Old Dawg's REI Network Podcast Episode 311: Lessons Learned from a Newbie Investor

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He built his real estate portfolio to 16 units in less than one year while working a full-time job, launching a blog and starting a new podcast. In this information-packed episode, Bo Kim, an accountant and newbie investor, shares his “young pup” insider secrets for the Old Dawg Network that helped him explode his real estate portfolio almost overnight, all at the ripe old age of 29.

What You Will Learn

What are the first steps you should take before becoming a real estate investor?
How to grow a portfolio of 16 units in one year while working a full-time job
House hacking to generate income from and reduce expenses for your primary residence
What accounting audit principles helped him in assessing markets and properties
How to locate top performing markets with the best investment property deals
His top 3 investment markets
The importance of carefully vetting your “boots on the ground”
Determining your investing criteria as a newbie

About Our Guest

Bo Kim

Bo Kim works as a senior consultant for a regional CPA firm in Southern California, and has been working in the Accounting industry for the past 5 years. Bo got his start in real estate investing by house hacking his primary residence in Orange County and since then, has picked up 16 units across the midwest markets of Kansas City, Indianapolis, and Little Rock using various methods such as seller financing, BRRRR, HELOC, delayed financing, and private lending. Bo is also the host of the Bigger Cash Flow podcast, a show aimed to help newbie real estate investors take back control of their finances. He is an avid writer on his blog, where he shares tips and tricks on personal finance, increasing income, and living a life of purpose.

Mo About Bo

He’s currently (at the time of this recording) 29 years of age
Growing up, he got “the usual” advice from his parents to go to college, get a great education, get a good job, save and one day retire from your job with your retirement savings
So, he went to college and, when he graduated, he got a good solid accounting job
His current full-time W2 job is working for a regional CPA firm
Has been in the accounting industry for 5-6 years

His “Lightbulb Moment”

One day, he read a book that turned his world upside down – Rich Dad Poor Dad
The book talked about assets and liabilities in a different way and how you should create “steams of Income” – not just accumulate
This was not how he was raised
His parents were immigrants coming from South Korea
They taught him the value of a strong work ethic
They only wanted the best for him
But they didn’t even have a good grasp of their own financials

Research

Started educating himself on personal finance and got intrigued with the FIRE (Financial Independence, Retire Early) Movement
It wasn’t just “retiring early” that intrigued him, but it was more about chasing what matters to him and following his passion
Started becoming more active on the BiggerPocket.com forums talking with other investors
He realized that 90% of world’s millionaires have real estate in their portfolios
He figured if he wasn’t going to become a start-up entrepreneur or big business owner, he might as well learn real estate investing so he can incorporate it into his portfolio

Taking the Big Leap

He first wanted buy a primary resident for him and his wife that they could “house hack”
He checked with his wife first and she was alright with it
Found a 3-bed 3-bath townhouse in Orange County, California
He rented out one room of his townhouse for $750 a month
This reduced his mortgage payment from $2,750 to $2,000 (which was the same rent amount he was paying for his two bedroom apartment)
He now was able to reduce his expenses and allocate more of his monthly income to investing

Finding Out-of-State Markets

He wanted to create more passive income, so he started to look at markets outside of California that would cash flow well
Looked at mid-west and found Indianapolis, Kansas City and Little Rock
How did he choose those three?
He applied principals that he learned from his W2 accounting job
- As a senior consultant, he audits public companies, who are also bring monitored by the SEC
- They usually take a “top down” risk assessment approach
  - He starts with asking, “What is a risk to this company as a whole and what are controls they can put in place to mitigate that risk?
- He looked at multiple mid-west markets using macroeconomics
  - Population growth
  - Job growth
  - Home purchase price-to-rent ratios
  - Looked at a couple of markets that fit his criteria
    - And how did he develop his criteria in the beginning, when he didn’t really know anything?
      - Spoke to other investors at REIA groups, Facebook mastermind groups to BiggerPockets forum
  - He found that Indianapolis, Kansas City and Little Rock had
    - Great price-to-rent ratios
    - The markets have the types of homes he wanted to invest in
    - Job growth
    - Diverse economy
    - All in states with landlord-friendly tenant laws
- He current has 3 turnkey and the rest he used the BRRRR method

How Bo Invests While Working a Full-Time Job

One of his favorite quotes is, “If you really want something, you’ll find a way. If you don’t, you’ll find an excuse”
He knew that in order to grow his portfolio effectively, he needed to get the right people on his team (brokers, wholesalers or turnkey providers)
Also, because his markets are 2-3 hours later than west coast time, he is able to to set up phone meetings at 5 and 6 am (his time) before he goes to work
Sometimes he can take a Friday or Monday off from work for a quick three-day weekend business flight when necessary
He carefully vetted the members of his team because there is a great deal of trust and dependency you have in your “boots on the ground”
He says if people just take the time to evaluate the amount of time spent each day on Facebook, social media and on other non-essential that they would be surprised how easy it is to free up the time needed to manage your real estate investing activities

On Managing a New Marriage and Doing Real Estate

Kim and his wife are very different – he’s analytical, she’s more creative (she’s a graphic artist)
He shares the “big picture” of what he is trying to do and the numbers than he ran and she’ll shares her feedback and addresses blind spots that he is not seeing
She’s very gracious to give him enough room for him to do what he has to

His First Out-of-State Property Purchase

Purchased a property in Kansas City, MO through a turnkey provider
Looked at the property about a month after be began his research
The property had been on the turnkey provider’s list for about 3-4 weeks
Single family 3/1 ranch style home with a basement in a C+ neighborhood
Working class neighborhood
Cash-on-cash 12-13%
Did more research on the neighborhood
- Spoke to investors familiar with the area
- Got favorable feedback
Had an inspection and found a few issues
- The life of the roof
- Other areas
Started negotiating (some say turnkey providers don’t negotiate but that’s not true)
- Asked for $2,000 off the asking price
- Got repairs done from inspection report and replacement roof
Had an informal mentor who had 24-units across Alabama and Indiana (met him through Facebook)
- He really helped him
- Said to get the inspection report
- How to ask the right questions
Closed in 30 days
Cash flowed pretty well
Ended up being his worst performer compared to his 16 units
Had to evict the tenant after 4 months

Turnkey Provider Issues

Didn’t vet the turnkey provider well enough
There were some red flags early on how they operated and how he should have documented things
- They made promises that they didn’t keep
- Promises were made in a phone call and nothing was documented in the Property Management Software Portal
- They fired 3 property management companies in less than a year
Later, when he wanted to terminate the relationship with the turnkey company but didn’t have the documentation necessary to support his move
Luckily, he had purchased 3 more properties in Kansas City and had found a good property manager that he trusted that he could use for his first property
- The company is not “officially” a property management company because they don’t have a broker’s license
- They are more “eyes on the ground” and are very cost-effective rehabbers
- They do paperwork, marketing, tenant evaluation and placement, collect rent payments. They handle about 200 units in Kansas City area

Biggest Mistake

Not taking action early enough
4 months into his investing, a broker brought him a property in a B class neighborhood that was listed at $60,000
ARV (after repair value) in that area is $110,000 and up
He asked for a rent ready bid and it came to about $15,000
It would still give him close to $35,000 in equity (not counting closing/holding costs)
But he couldn’t trust his own numbers
- Like for the ARV, he looks at prices of similar homes sold in the last 6 months, within a .5 mile radius
A day or two later, it was placed under contract by another experienced investor he knows
What he learned:
- Just because you place something under contract doesn’t mean you have to close
  - There are contingencies in place that protect you if the seller is not disclosing all the facts
    - Inspection contingency
    - Appraisal contingency
- Knowing what he knows know, he would still put it under contract and then do his due diligence

Biggest Success

Taking action
Another quote he likes – “Action without knowledge is dangerous but knowledge without action is useless.”
Still do your research and analysis but don’t hesitate too long

Advice for Old Dawgs Interested in Real Estate Investing

He thought of conversations he’s had with his own parents
They’re both in their 60s and are looking toward retirement
Bo worked for a mutual fund company at the time
The thing he though of was “Having Control”
They were nervous that they were not prepared for their upcoming retirement and that they did not have control of their finances
S&P 500 dipped about 300 points this year, then went up 200
He’s not really following it because he’s focused on real estate as a cash flow investor
But to his parents, they care a lot because that could dramatically affect their retirement savings
He talked with his parents and talked them into selling their primary residence and downsizing
- This allowed them to reduce their expenses about $600
- Then they asked if they could use that $600 to buy cash flowing real estate
- He’s working on a plan to help them do this

Current and Future Goals

Five Year Goals
- He wants to continue to grow his cash flowing rental portfolio
- He also wants to help his parents do the same
Longer Term
- Loves his full-time job and all the benefits. So, doesn’t want to quit any time soon
- Create the cash flow so that, if opportunities come, he can take advantage of them without worrying survival
Helping the Homeless
- Volunteers once a month to help out at a homeless shelter
- He would like to do more of that
Currently Looking at How to Scale Up
- Mainly buying SFRs, duplexes up to fourplexes
- Would like to move into bigger multis
- Paperwork for sixteen doors that aren’t mostly multis is crazy with taxes, tracking expenses, etc.

Which Markets Are the Strongest Now?

Kansas City and Indianapolis
- He likes them because there are a lot of investors, so it’s easy to get good comps
- He likes the appreciation
Little Rock
- Has low taxes – 1/3 of Indy
- Doesn’t appreciate as much
- Steady cash flow

Best Buying Strategies

Depends on the deal – Price vs. Terms
- Seller financed deals
  - Bought 2 duplexes in Kansas City
    - Price was close to market but the terms were real good
      - 12% down
      - 5.25% interest
      - 30 year amortization
      - Good cash flow
- BRRRR deals
  - With good renovations, can usually get $30k in equity
  - Loves the delayed re-finance strategy
    - For example, he buys a property for $50,000
      - $8,000 basic renovations
      - Gets appraised for $70-75,000
      - Uses a private lender to buy and rehab it all for cash – $58,000
      - Goes to a bank and says, “Hey, I have this great property. Would you like to put a mortgage note on it?”
      - The bank gives 75% LTV
        If you’re 180 days (6 month seasoning) but the bank caps the appraised value to the purchase price plus closing or 75% of the appraised value, whatever is less
        This allowed him to recoup most of his money without seasoning
      - In those deals, he’ll have less than $10,000 in and $30K in equity and good cash flow
- Cash Deals
  - Has two properties he paid cash for
    - C- or D neighborhoods
    - Section 8
    - Inner city
  - Pays $35,000 each
  - Section 8 brings in $850 per month
  - B+ tenants
  - Over the 2% rule
  - Hedging his risk and diversifying his portfolio

Rap-It-Up

Favorite real estate book: The Millionaire Real Estate Investor by Gary Keller
Favorite business book: The 4-Hour Work Week by Tim Ferris
Most valuable web site for success (other than your own): Facebook (especially groups)
Favorite app: Refin
Favorite quote: “You can have everything you want in life, as long as you help others get what they want first.” – Zig Ziglar
If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? I’d buy $500 in real estate investing books. Take the other $500 and take successful people to lunch.