Since quitting his healthcare job after 8+ years, Jaspreet Baveja has been helping others achieve the dream of passive income through private lending. Jaspreet is the CEO of JGB, LLC and has built a business that allows him to pursue his passions of travel and spending time with his family while generating income on his terms. Today, he chats with Keith Baker to explain his process, lending methods, and habits and how he's able to lend on properties over 2000 miles away from his home.
[smart_track_player url="" title="PLP 112 - Lending On Properties 2,000 Miles Away With Jaspreet Baveja" ]
Lender Nation, greetings from the energy capital of the world, the last time I checked, it’s Houston, Texas. I'd like to thank you for sharing your time with me. If you're looking for practical tips and advice on private lending and how to build and maintain wealth without banks or Wall Street, then you're in the right place. If you want to learn from my mistakes so that you can avoid them, well then pull up a chair and pour yourself a stiff drink because this show is for you. This is dedicated to giving people just like you and me, the knowledge and confidence to participate in the most passive form of real estate investing known to man, private lending.
If you're looking for the easy button or a shortcut to beginning your private lending, then head over to PrivateLenderPodcast.com/ink to learn how you can put your money to work for you by investing in private and hard money loans in and around the Houston area. In case you haven't heard me say it before, Texas is a very lender friendly state with a relatively short foreclosure period. That's why we private lenders like lending here so much. As this episode is being released, it is Labor Day in the United States. To be specific, this episode is dropping on Monday, September 7th, in this dreadful year of our Lord, 2020.
I'm going to go off the ranch here, but I noticed earlier that the acorns had started the fall from an oak tree in my backyard and the squirrels are beginning to hoard their stash for the winter. It was quite fun to watch them not fight but scurry around. They were very excited about the fresh acorns that had fallen. Given the year it has been thus far and not knowing what the next four months are going to bring, not that January 1 is going to suddenly make our lives any better, but I’ve adopted a mantra and motto which is a very determined and emphatic plea to you, dear reader, and that is this. Three simple words. Prepare for winter. It's coming. The squirrels know it. If you haven't seen like something's coming, I don't know how much crazier things can get, but I don't want to ask.
I think it's a good time to prepare for winter. Start putting those acorns back, start not spending so much. Maybe get a little more conservative in the fiscal side of things. I'm trying to do that. At the same time, I'm trying to also become more liberal on the giving and the tithing and whatnot. As they say, the more you give, the more you get back. I'm trying that myself. I'm not suggesting you necessarily do that, but just saying that's where I'm at. We've had a hell of a nice long run on this bull market. We'll see what happens, but okay. Our topic is one for which I receive quite a few questions, and that is how to lend beyond your own backyard. I always say people tell people to start in their backyard before they move out and lend out of town or even across state lines.
It's something that I don't do myself because I don't need to leave Texas. It's fairly secure and safe for me and I can go still see the properties. However, I have the privilege of speaking with Jaspreet Baveja, a private lender in the San Francisco Bay area who's going to talk about how he generates positive ROI through private lending on properties that are over 2,000 miles away. In fact, I owe him a big, huge debt of gratitude because I was trying to wholesale some properties, some land in central Texas. It’s my guest Jaspreet who suggested I take down the deal myself and then that he would be a private lender.
Unfortunately, the deal fell through, but I'm really looking forward to the next one, knowing that I have a lender who's willing to finance development deals in a very hot spot of Texas. All he did was ask me one simple question and it got me out of a mental rut and it got me out of my own way. It gave me another option that had been kept hidden by my own limiting beliefs. I'm very grateful he made the suggestion. I want to say thanks, but let's go ahead and get down to the brass tacks and into the interview with Jaspreet Baveja.
Lender Nation, I'm honored to have with us on the show, Jaspreet Baveja. Jaspreet, welcome to the show.
Thank you very much.
Give us a quick background. I know you live in the San Francisco area, but where did your family come from?
We came from India. I was born and raised in India for almost fifteen years. We moved to New York for a couple of years down to Florida, Miami for ten years. I’ve been in the Bay Area now for over ten years as well. I met my wife here and she was also born and raised in India, New Delhi, like me. We've been married for several years. We have two girls. My parents live in Florida but are here at my house visiting in this COVID insanity. They said, “We waited long enough. We want to see our grandkids.” They came out and my youngest one had her birthday and the older one's going to have a birthday soon, so they're spending the time.
That's one of the things that most Americans, or certainly my American family didn't understand was the concept of family is a lot different from Indians. It's not better, not worse, but an old Indian grandmother trying to feed you when you're full and don't want to eat is the same as my grandmother was trying to feed me. It’s the same thing. The reason I wanted to bring Jaspreet on for you, Lender Nation, is I always say I only talk about things that I do. I lend in Texas and in my backyard, but Jaspreet goes across state lines.
I wanted to bring him on and turn the show over to you, Jaspreet, and say, how did you get into this private lending thing? You do it more for cashflow whereas I do it for my retirement. I found your story very intriguing. Obviously, we've spoken a few times and you were graciously kind enough to come on the show. I'm going to shut up and start taking notes here in a minute. If you could, how did you become a private lender? Were you a wholesaler or rehabber? Walk us through how you got to that?
I was working a full-time job at a healthcare company. I had been at that healthcare company at least six years when I got started in real estate. I had a rental property out here that became a rental because we moved out of a condo and we said, “We can rent it out for the same amount of money that we have to pay our lender.” That's all that mattered. A net-zero was all I was looking for because I was not an investor. I was not in that mindset at all. It was, “I can have two properties for the price of one and leave there and it will pay for itself and that'd be great.” It never works out that easily. It sounded great on paper, but luckily enough, it appreciated enough that we were able to get out of it for net-zero at the end, even after six-plus months of no rent from a tenant in California. It was normal. The eviction process is 6 to 9 months. Nobody even blinks an eye on that one. It's insane.
I said, “I’ll never do that again.” Lo and behold, two years later, I did that again. This time the rent was like time and a half of what it was before, but amazing tenants. They were making more in retirement than I was making with my wife's income combined as active employees. I was like, “I can trust these guys. They are pretty savvy.” It worked out well and it appreciated again. That one appreciated probably almost 50% in the 3 to 5 years that we held it. That was one of the biggest boosts for the cash influx to our family. It gives us a little bit of a nest egg to go ahead and do what I did. I quit my job.
[caption id="attachment_3002" align="aligncenter" width="600"] Private Money Lending: It’s a lot easier to lend to an established entity at a term of six to twelve months at double-digit returns with a first position lien guarantee, knowing that your money is secure in that asset.[/caption]
In 2017, I got started in real estate. My friend said, “You already got this one rental property in the Bay Area. Forget all that. That's not cashflowing at all. Let's look at cashflowing markets.” They dragged me over to Indianapolis from the Bay Area. Sight unseen and without flying out there ever, I bought two duplexes and relied on a network that my friends and investor buddies had already built. I got the broker, handyman, GCs, electrician guy and a flooring guy and slowly started building the network and a property manager. Soon enough, it went to crap. I fired the property manager and I got another one. Soon thereafter, it went to crap and I fired them.
You mean you have to manage the property manager?
You get the property out of state. You give it to a property manager. They hire everybody they need to. You make 8%, 10%, 12% a year and everything goes happy, go lucky. What are you talking about? Nothing ever goes wrong. You get a check in the mail, mailbox money. That’s ideal. It doesn't always work that way, unfortunately.
You’ve got to manage the managers and you get the easy mailbox money. You had bumps and bruises. Your friend, was he on the ground there in Indianapolis?
No. He was here and he has probably still had about 60-plus units out of there in Indy. They're powering through. The scale matters. The more invested you are and the more scale you have, the easier it is to handle those bumps and bruises. Let's say if even 50% of your portfolio goes away and you still got 40 paying tenants, it's a lot easier to manage those other 20, 30, 40 that are not, and get them rented and get them managed and all that stuff. That's where scale comes in, but I was barely at 2 or 4 duplexes. During this process of building my portfolio up is when I started networking with wholesalers and property managers like I said, and other flippers, other out-of-state investors that were investing in the out of California, whether SoCal or NorCal or whatever and talking to people.
One of the investors said, “Would you mind lending me money to buy this property in Indy? I’ll pay you X percent interest rate and you'll be the first position in the lien.” I said, “I heard that percentage return when I first was buying properties. I haven't seen it in the last eighteen months that I’ve been holding them. Maybe this will work out better.” That's how I started the process. I did some research, talked to a lawyer, looked at the contracts, and note and mortgage. I understood this is pretty similar to what my bank gave me when I was buying the property. They were giving me the loan and the documents look pretty similar. I figured out what it takes to get them. I don't think I spent months and trying to figure that out.
It was more like two weeks in to from when they asked me, I went and said, “Yes, let's go ahead and get started.” On the third weekend, I'd already funded the deal and it was close to $250,000. It was still something that I was comfortable taking the risk on because of that first position lien equity in the deal. The property was probably worth $500,000 and they were buying it for $290,000 or $300,000. I said, “There's enough equity that if everything goes south, I should be able to recoup my investment and still be able to make money.” I took that risk and it paid off pretty well. That was probably in June 2018. By the end of 2018, I'd done six more. It’s not even with that same guy but different people. Just word of mouth. I literally never advertised, never said to anything and talked about how I’ve done it. People came up and asked. I vetted them and off it went.
I want to unpack a few things there, if you don't mind. First off, you said you had a house in California that appreciate 50%. God bless the California real estate market because when it's good for people, it's good. When it sucks, it sucks. That's great that you were able to take advantage of that. I also love the fact that I wouldn't call it speculation per se, but for an outsider looking in California would probably consider speculation. You're able to profit and then put it into something very conservative like private lending, which is great. You should always have some spec money. You always have a little blackjack money, little roulette money. Some for the craps table, just to have a little fun, or for the stock market, if that's your casino, whatever. I do like that. The other thing I wanted to ask is what was the term of that first note that within three weeks that you had funded $250,000?
It was a 6 or 12-month loan. It was going to be personal guarantee to an LLC that had existed for a while and they were going to buy it. They were going to wholesale this one. They were going to buy it at a discount and then put maybe $1,000 to $5,000 in to clean it up. Not do a full-blown flip, but presentable and then market it. They have their own brokerage too. There's a pretty well-established team of investors. They got wholesaling, flipping, buy and hold and all that under their umbrella. They've got all these different components of their business that they utilize. It was pretty easy to figure out. They've done a lot of deals. They are open to the market. They have a huge podcast following. They have a huge investor following. It was a lot easier to lend to an established entity in terms of 6 to 12 months at double-digit returns with a first position lien guarantee, knowing that your money is secure in that asset.
You touched on one of my favorite things. When lending to people I say, “Who do I lend to?” I always tell people to be extremely discriminatory in this case. That's not for me to do the protected classes. I want to see a lot of gray hair. I like to see age when I lend to people, people that have been through it. This reminds me of the savings and loan crash of ‘88, or when this turned. I love that. The other thing I like is I always required people to have skin in the game, which usually means the money in the deal, but there's also reputational risk. I’ve turned a lot of newbies and first-timers away. However, if they have a coach or a mentor that is earning or had their shingles out and they have students and they have a reputation risk. If there's reputational risk, I like those too. It sounds like with this team, they've been around long enough. It wasn't like your friend's cousin Jimmy found a flip. This is a business deal.
A legitimate business that has been operating for years. Even on my website, I did the same thing. I put a link to one of the biggest counties in Indiana, which is Marion County. I put Marion County’s online website on my website that says, “Click here.” You put in any entities name or a person's name and you will see a release of mortgage. You see those deeds going in their name or the entity's name going back years. When you see 100-plus of those transactions, you know that they're active in the market and how long are they active. You can see the addresses and you can see dollar amounts. It's a free, simple resource to do a background check and you know you can't go wrong. This is literally the county's website. This is a recorded deed that they can't lie about. You go straight to the horse's mouth to hear, “Yes, they've done this deal.” You go down the list and it’s 100-plus of them.
How quick is that comfort level? That warm and fuzzy?
It overtakes you. You're like, “This is pretty good.” You get their LLC. You can go and save the information on the website, the state’s registrar website and you go take a look and say, “They've been there. They've registered 8 or 10 years ago or whatever. They've done hundreds of deals and they've got all these people investing.” Clearly, they're doing something right.
You also touched on something that is a deal-breaker. A lot of people want to have the loan to the LLC so if it goes tits up, they can walk away. They close down the LLC and there's no personal liability. Not in my world and it doesn't sound like that happens in your world either. You get the personal guarantee for everybody listed on that LLC. I know a couple of lawyers that insist not for LLCs because that's a whole different thing together, but a loan to an individual, especially in Texas. They put the name of their wife as well because we're community property. They could make the argument. “No, only half that loan.” If I loan out $100,000, only $50,000 of it is tied to him.
I have never lent to a person's name ever. I have been involved with at least 60 of my own loans so far, and I have helped get about 40 or more other people's loans into place to help connect the dots, and not once has it been in a person’s name. It's always been an entity name and the entity has to have existed for a while, seasoned guys, and that's it.
[bctt tweet="You can protect yourself in so many other ways than just worrying about entity creation." username=""]
That's how you stay safe. Your background is not in money or finance, is it? You said you've worked for a healthcare company.
I was doing healthcare regulatory compliance. I was doing documentation for physicians and surgeons and matching the dots for state regulations and doing data analytics, but it was never around finance and dollars and liens and figuring out mortgages. None of that. The only time I'd ever dealt with a mortgage, it was when I was buying my own primary residences. That's it. That speculative money that you're talking about, it was a primary residence that I got from my family. We moved in and a couple of years later we said, “The family is growing. This is too small. Let's go to a different house and we’ll rent this one out.” That's how it happened. Luckily enough, we stayed in it for at least 2 out of the 5 years. It’s tax-free. We take that money and run.
This is also another interesting point is that this is not in your retirement account. This is cash money out upfront. Is it taxed as ordinary income for you?
Yes. I’ve switched over to having an S corp election. We'll see dividends and salary and self-employment tax and all that stuff. We'll see how that works out, but I did it out of my own name for the first twenty deals at least. That was my name lending to an LLC. I eventually set up the LLC and then I said, “Maybe the LLCs hit its quota. Let's go over to an S corp. You grow, there's no need to have everything ready and everything figured out day one. A lot of people get held back in this scenario of, “I want to have all my ducks in a row.” You should focus on the deal and the stability and the verification of that