Bo Kim reached out to me a few weeks ago letting me know what real estate investing has been like for him. He told me that he started listening to the show and was inspired to go out and try it on his own. He’s not famous or even super experienced, but I just wanted to show people that you can be totally new to real estate investing and still go out and make money doing it. You can even do it by learning from my show. I promise my content is real and useful! Bo Kim can attest to it.
So you’re an accountant from California?
Bo: Yes, I am from Orange County. I work for a regional CPA firm and I have been doing it for 5 years. I am part of the consulting section for business and internal audits that kind of thing.
When did you originally get interested in real estate investing?
Bo: I was always really interested in real estate and I would watch the HGTV shows. I had always had dreams to buy a primary residential home for myself. After I got married, my wife and I decided we would find a modest 3 bedroom townhouse in Southern California. We quickly realized the 3 rooms were unnecessary for us, since we didn’t have any children. We thought we could try renting out one of the rooms to make a passive income. Getting the passive income was exciting and I realized that it would really help us out financially. My wife and I wanted to use the money to invest in other things and save more.
A lot of times it is so easy to get caught up in the potential. People say they want to be Grant Cardone or Donald Trump with 10,000 units. I know when I still worked in construction, I would drive by the billboards with the Ohio lottery numbers on it and I would daydream what I would do if I won that amount of money. While I never won the lottery, I do understand what it’s like to want a little extra at the end of the month. So, like you, you rented out the bedroom and even if it was only an extra $300 a month, that can seem like a jackpot on its own.
How long ago did you start renting out that room?
Bo: We started renting it out in April 2017.
Had you done any research on real estate investing before that?
Bo: I actually did no research previous to renting out the room. Renting out the room was the trigger to look into how else I could get more checks each month. I knew that I couldn’t afford to buy a
We are now in 2018. So, how have things changed for you? What are you doing?
Bo: A couple months into renting out one of the bedrooms, I took the time to read some books and see how else I could get into the real estate investing. I read the book The Millionaire Real Estate Investor by Gary Keller. It’s still one of my favorite books now. It started with the mentality and how to grow a portfolio and stabilize it. I think I picked up like 5 to 10 more books and that’s when I picked up your book Man on Fire. I liked how personable your book was and how you leveraged the skills you had. Listening to the other investors and how they did it fired me up to do it myself. Many of the investors I met up with in the beginning were very nice and gave me help when I asked for it. I started writing everything down that people told me about or that I read in books. I created my own list of criteria. One of the great tips I got was to fly out to the markets I wanted to purchase some property in. I wanted to meet the wholesalers and check out the markets. Southern California is a little different than the Midwest. Google satellite images are not always updated and you can’t always go by those pictures.
99% of the people we do deals with are remote. They are not always local and that was a big struggle for us. A B-class property for us is different than for those outside of the Midwest. I have to do a little more explaining as to why the returns are better and how its still better than some of the areas I could invest in. This information is great to know because the market is big from Ohio to Tennessee and the Midwest area. Just because the market might have gone down in some areas, does not mean all the areas have gone down. Tennessee might have hit some trouble, but the Columbus market might have gone up in the market. It’s good to know the areas and the micro markets inside them well. It will keep you from losing out on big deals because the macro market might have gone down a little.
So what markets do you invest in?
Bo: I am currently in the markets of Indianapolis, Indiana, Kansas City on the Missouri side and Little Rock, Arkansas.
You could pick any market you wanted, why did you pick those ones?
Bo: Right, so when I first started–there was so much information out there– people were constantly saying “this market is good”, “check out this market”, “you need to be in this market”. I had to try and wade through the noise and I love analyzing the markets. So I checked off my criteria list and used it to try and figure out which markets actually had what I was looking for. I was especially conscious of landlord friendly places. I had people in California telling me horror stories of the tenants not moving out or trashing a property and the law is on the side of the tenant instead of the landlord. I had to be sure that I invested in markets where the law would be on my side and help me protect myself from bad tenants.
We have people who reach out to us and I like to understand how people decide what markets to invest in. How much does the operator effect what markets you look at? You know, the people you would be working closely with for long periods of time as far as your investment goes.
Bo: I wanted to know who the players were in the markets. I knew that I was just going to be doing real estate investing on the side, so I wanted to work with people who had more experience and get operator referrals from other investors familiar with those markets. I literally had 10 days where I had meetings every day and went to each of those markets. I met them face to face to make sure I liked the operators.
How many units do you own now?
Bo: As of right now, I have 4 single family properties and 2 duplexes. I have 8 units but on 6 properties.
Which of the properties are in which market?
Bo: I have 2 single families in Kansas City. I have one single family in Little Rock and then two duplexes and a single family in Indianapolis.
I have a couple friends in the Indy market. It’s so funny because you realize that the pool of people who are actively investing in real estate is so small. You meet people who invest in so many markets because there aren’t many using those markets. You always get fringe players like new wholesalers who contact you with deals, but the real estate investing circle is smaller than you think. But it doesn’t have to be. There is room for so many more, but people get scared and don’t pull the trigger.
The first deal is always the hardest. Walk me through your first deal after the room renting.
Bo: I totally agree with you [the real estate investors pool being small]. I think I could have been one of those people who wait too long or never made a move. I can be an overthinker and hesitant, but I just knew that I needed to take the plunge or else I would always find excuses to not do it. I had no fantasies that the investing would immediately bring more cashflow than my W-2 job. I set out with smaller goals rather than trying to accomplish these big goals in a short time.
My first deal was from a turnkey operator. I had been searching for deals for about a month. I put the deal under contract about a month after looking at their deals. I wouldn’t say my first deal was a slam dunk, but it was good for a first one. I aim for a 1.2% or above rent to value ratio and $200 net cashflow or better, using an 8% vacancy and 8% reserve. That was my criteria going in, and the first property was close to the cashflow and I wanted to just get it done. I got the inspection reports and I saw all the things that would need fixed to make it rent ready. I freaked out! I thought it was supposed to be turnkey. I had to have an investor friend walk me off the ledge. He told me to take the report to the seller and see if we could negotiate some kind of deal. The seller ended up taking care of 90% of the list.
Did you get a loan or did you leverage cash?
Bo: Yeah, so I financed it through a conventional Fannie Mae lender. I got a fixed 30 year rate.
Have you used conventional lending for all your deals?
Bo: I have used a private lender, a HELOC, a 401k loan, and the conventional loans.
Was it a loan from your own 401K?
Bo: Yes, my company has a 401k account with VanGuard. I can take 50% or 50k of the 401k balance and I bought the property all cash.
Were you able to refinance that deal and pull the cash out to replenish your 401K?
Bo: Yes, I closed it in April. It was actually a section 8 property. I am trying to figure out what I would like to do with the property. The cashflow on that property is amazing, so I am not sure if I want to pay back the 401k loan, which is $300 a month or if I should completely refinance and pay it all back at once.
I have this debate with a lot of people about equity and what makes sense. At the end of the day, it comes down to your own comfort level. If you can make more money than what the loan is costing you, then go full steam ahead.
Bo: I totally get it. I agree with that strategy because that’s what I like to do myself. I mean, you could buy a car with cash, or you can use that money to get a new rental and use the cashflow from the rental to pay for the car’s monthly payments.
If I could get a car for $0 down and 0% interest. I would rather use that cash for something that will get me a return. A car is a depreciating asset. You don’t get a return on it.
I think this podcast is really out here to encourage people to take action. It should inspire people because you went out and get 6 properties in about 8 months. You are the Rocky story! You were a regular person in a regular job and you changed your life with real estate investing.
Bo: Yeah, that’s why I wanted to share my story. I listen to your podcast and others and I think about all the other people out there who are listening too but haven’t made a move. I want to enourage them to make that first step. Once you start doing it you will get momentum to work on your 2nd and 3rd deal.
If you had one piece of advice for a potential real estate investor who might have some analysis paralysis, what would it be?
Bo: Educate yourself. I think more people are afraid of what they don’t know. You can’t expect people to do all the work for you. I would suggest getting a mentor, which is also a form of education. Listen to podcasts. You recently told the podcast listeners to invest in what you know. I think that’s great advice. Become an expert in what you want to do in investing. I have people hitting me up to wholesale me deals, but they aren’t within the criteria I ask them. Like, I asked for deals on the west side and they send me deals from the east side and tell me that this deal is perfect for me. It could be, but that’s not what I have studied and looked at. I don’t want to ignore what I already know just because someone tells me its a good deal.
I agree. I just made a post saying that the number one thing that I am happy to pay money for was a mastermind on mindset. Coaching and mentoring are great resources that will help you deconstruct time and figure out when you should be doing things and how much time you should be spending doing it.
This interview is a great resource for those who are afraid to pull the trigger and invest in real estate. Bo Kim walks us through his first deal and how he got the courage to start investing in real estate, even when he possibly overthinks or over-analyzes the deals.
If you love the returns of real estate investing, but don’t want to deal with any people, you have the option to be the bank. You can be part of a trust or a fund. Right now, I have a fund set up for accredited investors with over $5 million in assets. The fund has preferred interest and 70% profit sharing. Visit me at investwithdrmatt.com to find out if you have the opportunity to invest with us.
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**This article has been edited for length and clarity**