JF1457: From Renting Bedrooms To Owning 6 Rentals In 6 Months with Bo Kim

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Bo got his start in real estate with the famous “house hack” method. He rented the extra bedrooms of his single family home. After that, he started acquiring income properties and now owns 6 rentals, all acquired in the first 6 months of his investing career. To hear how he’s been able to hit the ground running, tune in to this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Bo Kim. How are you doing, Bo?

Bo Kim: Doing well, Joe. Thanks for having me. How are you?

Joe Fairless: I am doing well, and it’s my pleasure, and looking forward to our conversation. A little bit about Bo – he started investing by renting his three-bedroom house, then he connected with local investors who invest out of state; he now has six rentals in six months of investing. He’s based in Los Angeles, California. With that being said, Bo, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Bo Kim: Yeah, for sure. My name is Bo, and during the day I work as a consultant for a CPA firm here in L.A. I’ve been in accounting for about five years, and on the side I’ve been slowly learning about real estate investing and getting into rental real estate. Like you mentioned, Joe, the way that I kind of fell into this was about two years ago I bought my primary residence in the suburbs of L.A. It was a modest 3-bedroom 3-bath townhome that I was able to rent out one of the rooms and create that steady cashflow, and it kind of opened the eyes to passive income and wanting to grow that passive income… So ever since then, I’ve been kind of reading books, listening to audio books, going to meetups like a madman, and trying to figure this all out, and it’s been an incredible journey thus far.

Joe Fairless: You’re a consultant for a CPA firm… How do you apply your area of expertise as a consultant role into what you’re doing now as a real estate investor building your own portfolio?

Bo Kim: A great question… I think it fits in perfectly with what I’m trying to do with rental real estate, just because as an accountant I’m a numbers guy, and I’m really into analytics and kind of measuring the different metrics. So there’s hacks in audit, and then there’s a consulting arm, so I’m not the guy to go for tax advice, but I typically work with a lot of companies who need systems and processes built into their company… Anywhere from inventory to revenue, to payments, things like that. I go in there and I look at the current environment and I make recommendations, how to streamline operations and things like that.

So what I did when I started out was immediately I recognized that hey, if I wanna scale this business out and I wanted to really treat this as a business, I needed to come up with systems and processes from day one, so that after each property under my belt, things were just gonna start to get easier. So I think from that perspective it’s really worked out well.

Joe Fairless: What have you implemented?

Bo Kim: Anything from checklists, from what I do from a due  diligence standpoint, I have reminders, there’s different things that I will check cross-reference with county records or with maybe two different brokers or PMs… Things like that I’ve implemented. I always like to call them “controls” to make sure that I mitigate the risk as much as possible, what things could go wrong.

Joe Fairless: So due diligence checklists… What are some other checklists that you have?

Bo Kim: When I study a market or a property, and also when I’m running some of the cashflow numbers, I like to normalize the cashflow expenses by checking different references… Now that I’ve started to do the BRRRR method and tried to flip those properties to myself and create that appreciation, what I’ve been doing is getting different brokers to give me a market analysis, so I can get a better idea of the comps in the area… Little things like that, I’ve tried to implement systems.

Joe Fairless: You’ve got six rentals in six months – is that accurate?

Bo Kim: Yeah. I closed on my first one in late January, and I closed on my sixth one in July, so it’s been six months… But before I closed on my first one, I was reading books and studying for about 2-3 months, I would say.

Joe Fairless: Okay. Where are those six rentals located?

Bo Kim: They’re spread out through Kansas City, Missouri, Indianapolis, Indiana, and Little Rock, Arkansas.

Joe Fairless: Okay. How did you develop the comfort level to purchase that amount of properties in that period of time, across different markets?

Bo Kim: I think that was the biggest struggle for me. Being an out-of-state investor, right from the get-go I’ve talked to people in the local meetups or on Bigger Pockets. There were some mixed reviews; some people who tried it and they were burned, so they weren’t gonna go back to the [unintelligible [00:07:52].23] or other people were like “Why don’t you stay local? It’s much better.” So there was a lot of kind of noise for me to have to navigate through, but the way that I saw comfortable doing all of this was definitely researching and researching… And a couple local investors who invest in Indianapolis and Kansas City really kind of took me under their wing and kind of showed me how they did it, and then sent me to their contacts…

So immediately after I put a property under contract, I took their advice and I flew out to Indianapolis and Kansas City, and I think that was the biggest game changer, because it really helped [unintelligible [00:08:35].20] my expectations of the different markets and how it differs from California, and really helped me build the trust with the local boots on the ground, with the brokers, the wholesalers and the property managers… Because I really took it to hear when they said “You buy a property once, but your team you work with for the long haul”, so I wanted to make sure I have a team that I trust in place, and I think I do today.

Joe Fairless: What type of financing did you use to secure the six properties, if any?

Bo Kim: I definitely used a mix of financing… I’ve used conventional Fannie Mae mortgages, I’ve also used a HELOC, I’ve also used a 401k loan to purchase one all cash, and lastly, I’ve also used a private lender to do the BRRRR method and refinance, so a delayed cash-out refinance Fannie Mae product. But my ultimate goal, at the end of the day, once the properties are stabilized, is to convert them into Fannie Mae loans, fixed 30-year rates, until I hit the ten threshold.

Joe Fairless: You said once they get stabilized, so what condition are they in right now?

Bo Kim: For the “turnkey” products – I don’t know if the Best Ever listeners use turnkey, but these are properties that were distressed, but a provider has fully rehabbed and there’s a tenant in place… For those products, I just typically finance them with 20% for a single-family residence, but if I’m doing the BRRRR method, I will buy them cash with private money, or with a 401k loan, and maybe put in 10k-15k worth of work to spruce up the place, and then I’ll get an appraisal six months later to refi those out.

So when I’m saying stabilized, during that six months making sure it’s nicely rehabbed, it’s got a tenant in there who’s paying, and I’m kind of ready to refi.

Joe Fairless: How are you finding the properties that have the equity going into them where you then renovate and you still have the equity difference than you can refinance and get your money out?

Bo Kim: I would definitely say the guys that I mentioned earlier, who took me under their wing – they’ve been investing in those markets for 2-5 years, and they were telling me both it’s a hot market; it’s definitely different from when they’ve first started, and I kind of like to use the 70% rule, meaning I want to buy a property all-in, purchase price and rehab, 70 cents on the dollar, but I’m realizing that’s really hard to do in this market, so I’ve kind of lowered the bar actually to 75 cents or 78 cents on the dollar.

What this allowed me to do is still get a little bit of equity and pay maybe half the price that I would have paid for a turnkey property, and kind of be in that control… But the caveat to that is I’m taking a little bit more of the risk on my side, to make sure my after repair value is correct, and to make sure that the scope of work and the budget is correct.

Joe Fairless: Is that the primary success metric that you look at when evaluating an opportunity, that 70 or 75-78 cents on the dollar all-in cost?

Bo Kim: That’s not the only one. I would also look at the cash-on-cash. My rule of thumb is I wanna be at 12% or better cash-on-cash when I’m leveraged or financing the property, and also I’m looking at a debt service coverage ratio of about 1.2 or better… And rent-to-value ratios I’m also looking at 1.2 or better.

Joe Fairless: And rent-to-value is the value appraised it appraised at after repairs?

Bo Kim: Yes.

Joe Fairless: Okay, got it. Sorry, what was that ratio that you look for?

Bo Kim: 1.2.

Joe Fairless: Okay, got it. Kansas City, Indianapolis, Little Rock… What (if any) difference have you noticed in those markets as it relates to your bottom line?

Bo Kim: That’s a good question. I think in terms of my bottom line, I think it depends, because I kind of have different strategies for these different markets… Just to put it in perspective, for Indianapolis I’m kind of targeting it because this is where my team focus is on – areas that are pretty closed to downtown, anywhere from 10 to 15-20 minutes from downtown. So I wouldn’t necessarily call it the suburbs… And I think these are good, working-class neighborhoods and I’m not banking on appreciation by any means, but it’s cash-flowing nicely… But there have been signs of gentrification in these areas, so that will be the icing on the cake.

As for Little Rock, I’m kind of focused on more of the B class, and I wouldn’t get into more rougher neighborhoods… But that’s the last market that I entered in, so I’m still learning. The cash-on-cash might be slightly lower than Indianapolis or Kansas City, but that’s a market that I just got into for similar reasons. Each of these markets has its pros and cons, but what I looked at was from a macro perspective, population is steady or growing, and jobs are growing, and it’s very diverse, and it’s also very landlord-friendly.

The last time I looked up landlord laws in Little Rock, I think if they are late on their rent [unintelligible [00:14:24].23] the whole process to have the sheriff escort them was only a couple weeks. I’m not a lawyer so don’t quote me, but that was based on some of the googling that I did… And it made me realize these are very favorable for the landlords, as compared to California, where I live, where it takes forever for an eviction to happen.

Joe Fairless: And what’s your play in Kansas City?

Bo Kim: Very similar to Indianapolis, actually… But for Kansas City I’ll go a little bit further into the suburbs, maybe 30 minutes from downtown. I would consider these still C class neighborhoods. In my opinion, they’re very blue-collar, hardworking people, and they cash-flow pretty well.

Joe Fairless: You have taken many different financing approaches – conventional, HELOC, 401k loan, and the private lender… Let’s talk about the private lender. How did you get to know him/her?

Bo Kim: This one was very interesting, actually… Him and I, we were both part of a Facebook group; it’s a private Facebook group for real estate investors, and we just talked via Facebook messages back and forth for a couple of weeks, just talking about deals, different markets and just getting to know each other. I’d never thought that he would be a private lender of mine for future deals, but I came across an opportunity… It was actually my first BRRRR deal, and I was going to use a hard money lender, but I was looking at all of the fees for hard money lender and I was just talking to this buddy of mine, saying “Hey, these are kind of high fees. The margins just might not be there for me to do a full out refi.”

I was just talking to him, and he was saying “Hey, I have a little bit of cash saved up… Why don’t I be your private lender? I don’t want you to lose this opportunity.” That kind of lit an idea in my head and we got a loan agreement; I had my lawyer friend look at it, it was all good, so we both signed it. He funded the purchase, and I funded the rehab.

We did that deal, and I actually ended up doing a delayed cash-out refi. The terms of the deal were that there will be interest-only payments for six months, with an option to extend for a couple more months, and then there would be a balloon payment for the principle. But within two months the rehab was done, there was a tenant in place and everything was good, so I talked to my conventional lender who said he can do a delayed refinance of 75% of the ARV, not to exceed the purchase price and closing costs. Basically, what that did was it left some of my money in the deal, maybe half of what I would pay for a traditional down payment on a turnkey, but also my leverage was only 60% when everything was said and done, not the 75%.

So I was really happy with the deal, and it really provided a proof of concept for me that I could rinse and repeat this even better.

Joe Fairless: What would be some things that you would optimize if you were to do this similar approach again?

Bo Kim: I think a couple things… I would definitely wanna understand the scope of work a little bit better. When I was initially doing this, I didn’t quite understand [unintelligible [00:17:54].22] I kind of learned as I went. Looking back, it may have been a pretty big risk on my part, but now if I were to do it again, I would fully wanna understand what’s being done to the property in terms of cap-ex items, because a month or two later we ended up replacing the roof… So I would just wanna make sure that hey, if we can do it all at once, maybe we’ll replace the roof at that time. Little things like that, but overall I was really happy with the product and I would gladly do it again.

Joe Fairless: The relationship(s) (I don’t know if it’s one person or multiple people) that you have with your local contacts, local investors, who then told you about what they’re doing in these other markets was critical to your success here, and opening up the door for you… How did you meet them initially?

Bo Kim: It’s funny… I just hit them up either via Bigger Pockets messenger, if they posted on a forum, or I actually just hit them up on Facebook, because they were also in a group that I was in… So if we were on a mutual group or I saw them post on Bigger Pockets, I would just private message them. And what really surprised me was how much these guys — generally speaking, 80%-90% of the people that I message for the first time without knowing them, they were really welcoming and receptive, and they were willing to share what they’ve learned throughout  the years.

One thing I would add to that though was — I wanna share a quick story, if I may… Also I know you’re about the secret of living is giving, and I also believe that. Zig Ziglar said “You can have anything that you want if you help others get what they want, too…” So when I went to Kansas City back in February, what I did was I reached out to the locals here who had properties in Kansas City and I just offered to take pictures for them, or bird-dogged for them, or whatever value that I can bring as a newbie… I asked “Hey, what can I do for you?” without asking for anything in return.

A couple of them actually asked for me to take pictures of their properties in Kansas City, so I snapped a couple pictures for them, and what happened was at one of these properties, the owner of the next-door neighbor came out and asked me what I was doing… So I was telling him, “I’m taking pictures for a friend”, and she asked, “Hey, do you wanna buy my property, too?” I was like, “Sure, let me take pictures and get what’s your purchase price.”

So I took pictures for them, and I got a purchase price, and I passed that along to my friend. And I know if they ended up taking the deal, but I know they were super-thankful that I did that for them, and it just helped me realize that things roll and things began to click for me, and things began to work out really well when I decided to help others without asking for anything in return… So that’s kind of like a motto of mine as well.

Joe Fairless: I love that story, and just so I’m understanding fully, you said on BP messenger you’d message them, or on Facebook you’d message them because you were also in a group… So they’re not necessarily local people, they’re just people who you saw that they posted about investing, and it resonated with you, and then you send a follow-up message to them… Is that correct?

Bo Kim: Yeah, and some of them were in other states, but some of them were also local to me. I live in Southern California, so there are a couple guys in San Diego that I actually ended up meeting face-to-face for dinner; there are a couple of guys in L.A. that I met, and there were a couple of guys in Irvine, Orange County that I ended up meeting as well… So there were some locals, but there were also guys from Virginia, Washington, that are not local to me, but it had the same effect.

Joe Fairless: What’s your best real estate investing advice ever?

Bo Kim: My advice to the Best Ever listeners and people who are just starting out is, especially for a guy like myself, who is into the numbers and into the details, I think looking back, if I didn’t take action on the first one, I still may have been under the analysis paralysis up until this point. I kind of like to remember the game Telephone, where one guy passes on information to another, and another… And by the time it gets to the end user, sometimes the information is not 100% there, or sometimes it’s distorted. So when I’d talk to people and they were like “Don’t get into real estate investing, don’t do this, don’t do that”, I’d listen to them, but I also researched more and educated myself to mitigate the risk, but also to take action.

I like to challenge the people who reach out to me and ask “Hey, how did you do this?”, make sure you don’t fall into that analysis paralysis, and educate yourself enough and take that first step, because I think it’s way worth it.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Bo Kim: Let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:23:07].08] to [[00:23:56].10]

Joe Fairless: Best ever book you’ve recently read?

Bo Kim: It has to be The Millionaire Real Estate Investor.

Joe Fairless: Best ever deal you’ve done?

Bo Kim: It would be my first BRRRR, the one that I mentioned earlier.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Bo Kim: Not getting an inspection.

Joe Fairless: Will you elaborate on that, on which deal it was?

Bo Kim: Yeah. I think it was my fourth deal, when I was buying all cash with my 401k. I was buying it from a wholesaler, and I didn’t get an inspection, just because I knew there was gonna be work that was needed to be done, so I ended up not doing an inspection… But there were little things here and there that I know that an inspector would have caught, instead of me just trying to walk the property and kind of see that visually.

At the end of the day, I knew that there was gonna be work needed to be done, and I budgeted for it accordingly, but I don’t know if that may or may not have changed my decision, or maybe I could have negotiated a lower price had I known that these little nuances or exceptions were out there.

Joe Fairless: Best ever way you like to give back?

Bo Kim: I like to respond to all of the different messages in the forums, and also the reason why I created a blog for myself is to kind of document my journey and be very transparent in terms of how I look at things, my thought process when I  approach an investment, and just share that knowledge… Because as I mentioned before, the two guys who really kind of took me under their wing and shared their contact and their knowledge with me – I wanna be able to do that for the people who are just starting out as well.

Joe Fairless: Speaking of your blog, how can the Best Ever listeners learn more about what you’ve got going on?

Bo Kim: I’ve just created this blog, it’s at BiggerCashflow.com. You can also e-mail me at bo@biggercashflow.com. If you have any questions, if you just wanna talk rental real estate, or if you wanna meet up if you’re local… I always love to learn and give back to other people, as well.

Joe Fairless: You bought six rentals in six months, you did it four different ways from a financing standpoint, and you bought in three different markets. Really interesting story, and interesting to hear your thought process for how you mitigate the risk by getting connected with the right people, and then plugging into their teams and their systems and their connections, to then help you get started faster, but then also to help you have a credible team as you get going.

And the story about you traveling to the market, Kansas City in this example, where you asked what can you do to help those people out who connected you to these markets was great… You took pictures of the properties, and you also came back with a lead for them too, whether or not that transpired and happened to be a close later – who knows…? But you gave them a  lead as a result of you being there, and that’s a tremendous value.

Thanks again for being on the show, talking about approach, what you’ve done… Looking forward to continuing to hear and read about what you’ve been up to, and we’ll talk to you soon.

Bo Kim: Okay, thanks, Joe.

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