No Down Payment? No Problem! Three Creative Financing Options to Consider

Ashley:
This is Real Estate Rookie Episode 259

Pooja:
I think what was really interesting and what I think is so important that not a lot of people realize is that let’s say I want to buy a house. It could be a primary residence or a second home or investment property. Sometimes when we don’t have the money available readily, that can be a blocker and people just get demotivated by that and they don’t take a step forward. If one is creative with their financing, they could make the situation work. It is very important to know that what access you have to your financial accounts and how you can utilize it.

Ashley:
My name is Ashley Jindal and I’m here with my co-host Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start this episode by shouting out someone by the username of Dee Pencil and Dee left a five star review on Apple Podcast. It says, “I’m honestly a little reluctant to give a five star review because I don’t want everyone to know about the rookie podcast this way I can keep you all to myself. I look forward to the new releases so I can keep absorbing all of the great information from y’all and your guests. Cheers from South Carolina.” Well, Dee, we appreciate you and if you are a part of the Ricky audience, the work community, and you haven’t yet left us a five star or honest review, whatever you feel we deserve, please do leave us one. The more reviews you get, the more folks we can help in helping people is what we’re all about here. Ashley Kehr, what’s up? How are you doing today?

Ashley:
You know what? I feel like you always ask me because you just transition right into that. Let’s ask you first this time, what’s with you?

Tony:
What is up with me? Well, as of this recording, we’re like a few days out from Christmas, so we’re actually starting to slow down a little bit. Got pretty much nothing on the calendar for next week, which is nice. On the real estate side, I have a flip under contract. It’ll be one of our heaviest flips that we’ve done. We’ve got actually another flip, actually, I got two under contract now because someone just said yes the other day. We’ve got a cabin that was supposed to close this week in the Smokey Mountains, but turns out the builder built the house incorrectly. It was supposed to be a four bedroom, and we found out that it was a three bedroom.
The appraisal came back super low and we’re like, “What the heck happened?” We hit up our agent, our agent did a walkthrough, and yeah, we bought a four-bed, but they gave us a three bedroom. Now we’re going back with the builder. They have to add another wall to convert this space into a bedroom, which sucks because we needed this to close before the end of the year so we can get the tax benefits and now that’s not going to happen. Anyway, there’s a lot going on.

Ashley:
Oh my gosh, that is insane. You wouldn’t even think of that happening.

Tony:
No.

Ashley:
Yeah, man. How do you even prevent that as next time you have a builder, you’re sending someone out to inspections with a copy of the floor plan?

Tony:
I guess so. You got to have the floor plan. I know that something’s off like that.

Ashley:
Right. Yeah.

Tony:
Our realtor would go through and give us video updates, but yeah, no one ever put two and two together until the appraiser went through and said, there’s only three bedrooms here, not four.

Ashley:
The builder, I mean, how do you mess that up?

Tony:
The crazier part is that we’re not the only ones that it happened to. Our neighbor, he’s a good friend of ours, the same exact thing happened to him, but his was even worse because the square foot, it was just completely the wrong floor plan. Ours, instead of making that fourth bedroom a bedroom, they just made it like a loft so that you got to go in and close it up. Our friend, literally a completely different floor plan, the square footage is wrong, layout is wrong. Everything was off with his. I don’t know, lessons learned.

Ashley:
With a loft too, I’ve learned because we have three lofts right now, actually four lofts between three of our properties, and I’m learning so much as to how to actually make it count as a bedroom. Yeah.

Tony:
I’ll keep you guys posted.

Ashley:
Yeah, definitely. Well, sorry, sorry that’s happening, Tony, but just the things of investing in real estate, I guess. Yeah.

Tony:
Roll rule with the punches, right? Yeah.

Ashley:
So today we have a really cool guest on, we have Pooja on who started investing in India in condos and now has investment properties in the US and she actually uses for her deal where we kind of break it down her primary residence where she did some creative financing. If you’re having trouble finding a down payment, this is the episode to listen to because she shows you how she did it for that creative financing.

Tony:
Yeah, Pooja is also super interesting because she helps with on the market podcast doing some research and data and analysis, and you get to hear in this episode kind of her process when she starts researching new markets, new properties. That was really cool. I think Ash, the thing that stuck out to me the most about Pooja. What was probably the most unique about her story was her approach to investing. Whereas so many people that we bring on the show, they’re focused on cashflow today and building up the cashflow as fast as possible. Pooja is almost going at it from the opposite angle where she said, “Hey, I’m willing to take a small loss on a property even because it helps me with my long-term goal.” If you want to hear more about why she’s willing to do that, make sure you listen all the way through.

Ashley:
Pooja, welcome to the show. Thank you so much for joining us. Can you start off telling us a little bit about yourself and how you got started in real estate?

Pooja:
Yeah, of course. Hi, Ashley. Hi Tony. Thank you for having me here. I’m so excited to be here. Well, my name is Pooja, Pooja Jindal I live in Southern California along Del Beach Cities with my husband, our two boys, and a cute chocolate Labrador. Professionally, I actually wear multiple hats. I am a licensed real estate agent in the state of California. I am an active real estate investor. I’m an IT professional and a media and entertainment studio company in Culver City and a real cool hat that I’m so proud to wear is I’m also the researcher for Bigger Pockets on the Market Podcast, which is one of my favorite podcasts along with the Rookie podcast, along with the Real Estate podcast, along with all the Bigger Pockets podcasts. Yeah, so that’s about myself.
My first stint in real estate industry was actually 14 years ago. I was working as a summer intern at a real estate consulting firm, DTZ Real Estate Consulting. It’s part of now Kushman & Wakefield. I was doing the research for the retail markets, actually it was like the shopping malls and the complexes in all the metropolitan cities in India. That’s when I got exposed to so many terms of real estate and I realized how exciting it was for me, how good I was and how skilled I was to pick up all those terms and terminology and I was able to get all the data. That was my first stint and the first real estate property that my husband and I bought was actually back in 2011 in India. It was a new construction condo that we had originally bought with an intent of using it as a primary residence. That never worked out. More on that later. But since then we’ve been investing in real estate, mainly long-term buy and hold

Tony:
Pooja. Before we go too far, can you just get the listeners an overview of what your portfolio looks like today?

Pooja:
Currently we own in total four rentals and our primary residence, two of our rentals are in India, two are here in southern California, and then our primary residence is in Southern California. The rentals in India are condos and the rentals in Southern California are single family residences.

Ashley:
Where did you start out? Which place did you purchase in first?

Pooja:
It was in India, first real estate investment, that was-

Ashley:
Yeah. Did you buy in India first or did you buy in Southern California first?

Pooja:
Okay, so I used to live in India, so we moved here in 2010. My husband and I, we moved here in 2010. The first property that we bought together was in India in 2010/2011. It was December, January timeframe and after that we still continue to buy properties in India. Then the first property that we bought in US was in 2017 in Southern California.

Ashley:
Can you talk a little bit about the differences of maybe buying in India versus buying in the US? How did you have to pivot your strategy, adapt a change, and just some of the things that you ran into that were different buying in each place?

Pooja:
I grew up in Delhi. It’s one of the most expensive places in the world probably actually. The difference is it’s the red tape is much worse over there whenever you’re trying to buy a property or sell a property. When I sold our two properties over there, I decided I’m not going to buy over there anymore because the selling part was so difficult. In terms of pivoting the strategy, the relationships are much more important over there as compared to the deal analysis that you could do on the laptop or on the phone or just by reading books or by reading blog articles. In terms of the legwork that one has to do, the research, it’s much more based on relationships in terms of the properties that you can find that fits your criteria. It’s narrower over there because the houses are so much more expensive.
Then in terms of actually doing the transaction, which is buying or selling, it’s still reliant on being there in person. I can not just DocuSign papers and sell a property sitting from here. I actually had to go over there physically to sign the papers and sit over there for 10 hours just to close.

Tony:
I just want to follow up with one question. Pooja, what has the experience been like for you trying to manage those properties from America given that they’re in another country?

Pooja:
The experience has been good so far honestly. I forgot about those properties because in terms of the cash flow, they are not generating that much of cash flow, to be honest, just because of the difference in terms of the currency and the price point and how much rent people would pay over there. As far as managing it is concerned, I think what really helped us that we still have family back there where we have the properties, so that really helps to manage the properties. We really don’t have any property manager. We don’t get repairs requests or anything of that sort. It’s really just about collecting the rent checks that get deposited in our accounts and having a network, having a support system of either friends or family who would be available in case there were to be a problem with the property or problem with the tenant in terms of not being able to collect the rent on time.

Tony:
I asked that question because we have so many new investors who are afraid to invest out of their own backyard, let alone in another state, let alone in another country, but you’ve somehow figured out a way to do that, and I just looked it up and from New Delhi to California, it’s almost a 20 hour flight, so you can’t get much further than California and New Delhi. If I’m hearing you right, Pooja, you’re saying the reason that it’s been so easy for you to manage from such a far distance is because you have the people in that town, in that city that are kind of helping you manage. Am I hearing that correctly?

Pooja:
Okay. Yes, it’s been easier for me because I have a support system, but it’s also important to know the market in and out. Whenever I’m buying properties, I take the lead on buying properties. All the properties that we buy, it’s my husband and I, we buy together, but he’s mainly providing the capital and the signatures. I do all the research and I’m really focused on knowing the market before I make the decision.
Now these properties in India that we bought, because since I grew up in that place, I knew which areas are better, which areas have upcoming development, which areas are up and coming, which areas there is a good tenant base, lot of companies there and a lot of corporates there. I wouldn’t have a problem in renting out the space. Yes, support system is important, but that comes after the fact. Before it’s still important to make sure that you’re making an informed decision and being from that place helped me to buy the properties. If I were to pick another place, I would be okay with that as long as I really have done my own research and analysis and talked to some local people over there.

Tony:
What you’re saying, Pooja, is that the data analysis that you’re doing up front is the first step in giving yourself confidence to be able to buy these properties that are so far away?

Pooja:
Yes, absolutely. Absolutely. That’s the first step.

Tony:
Can We dig into that a little bit? What kind of research are you doing when you’re looking at either markets in India or even markets here in California? What is your starting point to say, okay, here’s where I want to focus my research?

Pooja:
So, so I have my own criteria and that has come from just a collective knowledge of just talking to people, talking to other investors, reading articles, or listening to podcasts. Number one, I start with the location. It’s contradictory that I do have properties in India and I did buy and sell properties in Austin, but I try to focus within Southern California. I like to invest local. Number one is location. I always start off with, “Yeah, I want invest locally.” Then after that it’s the price. My objective is, and I do it slightly different, I don’t have a price point in mind. I do in terms of the monthly outflow. I have a criteria that I don’t want to have a monthly cost of more than $5,000 a month. From there I work backwards because then you’re going to look at the property taxes, you’re going to look at the other expenses, the utilities, and you’re going to look at the interest rates.
Because interest rates keep changing, so if I could afford a $1.2 million property six months ago, now that is like $800,000 property. Then I look at the price and after that the type of the property, I like to invest in single family residences. I try to stay away from condos or town homes for multiple reasons. I want to own the land and being able to do anything that I want to do with it, just worrying about the city or the state laws rather than the HOA rules. The type of the property comes into the picture and then I really start doing my analysis in terms of the cash flow from that property.
I have the criteria that in the first two years of the property, since I’m investing in Southern California where the price point is already so high and it is difficult to have a positive cash flow, my goal is that in the first two years, I’m okay to take a hit of negative cash flow of 5% of my monthly outflow.
For example, if the monthly outflow is $5,000, I’m okay to have a negative cash flow of $250 a month for first two years. After that, my goal is to start breakeven in the third year and then have a positive cash flow of 5% of the monthly cost in the year fourth and fifth and so on and so forth. Of course that 5% is going to keep on increasing because my monthly payment would remain the same and the rent would increase, and then I start looking at the properties.
Then I would go look at the properties on MLS, even on Redfin, Trulia, Zillow, just utilizing my relationships with other realtors, with neighbors, friends, anybody that I’m aware of that could have an off market deal I do that. Then I know it’s a long process. Then I start looking at the monthly expense for that property, actual property tax rate, actual running expenses, the repairs, and then any of the vacancy costs that might come up in the future. Then I compare the expenses with the inflow and that’s when I make a decision. At this property makes sense. The last step would be to actually schedule the showing appointment. I do all this legwork before I actually go and see the property before I actually go and start considering to buy that property.

Ashley:
This is a lot of great information and we really want to get into this a lot more, but my first question is some of those expenses are variable or they’re not yet determined when you’re doing that deal analysis. So for example, you mentioned the interest rate that what you could have bought six months ago is way different than now. How are you staying on top of some of those variable expenses, even market data showing that the same city you’re investing in still has the same price to rent ratio, things like that as you continue analysis over the year, where are you getting this data from that you’re pulling to use for your numbers, for your expenses so that it’s the most accurate data that you can get?

Pooja:
Yeah. Okay. As far as expenses are concerned, the up front expense is going to be the down payment that we make. We usually make 25% down payment, the rest of it we finance. That part is fixed, which is the upfront expense. Then after that expense is the interest, which is a mortgage payment. For that, I have closed relationships with the lenders and I try to stay on top of the market so that I know, okay, what is a rate for a 30 year fixed mortgage? What is a rate for 7/1 ARM? What is a rate for 5/1 ARM?

Ashley:
Is that you emailing them and asking them, or are you going to a website to look for that? Where could somebody else find that information?

Pooja:
I actually call them up to get that information, yes. I call them up and that’s how I get that information because every scenario is so different, and since I am not looking at only a long-term rental, it could be even a mid-term rental. I could buy a second home, use it as an investment property. I could buy a duplex or a triplex or a quadraplex, and financing does vary depending upon the type of the property. That’s why it is so important not to just rely on one number from a website, but to actually share the detailed scenario and then get the rates. That information I’m getting from my lender and I’m not just calling up one lender, I’m calling up at least three so that I’m doing my shopping before I decide to go with one.

Tony:
Pooja, one follow up question to that, I know a lot of rookies, they get nervous about either having their credit run a bunch of times or maybe building a bad rapport with a lender because they’re always sending them these deals, they never actually end up buying. What are your thoughts or how do you navigate that? Are they running your credit every single time or are they just giving you preliminary numbers? Do they know that these are properties you’re just looking at or are they expecting you to purchase all of these? How do you work that dynamic?

Pooja:
Yeah, so regarding being worried about what the lenders are going to think that, oh, you’re just asking them to give you the rates and you just keep calling them up and you don’t know when you would be able to pull that deal off. It could take three months, four months. I’ve been calling up my lender for last seven months, so it’s a long time, but I would say that one should not worry about that. If you have that solid, strong relationship with the lender, if you have worked with them in the past, and even if you have not worked with them in the past, just keep on going. Don’t worry about what they’re going to think about it. If they worry too much about it and they’re not answering your phone call, guess what? There’s no shortage of lenders, there’s no shortage of good lenders in the world, in US, so don’t worry about it. Just move on, move to the next one. It’s their loss, not yours.
Then after that, it’s as far as a credit check is concerned. No, they don’t run my credit check. I agree. Yeah, I don’t want a hit on my credit every time I’m trying to shop, every time I’m trying to analyze a deal. They don’t even run a soft check and it just varies. Let’s say if I’m working with the lender who I have already worked with in the past, they would ask me the questions, “Hey, has anything changed with respect to your situation in terms of the new debt that you have taken, in terms of your income?” They would ask those questions on the basis of the information that they already have about me. They are able to run that scenario for me. No, the hard credit check is not a mandatory step. A good lender who wants your business, who knows what they’re doing, should always be willing to give you that pricing.

Tony:
Pooja, I want to follow up because one of the other things you mentioned that I thought was interesting, and you’ve kind of led into it a little bit, is that in these four or five steps that you listed out here that you focus on the expenses first and you say, “Hey, I don’t want my expenses to exceed X dollars per month.” Can you walk me through why that’s one of your first steps? Because I think most people start on the other end where they say, “Hey, I want my cash flow to be X.” But you’re looking at it from the opposite side where you’re focusing on the expenses first. What do you feel has been the benefit of you flipping it around and going at the expenses versus the cash flow?

Pooja:
Yeah, so I think depending upon what your goal is, our goal from real estate investing is not a passive income. No, I’m not really looking for cash flow of an X amount of dollars every month. I’m looking to build long-term wealth. I’m looking to build a generational wealth, and along the way, of course, I don’t want to pay anything out of my own pocket. The reason I start with expenses is also to account for the unforeseen scenarios, to account for the vacancies. Let’s say the house is vacant for a month or two months. Let’s say the tenant is not able to pay their rent for a month or two months. You have to go through the eviction process. That monthly outflow will decide whether or not I would be able to pay that mortgage even if nobody’s paying that mortgage for me. If it is $10,000 a month, then I have to pay those $20,000 for two months, that’s a lot of money, I don’t want to take that risk.
Depending upon my own reserves, depending upon my own income, I decide that threshold. That $5,000 is I’m okay, yeah, so one month I could pay $5,000 if there was a vacancy, if somebody didn’t pay the rent on time. That’s the reason I start with the expenses because, and this is my personal opinion, if I stay focused on generating a cash flow of let’s say $500, and I’m buying a property which is 1.5 million and the monthly cost is like $8,000, and if I have to pay that $8,000 one time, $500 does not make sense. That’s the reason I have this process where I actually look at the expenses first.

Ashley:
We’ve gone into your deal analysis, but why did you even start getting interested in this? Can you kind of talk about how you stay motivated? You’re putting in a lot of work, a lot of due diligence into these properties. Maybe touch on your why, what keeps you going and then maybe even goal setting. Are you setting goals to keep you on track and where do you see yourself going?

Pooja:
The foundation of real estate, it was actually started a long time ago. So I grew up in India. So my mom was a housewife homemaker. My father was working great man, of course, but he could never become a successful entrepreneur. It’s very personal to me, it’s very close to my heart. We did have some money problems while I was growing up. From the young age, I realized the importance of being financially stable. I realized the importance of having a house that you could call home. There was a situation where we had to move out of our house because of some family situation where my father had to sell his share of the property, and at that time I was still in college. I think that’s where it was seeded in my mind how important it was for me to be financially stable.
At that time, my focus was to earn and to save and to invest. Earn, save, invest. In the beginning I was focusing on investing in stock market and index funds and mutual funds and fixed income deposits. That was in the beginning. Then gradually I realized that if I want to multiply my money, I need to look at diversifying my portfolio. That’s how I started looking into real estate investing. Why I got started was my mindset that I need to be financially stable. Another why I started is that I want to provide the time freedom to my family. When I say my family, I’m actually talking about my parents who are still living in India. I want to help them out in their retirement. I’m talking about my husband so that he could do whatever he wants to do with this time. If he wants to quit his job, maybe he should be able to do that.
Another why is to give the time freedom to my kids. I have two boys who are really into playing soccer and all they want to do is be soccer players or soccer ref or soccer coach, not do anything else. I want to provide them that freedom that in future they are able to pursue their passion without having the pressure of being in a race where they have to earn a good college degree or they have to have a nine to five jobs because they need to make the ends meet because they need to pay for their house, which is one of the biggest chunks of your monthly expense. That is my why, why I started in real estate because I just want to multiply and I want to Britain nation wealth and I want to have enough income that I can support the family. I can give back to the people.
How I stay motivated, it is that why. It is that why. When I imagine that why, that keeps you motivated. It’s something like when people go and buy a lottery ticket, even before you win, you’ve lived the life in your hand, you’ve lived the life in your hand and you’re like, I’m going to win that lotto, and I’m going to be so rich, enjoy my life. So I think I imagine that future in my head and that’s what keeps me going. In terms of goal setting, I just don’t know any better. I feel like I just want to keep on going. I don’t have a goal of like, oh, I want 10 [inaudible 00:26:13] in 10 years, in 15 years. Now I don’t have that goal. I do have a long-term goal in terms of what I want to do.
Let’s say when I turn 50 years old, I do have those goals, but in terms of a definitive number of properties, I do not have a goal in terms of definitive number of properties, but I have a goal in terms of the monthly income that I want to earn from these rental properties. By the time I’m 50, I want to have $20,000 every month in passive income. I want to be able to buy a small cabin in mountains, live there without any debt. I want my kids to be able to go to college without any student loan, and I want to be able to quit my W2 at that time and work for a nonprofit. Those are my goals really, and I just keep on going.

Tony:
Yeah. Well Pooja, I mean what a phenomenal motivating reason to build this real estate business. It’s something that we talk a lot about on the show is that when you think about your why, it has to be something bigger than just dollars and cents and your why of giving back to your family, of supporting your husband, of supporting your kids, of buying this cabin in the mountains. Those are things that can really drive someone to stick with it because if the goal was just 20,000 a month in cash flow, that’s something that’s a little bit harder to stick with. Now I want to circle back a little bit because you mentioned earlier that cash flow right now isn’t your biggest motivating factor when you’re buying a property. And even that you might be able or might be willing to accept a small loss on a property when you first buy it. I just want to ask why is that your stance right now and do you feel that that might make it harder for you to get to that goal of 20K per year in cash flow?

Pooja:
First of all, I think I can get 20K per month in cash flow, yes, easily. I have a strategy in mind. Secondly, the reason I am not too focused on the cash flow right now, I think and a very good spot that I’m in is that I still have a W2 job. I still have a W2 job. My husband has a W2 job, and I personally have no desire to quit my W2 job. I’m not looking to be able to quit that job. I love that job. I’m able to contribute, I get rewarded, I work with some great people, so I want to continue working at that job. That provides me the income that I need. So I am not looking for an alternative source of income which I could rely on. That’s a reason I’m not too focused on the cash flow right now.
As long as I’m able to stick to my numbers in terms of let’s say, okay, a 5% of the monthly outflow I account for my income before I come up with that number. Let’s say tomorrow I lose my job, hypothetically speaking, I lose my job, then that 5% will not be 5%, it’ll be 1%. It’s just like pivoting depending upon your own situation is important. Another reason that the cash flow is not important right now to me is because my goal is different. Different peoples have different goals. Some people have a goal of actually having a passive income, they want to earn $2,000 a month from passive income. I totally respect that but my goal is to build generational wealth. I am looking to get, for example, by the time I turned 50 years old, if I got $20,000 a month, I most likely would’ve paid off my mortgage, I would’ve paid off my mortgage so that rent money that I will receive from those properties will just be income. That’s what makes me confident about the fact that yes, I would be able to have that $20,000 a month in passive income.

Ashley:
For those properties, the condos in India, are those more for appreciation, just they’re a little cash flow now, but once they’re paid off, they’re going to kind of contribute to the generational wealth with appreciation?

Pooja:
Yes. Those properties are already paid off. When we bought them, we paid them off within five years when we bought them. Those properties are there honestly for our parents, they’re really just there for our parents. If they ever want to move there, they can move there. When we get older and we visit India, we want to move there, we could move there. To your point, Ashley, yes, that is just for generational wealth. Since they’re already paid off, they don’t have a lot of repairs because they were new construction. I did not mention that. They were new construction properties. One of them I bought in 2010, another one was bought in 2014. Both of them were new construction, so we don’t get a lot of repairs requests on that one. They’re just easy to maintain, just being kept there to build generational of wealth. Yes.

Ashley:
Let’s talk about the peace of mind on that too, of having your portfolio and having a couple properties paid off. We hear all the time about leverage your properties, you’re not getting the best return unless you leverage them. Don’t keep that much equity in a property. That’s a bad investment. What is your thought on having those two properties paid off and not having them leveraged to be able to maximize your return on the property? For example, I just closed on a property I was selling today and it was actually tied in a portfolio loan with another property and we had the option of to going to the bank and saying, we would like to keep that one property on the loan, so let us know what … We wanted to do, 70% of the appraised value when we got the loan for this property, we want to keep that loan balance on the property and then we’ll just pay off the extra that’s due because we’re selling this other property and it’s not held as collateral anymore.
Or we could take the proceeds of the sale, pay off the mortgage and come to the table with another $34,000 to completely pay off both properties. One we have to because we’re selling, so the other one we had that option of keeping the debt on it or paying it off, and we actually made the decision late last night to completely pay off that property. It’s just that peace of mind thing we wanted as to we’ve always kept several properties that are paid free and clear. We’ve sold a couple of them in the past couple years with the market being so hot and we kind of looked back and wow, we don’t have any free and clear properties anymore. Everything has debt on it. We decided to pay that off. What was kind of your strategy behind having those properties that are free and clear?

Pooja:
Yeah, so I think I touched upon it in the beginning that the first property that we had bought, we had bought it with intent of using it as a primary residence. That was in 2010. When we moved here, honestly, for five years we lived here not knowing where we are going to be in the next month. That’s how we lived here for five years. We moved eight times, actual move across states. It was very unpredictable. That was the reason we had bought that property, and that’s the reason it was a new construction and we intended to pay it off within five years because I was very clear in my mind that we don’t want to pay rent, we don’t want to pay rent, and we want to get our foot in the door before it becomes too expensive and we can not afford it anymore. Those two things were very important to me.
Now in terms of leveraging the properties to buy their investments, I do do that. It’s just that those two properties in India, I don’t do it with them because number one, I don’t want to sell them. The only way I would be able to leverage those properties if I sell them, getting a [inaudible 00:34:07] on those properties in India, just don’t even think about it. It’s going to be a nightmare.

Ashley:
That’s interesting to know. That’s not really something I would think about is that being in a different country, it’s not as easy to just go and refinance or to get other kind of debt on the property.

Pooja:
Yeah, so getting a [inaudible 00:34:24] on those, that concept does not even exist there officially through the banks. Of course you could go to a private lender, you could keep your property as a collateral and then borrow money against it, but it’s not a very ideal process that you want to go through, just the way systems are set up over there. That’s why I can’t leverage a [inaudible 00:34:47]. The only way I can leverage the equity in those properties is if I sell those properties. Now, the properties that we have here, we have leveraged the equity built up in those properties and that’s how in US in total, at one point we owned six properties, we sold two of them, but then at one point we owned six properties in US.And the only way I was able to do that is through leveraging the equity in those properties.

Tony:
Just one follow up from you, right, because I’ve always almost been on the other side, Ashley, where it’s like, I love the idea of leverage and scaling faster and using your debt to get the next property, but I’ve had two friends of mine, both successful entrepreneurs who paid off their primary residences and they just talked about the peace of mind. I know you’ve talked a lot about paying off a lot of your personal debt and the peace of mind that comes with that. I think there is something to consider around this aggressive scale and the use of debt versus really being able to sleep at night to know even if everything hits the fan, your home where you live is paid for it and you don’t have to worry about that. I feel like I am kind of going through the shift where it almost might make sense for me to start focusing on that as well. You’re rubbing off on me a little bit Ash, for sure.

Ashley:
Well, Pooja, do you want to go through one of your deals for us and explain the whole process? We’ll throw some rapid fire questions at you first.

Pooja:
Yeah, I do. But I wanted to address that, the peace of mind aspect of it, because you asked about it and I didn’t quite touch upon it. The way I define peace of mind for me is so having long-term rentals, I’m not doing short-term rentals, I’m not doing mid-term rentals, and the reason I’m trying to stay focused in certain areas in Southern California is so that I have almost certainty that those houses will be rented within two weeks depending upon the location. Our tenant screening criteria is so solid that there are very less chances of us running into situation where attendant is not able to pay their rent. That peace of mind for me is to receive that rent check every month, having that stability and then being able to pay off that mortgage. Now, the reason I have not thought about paying off our primary residence is we got it at 2.625% interest rate.
I don’t know if it makes sense financially for us to pay off that debt. If I want to pay off that debt, let’s say it’s like $500,000, I could invest those $500,000. Even if I invested in a boring certificate of deposit, I would still earn more than 2.625%. I do get that, especially from being from an Asian country, it is very much in our culture like, oh, don’t have debt. Own your property all free and clear. Don’t have debt. Home is supposed to be a place which you own all hundred percent. Then the practical side of me kicks in and says, come on, this does not make sense. You want to pay off a debt that you borrowed at 2.625% when you could use that money and easily earn 7% to 8% interest? That opportunity cost of the money is what helps me from making that decision. That’s where the peace of mind gets taken care of.

Tony:
That was always my thought too, right, is you could take that cash and get a better return. I think I’m starting to shift my mindset a little bit where maybe there are certain aspects of my life where I’ll take that opportunity cost of not getting a better return elsewhere for the peace of mind that comes along with having to pay it off. I haven’t done this yet. We still have debt in our primary residence too but as I think about our future decisions, that is something I’m starting to consider.

Pooja:
Tomorrow I think that if I lose my job, honestly, there’s so many ways to earn income. It’s like I could deliver Amazon packages, I could be a babysitter, I could be a housekeeper, I could do-

Ashley:
Have more time to buy properties.

Pooja:
Exactly. That fear is something that that does not stay with me that I won’t have a source of income.

Ashley:
Okay. Do you want to lead us through one of your deals that you’re done, that you’ve done? I’ll just give you some questions and then you can give short responses to that and then we’ll kind of go through the story of it?

Pooja:
Yeah, sure. Let’s do it.

Ashley:
What is the property that you purchased? Single family, multi-family?

Pooja:
Single Family residence.

Ashley:
Okay. What market is it in?

Pooja:
Southern California.

Ashley:
Okay. How much did you purchase it for?

Pooja:
Purchase price was 1.4.

Ashley:
How did you find the deal?

Pooja:
Off market.

Ashley:
It’s a long-term rental?

Pooja:
It was a primary residence.

Ashley:
Oh, okay.

Pooja:
I want to touch upon the creative financing aspect of it.

Ashley:
Okay, cool. Yeah, why don’t you go into that then?

Pooja:
Okay, so yeah, we already were living in our primary residence and I had not really solid plans of moving, but it was still in the back of my mind. I never want to say no to a good deal. That’s just my strategy. I never want to say no to an opportunity. I was subconsciously looking for other primary residence. I founded about an off market house some owners were trying to sell last year in December, so that was still the peak of the market. Getting an off market deal at that time, that was golden. The purchase price was golden too. The house is definitely worth more than that.

Ashley:
What’d you say the house is worth? When you purchased it at 1.4, what did you think it was worth at that time?

Pooja:
1.55.

Ashley:
Yeah.

Pooja:
It was a particular situation for the sellers that they were moving from one state to another and they didn’t want to go through the process of actually getting the house ready, getting people, looking at offers. They wanted to do an off market deal. That kind of was a win-win situation for the sellers as well as for us.

Ashley:
Let me ask you this real quick before you go on. How did you find that information out? Because that can make or break a deal, is finding out the motivation of why a seller is selling the property.

Pooja:
It was directly from the sellers actually. There was a realtor involved, so I’m a real estate agent, and I ran into another real estate agent at an open house and it was not a secret. They were very comfortable with sharing that yes, we are looking for an off market sale as long as the price is right.

Ashley:
Okay, cool. And then you want to go continue on with the rest of the deal. So how did you finance it?

Pooja:
Yeah, so it was 1.4, the down payment was 20%, and at that time we did not have funds to make that 20% down payment. As far as the creative financing is concerned, so there were few options that we had on the table. One, what we could do is we could sell the funds that we had in the brokerage accounts or we could sell some of the stocks that we had in our ESOPs accounts. Or what we decided to do is that utilize the money from the [inaudible 00:42:00] on our primary residence. The primary residence that we had bought in 2017, we had a home equity line of credit on that property that was for $150,000. We utilize all of that $150,000 on that line of credit. The interest rate on that line of credit was about 3.95%. The interest rates were still low. From a point of view of how much you’re borrowing, the interest rate was still within our budget.
We also used a liquidity access line. A liquidity access line is kind of similar to a home equity line of credit. In a home equity line of credit, essentially you’re using the equity that you have built in a house as a collateral to borrow money against it. In liquidity access line, you’re actually using the money that you have in terms of the stocks, the securities to borrow against it. Instead of selling our stocks, withdrew a liquidity access line on it and utilized $80,000 from there. That was $230,000 that we technically borrowed utilizing the lines of credits. Then after that we borrowed $60,000 from a private money liner.

Ashley:
So with those two lines of credit, I think first it’s important to mention that the liquidity access line of credit. It can’t be a retirement account. Correct? It has to be non-retirement account to get a line of credit on. Is that correct?

Pooja:
Absolutely, yes, that is absolutely correct.

Ashley:
With these two lines of credit where they both interest only payments and how did that affect your debt to income? Now you’re going to the bank to get the mortgage on this new property, did they look at those payments to the line of credit and include that into your debt income?

Pooja:
They did not look at that payment. Even at that time when I was trying to draw money from the line of credits and I’m getting a pre-approval, we owned three other rentals at that time. The debt to income ratio can get affected by that. All those three rental properties were rented. The payment for those two lines of credits were not accounted in the pre-approval for the mortgage. Then as far as the payment is concerned for a fixed number of years, and it can really vary from bank to bank, that’s why I don’t want to say just 5 years or 10 years, it can vary from bank to bank, from product to product, but you can pay only the interest for 10 years.
The HELOC that we had, we were allowed to pay interest only for 10 years, but of course at some point you have to pay the principle as well. It’s not that you can just pay interest and then if you just want to pay interest, then you will just keep paying interest. It’s very important to know that interest on a HELOC, it’s variable, it’s not fixed. It was 3.95% at that time, but today if I was paying interest on that HELOC, it would’ve been much more. That’s something very important to account for in your calculations when you are taking the lines of credits.

Ashley:
With that property, you moved into it and did you end up refinancing out of it? Did you update it all or do anything to it to pay off those lines of credit and the original loan or what’s happened with the property today?

Pooja:
I had a strategy in mind. We owned three rentals at that time. One of the rentals that we have is in Southern California. The two other rentals were in Austin. So we had bought two properties in Austin, two single family residences. When we started looking at this primary residence, the inflation was already increasing at that time. From October to November to December, it was increasing by at least 0.2% every month. I decided to sell the Austin properties. My strategy was that, okay, we will draw money from the HELOC, we’ll draw money from the liquidated access line, we’ll borrow money from a private lender and we will sell both our properties in Austin and the money that the funds that we will get from the Austin properties, we would be able to pay off the HELOC as well as a liquidity access line as well as a private money lender.
We were able to. We sold both the Austin properties. One was sold in January, 2022, another one was sold in April, 2022, and those funds were used to pay off the lines of credit. I think what was really interesting, and what I think is so important that not a lot of people realize is that let’s say I want to buy a house, it could be a primary residence or a second home or investment property. Sometimes when we don’t have the money available readily, that can be a blocker and people just get demotivated by that and they don’t take a step forward. If one is creative with their financing, they could make the situation work.
It is very important to know that what access you have to your financial accounts and how you can utilize it. At one point I almost sold those stocks. Now I wish I had because a stock price was really high, but at one point I thought, oh yeah, let’s just sell these stocks and use this money. At the same time, if I could draw money from it using a liquidity access line, then that was a better decision because then you’re holding your stocks for a longer period of time if that is your strategy. With us, all investments that we are doing is long-term buy and hold. We never want to sell anything.

Tony:
Yeah, that’s a really interesting, and I think important takeaway Pooja for all of our listeners is that, you know, had this amazing opportunity and you could have just kind of thrown your hands up in the air and say, well, we don’t have the cash, but you got creative, you took a calculated risk in kind of pulling debt from the HELOC, the access line, the private money lender, but you knew that you had a way to, in a short period of time, pay that debt off. Obviously not everyone’s going to be in the same situation, but I think the lesson for our rookie listeners to take away is if you find a great deal, focus on getting creative to make that deal come together instead of just throwing your hands up and saying, “Oh man, this isn’t going to work.” I definitely do appreciate you sharing that, Pooja. I’m sure you’re going to inspire some folks to go out there and make some deals happen.

Pooja:
Yeah, and it’s important to take a calculated risk. Honestly, if I didn’t have a plan of selling those two properties, I didn’t know if I want to borrow 80% of that 1.4 and on top of it, borrow another $230,000.

Tony:
Right, but it was a calculated risk, which I think is something you seem to be really, really good at, which is awesome. All right. I want to take us into our rookie exam, Pooja. These are the three most important questions you’ll ever be asked in your life. Are you ready for the exam?

Pooja:
Born ready.

Tony:
All right, there you go. I love that. That might be the best response you’ve gotten to me asking that question. Number one, what’s one actionable thing rookies should do after listening to your episode?

Pooja:
Well, after listening to the episode, I would say that build the community. I think it’s so important to have the like-minded community because it provides you access to the education, it provides you access to the resources that you will need in your real estate journey. For me, that was the key. All that I have learned about creative financing, liquidity access line, HELOC, everything came from just talking to the like-minded people, reading the articles written by like-minded people, listening to the conversations, listening to the podcasts involving the like-minded people. I think it is very important to join a like-minded community to stay focused on your real estate journey. Yes.

Ashley:
What is one tool, software, app, or system in your business that you use?

Pooja:
I use Avail a lot. I use Avail for all our tenant screenings and to receive the rental applications.

Ashley:
It’s a property management software. Right?

Pooja:
It’s a property management software, but the main use for me is to run the rental applications, to run the background check, to run the credit check and to economy screen the tenants. Another one that I use is AirDNA with, because anytime I’m looking at analyzing a property, I want to look at the different strategies like, okay, could it work as long-term rental? Could it work as a mid-term rental? Could it work as a a short-term rental? To do the analysis for the short-term rentals, AirDNA really comes in handy.

Tony:
All right. Last question for you, Pooja. Where do you plan on being in five years?

Pooja:
In five years, I still want to continue working in my W2 job, and I want to add two more properties to our rental portfolio. Two more properties to our rental portfolio, both of them, two of them together giving me a thousand dollars a month positive cash flow. Another goal that I have is I’ve set up a new company of house and boat company for transitional youth. It is to provide housing to the youth who’s in foster care or who have exited foster care. My goal is to provide housing to 100 kids in five years.

Ashley:
Well Pooja, thank you so much for joining us. Can you let everyone know where they can reach out to you and find out some more information about you?

Pooja:
Yeah, of course. The best place to find me is on Instagram. My Insta handle is my first name dot last name with an extra L, with an extra love. So Pooja.jindall, J-I-N-D-A-L-L. That’s the best place to find me. I regularly post videos on, you know what I’m doing and a lot of educational stuff just to give back to people.

Ashley:
Well, thank you so much for joining us. We really appreciated having you on the show and giving us tons of advice and sharing your story with us.

Pooja:
Thank you.

Ashley:
I’m Ashley at Wealth From Rentals and he’s Tony at Tony J Robinson. We’ll be back on Saturday with the Rookie Reply.