve.
But I’m 42. I was about 39, 40 when I first started this business. So I knew that my goal ultimately was to build passive income, okay? You’ve got to start somewhere. So, your Walmart strategy made so much sense for me so that I could build up my nest egg.
Because of the success that I’ve had over those first two and a half years just doing that, buying low, selling low, buying low, selling low, put me in a position where I had a good little reserve. Now I was able to use other strategies that coach Bill taught me, like land contracts, which you’ve taught me about as well.
So the best deal that I’ve done was a commercial property that I picked up late last year. A beautiful property. Two stories in a waterfront community, and it had a salon in there. The previous owner had owned it for about 20, 25 years. And Ted, they had this property paid for free and clear, okay?
Ted Thomas:
No way. Oh my God.
Paul Castillo:
What had happened was the owners had a dispute, and they weren’t able to resolve it. One of the owners, the one that did all the books, he was the finance guy, the accountant guy, did all the numbers. The other guy, he was the hairstylist, ran the crew, yada, yada yada.
Well, believe it or not, they lost this property. They had this property paid for free and clear, worth about $450,000, and they lost it due to about $30,000 in back taxes, okay?
Ted Thomas:
Oh my goodness.
Paul Castillo:
I was the winning bidder for this property at $270,000. This is a deal that I couldn’t dream of doing three years ago. But after buying and selling, using your strategies for two and a half years, I now have enough of a nest egg where I was able to be the winning bidder on this property.
Instead of selling this one to make a quick … I could’ve made a quick hundred grand rather easily on this deal. What I did is, I actually put a five-year lease in place. It’s leased at $4,100 per month. If you do the math, that’s-
Ted Thomas:
60 grand a year. I did it already. 50 grand a year on that investment is what? That’s 20%, 25%.
Paul Castillo:
In the five years, the lease will pretty much recoup the entire investment that I put into the property, and I’ll have the property free and clear, paid for. At that point, I can continue to lease it out if I want, or I can just sell it for probably somewhere in the neighborhood of $450,000 to $500,000. I would say that’s, by far, the best deal that I’ve done.
Ted Thomas:
That’s the American dream, isn’t it?
Paul Castillo:
That’s the American dream.
Ted Thomas:
Congratulations.
Paul Castillo:
I want to thank you for everything that you’ve taught me.
Ted Thomas:
Well, you don’t need to thank me. You did all the work. All I did is show you a little motivation then and give you some ideas. Oh my goodness. That’s so incredible. That’s a wonderful, wonderful story. You get the gold star for that baby, that’s for sure.
Now, were there any unusual things when you started looking at it. A commercial property is usually in such disarray, I don’t even bid on them. I tell people I very rarely see one. So now you saw a good one, and the bidding was fierce. Were your knees knocking together, or were you feeling pretty good?
HOW TO INVEST IN TAX DEEDS WITH A BACKUP PLAN
Paul Castillo:
I was feeling really good because, again, I had all my homework done. There were no surprises. There was no stone left unturned. I covered all my bases, and I had my exit strategy in place. Now, initially my exit strategy was to turn around and sell it, okay?
Ted Thomas:
Yeah.
Paul Castillo:
I’ve learned that it’s also really nice to have two strategies in place, one to fall back on. When I first bought it, I was intending to just turn around and sell it, make a quick hundred grand.
Ted Thomas:
Right.
Paul Castillo:
Then once I became the new owner, and I was in touch with the previous owner. I started to collect information and found out what had happened. I basically inherited a tenant. He told me he would love to stay. So he stayed in there, and I was initially just leasing a temp for three grand. I started making money from day one.
He was still hoping that he could salvage his business. Then within just a few months, he realized that he was in a hole that was too deep for him to dig himself out of. He went to go work for a different salon.
It just so happened that this guy outgrew his current place. This location is the best street in this particular town. It’s a waterfront community. It’s a destination community. So he put me in touch with that guy.
His lease was about over. After communicating for about 45 to 60 days, we came to an agreement, put that five-year lease in place. I decided, you know what? This makes a lot more sense than just selling this property.
HOW TO INVEST IN TAX DEEDS FOR PASSIVE INCOME
Ted Thomas:
Well, when I think about it … First of all, I want to say you’ve just done a spectacular job. I couldn’t compliment you enough. I want you to think of what you’ve done here. Yes, you could have sold it and made a hundred thousand. Now there’s a whole bunch of people that say, “Oh man, if I had a hundred thousand, I’d do a lot.”
Well, if you think about it, you’re going to get a hundred thousand in two years. You’re going to get $50,000 a year for the rest of your life, if you want. Isn’t that pretty much what you just told me?
Paul Castillo:
Yeah, that’s right.
Ted Thomas:
$50,000 a year for the rest of your life. Oh my God.
Paul Castillo:
Ted, not only that, but because I’ve been able to take the nest egg that I had made from the first few deals, my passive income each month is actually over $10,000 each month. That’s all due to deals that I’ve bought at these auctions that you taught me, okay? With a little bit of patience, three years into it, look at what you can accomplish.
Ted Thomas:
Yeah. Well look what you can accomplish. Congratulations. Give us some final words as you go. What a terrific job you did and thanks for being so candid, thanks for being so humble.
Thanks for being you, and those two young girls are going to be so spoiled. The rest of the world is not going to be able to handle those two. With a dad like you, it doesn’t get any better than that, does it?
Paul Castillo:
Oh, I appreciate that. I appreciate that. All I’ll say is, look, if I can do it, I truly believe anybody can do it. But I will say, don’t try and reinvent the wheel. Follow the system. It works, it really works.
Ted Thomas:
Just go for it, right? Oh my God, that’s incredible.
Paul Castillo:
Absolutely.
Ted Thomas:
What a wonderful story.
Narrator:
Thank you for joining us today. I hope you enjoyed How to Invest in Tax Deeds and learning how you can start making smart, secure investments today.
CONCLUSION
In How to Invest in Tax Deeds – Part 2, Paul Castillo reveals the rest of his journey in the real estate business, going from fledgling to seasoned tax deed investor.
He admits the mistakes he made along the way, and the lessons learned from them. Paul details the deals he’s made, including his most lucrative one, which may surprise you.
Paul learned how to invest in tax deeds from Ted Thomas, which ultimately changed his life. Now he’s making 6-figures a year working part time at home on his computer purchasing tax defaulted property.
How to invest in tax deeds securely and profitably is something that anyone can learn.
If you’d like to know more about how to invest in tax deeds, Ted has a FREE gift for you, the Safe Haven master course (a $197 value).
Safe Haven is 2 streaming videos and a 100-page illustrated manual, that teaches you how to invest in tax deeds and tax liens. To learn more about how to invest in tax deeds successfully, act now and get your FREE Safe Haven course today.
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