ITF 24 | Accidental House Hack

 

Some things occur by chance but what matters is what you do with an opportunity when it comes. This is what Bo Kim, an accountant, did after he and his wife bought a three-bed, three-bath townhome in 2016. He discovered FIRE after his first real estate investment and then did his research—aligning everything he’s learned with his goal of cash flow—and took action.

From knowing nothing about real estate investing just a few years ago to having 63 units across three markets, Bo is an example that you can do an extraordinary amount of things within just four or five years.

Tune in this week to learn more about turnkey properties and providers, out-of-state rentals, creative financing strategies, and the importance of having a good team.

Listen to the podcast here


 

The Accidental House Hack To 63 Units In 4 Years With Bo Kim

Usually, I’m here with my partner in crime, Zeona McIntyre but she is off gallivanting in Hawaii, swimming with the whales and surfing with the sea lions while I’m here in, not too bad but gloomy Denver, Colorado. She’s on vacation and was having some internet issues, so she couldn’t quite pipe in. This one is a solo episode for me. Z missed out. This guy, Bo, is incredible. He went from not even knowing about real estate investing at the end of 2016 to 63 units in 2020.

He’s largely doing it by himself. He does have some investors and stuff like that but he talks about so much in this episode. He talks about buying a townhome in Southern California, which is a big deal because Southern California is so expensive. He talks about out-of-state investing, out-of-state with both turnkey properties, as well as out-of-state doing BRRRR on 10 to 16-unit properties, seller financing, subject to and all the stuff we dive into in this episode. It’s loaded with information.

Bo is a normal guy doing things that normal people do like you and me. It shows that if you put in the work and effort, you can accomplish an extraordinary amount of things in 4 or 5 years and make a difference in your life. With that being said, I’m going to quit talking and get to this super exciting episode. Let’s welcome Bo to the show.

Bo Kim, welcome to the show. How are you doing?

I’m doing well, Craig. Thanks for having me on. I’m excited.

We want to dive into your journey of financial independence and get an understanding as to where you first found out about financial independence, and take us through your journey. Let’s start with where you first hear about financial independence.

Before I found out about financial independence and went down the whole rabbit hole of BiggerPockets and going through the real estate investor forums like Mr. Money Mustache and the sorts, I accidentally became an accidental house hacker. What happened was I graduated in 2015 and married my wife in 2016. We rent it for about a year in Southern California where rent prices are pretty high. It might be more than a mortgage out in the Midwest or parts of Colorado. Our rent rates were going up.

In the second year, my wife and I were like, “Why don’t we try to buy a house with a 5% downpayment?” What we did was we talked to an investor-friendly real estate agent and purchased a new build construction. It was a townhouse, 3-bedroom, 3-bath. It was a little bit more expensive than my current rent at the time. My rent was about $1,800. With this new property with a mortgage, PI, TI, HOA fees, it was going to be $2,700. We could afford that at the time, so we went ahead and purchased it but because each of the bedrooms had its bathroom, my wife and I were like, “Why don’t we rent out one of the bedrooms?”

The timing worked out where my sister-in-law was looking for a new place, so she wanted to rent a room from us. We did not have intentions of renting it out before the purchase but soon after the purchase, we ended up renting it out. The lightbulb moment for me turned on when I was on a trip, and I woke up one morning. This was the first of the month, and I’ve got an automatic ACH in my Chase bank account. It was an a-ha moment. I was like, “I want more of this. This is so passive. I didn’t have to do anything. The room was going to sit there anyway, and I wanted to get more rental income.”

It was going to be difficult to do that in Southern California, so I started researching online. I went through this whole rabbit hole of BiggerPockets, Mr. Money Mustache, and all that where I learned about FIRE. I came across a ton of blog posts and listened to a ton of podcasts. I started looking out in the Midwest because I found out you could purchase real estate outside of your local market.

To recap, you did not do a Google search in how to retire early or anything like that. You went to buy property as any traditional American would of a 3-bed, 3-bath townhome. Where in Southern California were you?

I was in the suburbs about 40 minutes from Downtown LA in a small city called La Habra.

What did you purchase this home for? Your mortgage payment was $2,700 but what was that purchase price?

Conventional wisdom is not always the truth. You have to explore and learn for yourself. Click To Tweet

It was $435,000.

Did you put down 20%? Did you know about the low down percentage?

I did not know. I thought you always had to put down 20%. This is where I learned more about how conventional wisdom is not always the truth. You’ve got to explore and learn for yourself. As I was talking to more real estate agents, they told me, “You could do 5% down, and it’s still considered conventional lending.” We opted to do 5%.

How much did you come to the table with then?

It was about $21,000 plus closing costs. All in, it was roughly around $30,000 to my memory.

You graduated in 2015. You married your wife and got your first property in 2016. How did you come up with that $30,000 after a year? Did you have that saved up or do anything fancy with it?

My wife and I were big savers. We don’t spend a ton. Coming out of college, I had an Accounting degree, so I went to work for a CPA firm. My wife is a graphic designer so we were making a pretty decent income. Combined, we are making about $130,000 right after graduation. I paid my way through college, so I had no college debt. My wife did the same. We all both worked full-time while going to college. All of our income after living expenses, we are saving probably 50%.

One thing people have to understand as well is that it starts with frugality. Once you are frugal and you can be for both for the first few years of your journey, you open up Pandora’s box of opportunities. You had that $30,000 laying around, so you’ve got this appealing house. It wasn’t even meant to be an investment but a 3-bed, 3-bath, 40 minutes outside of LA. It’s probably a three-hour commute into LA.

With traffic.

You are renting it to your sister, so what are you getting from her?

We were charging $750. I told you my rent for a 1-bedroom, 1-bath was $1,800 bucks. They were going to bump it up another $75 to $1875 but what it essentially did was my all-in, including HOA property tax, all of that was $2,700, and minus the $750 from the rental income, it washed it the same as if I were to stay in that one bedroom. Simplifying things, not even including the tax benefits, mortgage paydown, owning a house, equity appreciation, none of that. In the end, that was what tipped it for me. I wasn’t trying to be an investor. I didn’t know about house hacking. It made financial sense for me at the time.

In 2016 you bought it. You have to stay there for a year, so let’s say the end of 2017. Did you do any investing in that year? Were you living, working, and being like you are one of the house hackers?

Yes. After I had that a-ha moment of getting that ACH and that rent payment, I started looking online, where I found a lot of FIRE blogs and came across BiggerPockets. This was roughly the end of 2017. I had the house for about one year and a half. I came across the 90-day challenge to buy your first rental property. It was like a webinar, and that kicked my butt. I was like, “In 90 days, I’m going to buy a rental property out of state.”

ITF 24 | Accidental House Hack
Accidental House Hack: You can have the best property in the world, but if you don’t have a good property manager, especially being remote, then you’re not going to cash flow. You’re going to bleed out slowly over the long run.

 

I started researching like mad. I talked to a lot of investors in my local REIA meeting. I would go to a lot of REIA meetings, and I found the market of Kansas City, Little Rock, and Indianapolis. I bought my first turnkey property in Kansas City. From then, I bought another turnkey in Indianapolis and Little Rock and started to scale that way.

How did you stumble upon those three out-of-state investing markets?

My philosophy is not to recreate the wheel, so what I did was I went to these REIA meetings, and I would talk to a lot of investors. I love networking and learning from people, so I would talk to people who I felt I wanted to model myself after. I would trade places with them. There was this particular nurse from the Bay Area. He had about twenty units in San Francisco and was very generous.

He showed me how he researches markets, how we found the Midwest, what rent to value, the 1% Rule. All of that, he shared that information with me. What I did was I took that knowledge and aligned it with my goals, which was strictly cashflow. I was going for A Class, B Class, the appreciation play. That’s how I decided on these properties in Kansas City and Indianapolis.

You have your goal, which is cashflow. Financial independence is your goal, and cashflow will get you to financial independence. You are not buying in Southern California. You are taking a page out of David Greene’s book, Long-Distance Real Estate Investing and networking with people who are doing the things that you want to be doing in the market, and you are taking action that way. We are in early 2018, and you have targeted your three markets. You’ve got one turnkey in Indianapolis. Do you want to dive into that deal a little bit?

The first one was Kansas City. Spoiler alert, I lost $10,000 on my first property. The way that it happened in hindsight is I was too trusting. There was a turnkey provider that promoted a lot on BiggerPockets and a lot of people were buying from them, so I was like, “I will buy from them as well.” The sales process was great but what I didn’t know is that there is a whole other process called Property Management.

Looking back, my advice is you can have the best property in the world but if you don’t have a good property manager, especially being remote, you are not going to cashflow. You are going to bleed out slowly over the long run. Long story short, I found out the tenant that they placed in did not meet the three times rent requirement, which was their policy. They stashed somebody in there. They were making about $1,400 a month when the rent was $850.

They stopped paying in month four, and I found out that they had a prior eviction on their record as well a year before, so they did not meet the requirements to go to that property. I filed an eviction, and it took about three months. They trashed the property. When I’ve finally got the sheriff to escort them out of there, they came back, kicked the doors down, and took all my appliances. Lost rents, the renovation, the break-in, eviction costs, and all of that came out to be about $10,000 on my first turnkey property. That was exciting.

Do not recreate the wheel. Instead, learn from people. Click To Tweet

Do you still have that property? Are you still using the property manager?

Yes. The one thing that I did well was I bought it in a great location. What I did was I fired that property manager after we’ve got that person out. I wanted to see them through. I hired a good one. They’ve got it turned quickly and put in a new tenant. It has been cashflowing well since then.

You haven’t missed that $10,000 you lost, have you?

I have not. I did a refinance, and it appraised much higher than what I bought it for. Kansas City has been on fire. I don’t think I’ve made my $10,000 back in cashflow yet. It’s going to take a while because it’s usually $200 net after all expenses per month. I call it my intuition. I learned a good lesson. I didn’t have to pay a guru, and I’m not going to make that mistake again.

If that was the only property that I bought and stopped there, I would have had such a bad taste in my mouth that I would have stopped investing. Being the gung-ho person that I am, I bought that property, and a month later, I bought two in Indianapolis and another one in Little Rock. By the time that the problem started hitting the fan, I already had four properties. I’m all in on this, so it worked out in the end.

Can we talk real quick about the numbers on that Kansas City property? I know you lost $10,000. How much did you buy it for? How much did you put down? What was the payment so people can understand that market in three minutes?

I bought it for $66,000, and I put 20% down because it was a single-family home investment property. I financed it with a lender out of Ohio, and the rent was $850 a month. After taxes, insurance, 8% vacancy, 8% maintenance, my net income was about $200 to $250 on that property.

You’ve got more than the 1% rule on this property, a $66,000 property, 20% down. Did you use a commercial loan? Did you get one done in your name?

I’ve got it done in my name but this was back in 2018. It was about 5%. Some of my friends are getting 3.5% even on investment properties, which is crazy.

At the end of 2020, the interest rates are crazy low. We’ve got ours at 2.375% for an investment property. It’s ridiculous. You’ve got your first one, and it’s great because you took crazy amounts of action and went all in. Tell us a little bit about Little Rock and Indianapolis. How do you find a team when you go out of state? You found three different teams in a matter of a month or so.

ITF 24 | Accidental House Hack
Accidental House Hack: Once you decide on that market, you work with a lender of your choice and get a pre-approval just so they know that you are serious and qualified to buy a property.

 

What I did was I talked to a lot of investors who are doing this out of state. After I did that, I made a shortlist. I also went on BiggerPockets and created keywords for the certain markets that I was looking at, where there was going to be job growth, population growth, a diverse economy, as well as Landlord-Friendly Laws. That was going to be important to me because California is tenant-friendly. If it hit those big four metrics, I made a list and shortened it down to those three markets, and I had a shortlist of all the vendors that I wanted to do.

In the beginning, I was only going to do turnkey properties because I had a very demanding W-2 job. I know you worked in venture capital. For CPA firms, you work 70 hours, 80 hours a week. I knew that I didn’t have the bandwidth to go ahead and manage rentals and source deals myself. I started with turnkey, so there were only a certain amount of turnkey providers in those local markets. What I did was I flew out to those markets. I wasn’t going to go on autopilot. I flew out there, met the people, bought them lunch and dinner, and tried to build a relationship.

For some people, you have a gut feeling, “This person is going to work well with me. This person’s interest might not be aligned.” After I interview them, then at that point, you have to take a leap of faith. I’ve got lucky, the team that I worked with in Indianapolis, FS Houses, has been fantastic. I still work with them. They manage all my rentals in Indy. In Little Rock, I found a turnkey provider called Turnkey Properties, run up by Alex Craig. I bought five from him as well, and it has been great.

You’ve got your team through networking. The best way to build a team is through referral, networking, and people that you know. A lot of people are interested in this turnkey solution because it sounds extremely passive. Take us through one of your deals through the turnkey provider, one that doesn’t suck like your guy at Little Rock that you like. How would that typically go for someone?

In Little Rock, once you decide on that market, you go ahead and get pre-approved, so you work with a lender of your choice and get a pre-approval, so they know that you are serious and qualified to buy a property. They are going to put you on what’s called a Go List. That Go List gets a weekly inventory on Tuesdays. You take a look at the offering memorandums. It’s like a little package that tells you the address, why they like the area, what the cashflow pro forma is, the scope of work, and the layout of the house. It’s well done. What I liked about this Little Rock turnkey company is they were professional.

I review all of that and normalize it with my own numbers. If they think property taxes are $1,000, then I go to the Pulaski County website and check it to make sure that it is the latest one, not from 2018 but it’s from 2020 and maybe I will add 5% or 10% based on the trend. It’s the same thing with insurance. If they think it’s $800, I’m going to call my insurance broker and get the actual square footage for this type of home and make sure it’s not in a flood zone.

After I fact-check all of that, I’m going to tell them, “Let’s put it under contract.” A $80,000 house rents for $850 to $895. I put it under contract, then from that point on, if you have gone through a purchasing process, it’s pretty similar. You put your earnest money down, deposit and you have about ten days to inspect the house. In some situations, the rehab might not be complete then, in those cases, the inspection is a little bit longer. These properties fly off-the-shelf hotcakes, so oftentimes, you are putting it under contract when it’s still being renovated.

You have to build trust. You never know what you can get until you ask. Click To Tweet

Once it’s finished rehab, you can get your inspector in there and make sure everything is good. The inspector is going to give you all of their thoughts. You send that to the turnkey property and be like, “The inspector found these ten punch list items. What can we do about it?” In my situation, they circled all of the big issues and renovated those.

Once I verify it, I can send a third party there or I can send my inspector back out there for another fee. Once everything is good, I’m going to go ahead and close on the property. After that, you can technically close with a tenant in place or sometimes there might be about a month lag until the tenant gets found and you start cashflowing.

To be clear, the turnkey company, are they the seller? Are they selling it to you?

Yes.

They are selling it to you, they are rehabbing it, you found them or whatever, they are also going to go ahead and manage your property. Is there any conflict of interest there or am I not thinking that through enough?

I see it from both sides. I had a turnkey provider that outsources their party property management, and there have been turnkey providers that do it in-house. The argument on the turnkey providers that outsource it is saying that there is a conflict of interest and you want an objective third party making sure that they have renovated to a certain standard and all of that.

On the flip side, the way that I looked at it was, I want my turnkey provider to renovate and manage it as well, all in one shot. My thought is that they are not going to do a crappy job renovating it if they are going to have to manage a long-term deal with all the work orders and a reputational hit from their tenants by providing a bad product. That has worked for me in Little Rock and Indianapolis but it didn’t work in Kansas City. Pros and cons, for sure.

What are you doing with this Kansas City property? It sounds like Indianapolis and Little Rock are pretty easygoing. There’s not much to talk about but what about Kansas City? What’s going on there?

In Kansas City, after I fired the old property manager and got a new one, it has been cashflowing well, and I picked up a couple more. In Kansas City, specifically, it’s a different strategy for me. I’m not sure if your readers are familiar with Section 8 but it is a government program where they give vouchers. The government essentially pays for all, if not a portion of the tenants’ rent, so it’s like financial assistance.

Some people avoid it like the plague. In the forum, some people don’t like it but I have had a great experience, especially working with a property manager who understands the system. I have been getting ACH at the beginning of the month from the government. Even throughout COVID, I have not missed one payment, no issues there. They take good care of the property because if they don’t, they will fail the annual inspection and may potentially lose their voucher as a tenant. It’s worked out well for me, and that’s what I’m continuing to do in Kansas City.

In Kansas City, you are doing Section 8. In these other places, you are doing traditional rentals. Have you had any problem with Section 8? Are they loud, too many people in the house or any stuff like that?

Surprisingly not. These Section 8 properties in Kansas City, for me, are in the urban core area so these are areas that I don’t invest in like Little Rock, for example. In Kansas City, my property manager only deals in the urban core, manages about 250 rentals in that area, so he’s familiar with it. He has an office there and the tenant placement. In my opinion, it’s crucial if you go with this strategy that you have a property manager that understands the type of tenants that they are dealing with and the program itself.

It sounds like you have built up great teams in all markets and are doing well but real estate investing is going to have its hiccups, bumps, and bruises but you are going to put on your suit of armor and get through it. To recap your story again, in 2015, you graduated. In 2016, you’ve got married, bought the 3-bed, 3-bath in Southern California, and you say, “California is too expensive. The taxes are too high.”

ITF 24 | Accidental House Hack
Accidental House Hack: It’s very crucial if you go that you have a property manager who understands the type of tenants that they’re dealing with and the program itself.

 

You don’t love that market. You want cashflow. You go to these meetups or REIA events and start meeting people. You decide on these three markets of Little Rock, Indianapolis and Kansas City. Kansas City didn’t go so well but these other ones did but you fix Kansas City. Through this whole process of turnkey, how many units or houses do you have?

It’s 63 units across the three markets. I have the most in Indianapolis. I have the strongest team there in terms of deal flow, rehab, and property management. In Little Rock, I have the next amount of homes, and Kansas City is the smallest.

That’s 63 units for four years. Are these all single-family houses? Are you buying multifamilies?

I started all with single-family homes and duplexes. Earlier in 2020, I bought a 10-unit and a 16-unit in January of 2020.

You are putting 25% on all these properties.

After my first six properties, I started utilizing the BRRRR strategy, so buying distressed property. Your readers might be wondering, “How is he financing all of this?” I pretty much used every creative financing strategy that you can. I have pulled a loan from my 401(k). I have used the equity in the home from my original 3-bedroom, 3-bath townhouse. That one is an awesome strategy. I have raised private capital. The good ones for me have been seller financing on my own terms, as well as subject to financing. Those things allowed me to get a lot of equity and sweat equity. I rehab those properties and the back end, I bundled it all together and refinanced with a commercial lender.

Can you talk about that? That sounds interesting. First of all, what’s subject to and seller financing? Why don’t you take us through that whole process?

First, in terms of creative financing, I love the HELOC because that property that I bought not only did it pay me once while renting it out to my sister-in-law. I didn’t know that you can get a second mortgage, and this is me being new years ago. One of my friends was like, “Why don’t you get a HELOC?” That property in about one year and a half went from $435,000 to $500,000. I took it to Andrews Federal Credit Union, a random bank in Maryland that I had never heard of before, and they gave me up to 100% in equity. I have 5% down.

What I owed on that property was roughly about $398,000 or something like that, and the property was worth $500,000. They gave me about a $60,000 HELOC line of credit, and I coupled that with my 401(k) loans to buy single-family homes in the Midwest all cash and do the BRRRR strategy. That’s how I did it in the beginning. I found private lenders to buy some more properties. By the time I had about twelve properties, I wanted to explore seller financing. I heard about this on the Epic Real Estate podcast. I was like, “If somebody can do it, then I can do it.”

I was all about trying this new strategy, so I told my agents in three markets to make a ton of offers only on seller finance. I don’t care if it’s at a market or even slightly above market. As long as it’s on my terms, I’m going to buy the property and seller finance. What I did was I negotiated two duplexes that have been sitting on the market in Kansas City.

It was overpriced, in my opinion, at $220,000. I lowball them all cash for $150,000 but I gave them another offer saying, “I will buy it from you seller finance for $180,000.” That’s what I felt their true market value was. $220,000 was too high. That’s why it was sitting there. When I did offer two options, they pretty much laughed at the $160,000 lowball but they looked at the seller finance like, “Let’s talk more about that.”

I didn’t know what I was doing. I went back, and re-listen to that podcast episode where it talks about you can negotiate on the down payment, on the interest rate, on the amortization, and the balloon. There are four different levers that I can pull up and down to make the numbers work for me, so that’s what I did. I did a seven-year balloon but I amortized over 35 years, so my payments were super low, and I only did a 10% down payment. The interest rate was about 4%, which was lower than the conventional rate at the time.

You want to reduce expenses as much as you can and increase the top line as much as possible. Click To Tweet

The seller was sitting on the market for him, and he was also dealing with one problem tenant. I was able to take that problem tenant off of his hands. Once everything was done, I renovated the properties, kicked out the bad tenants. About a year later, it appraised at $270,000. That ended up being a good property for me by being a little bit creative. I listened to a podcast and followed those strategies.

Were these two duplexes on one lot?

No. These were two separate lots and parcels but I combined them in one deal.

How did you swing that negotiation? That tenant was that big of a problem. That was his main motivation for selling at such a low rate and low term and all these things.

One of the lessons learned in that encounter was that you’ve got to build trust. You never know what you can get until you ask. Another good thing that I felt I did was I flew out there and built a relationship with the listing agent. The seller was unable to meet with me at the time but I built a relationship with the seller’s agent. This was a long two-month negotiation process. I didn’t get it on my first trip over there.

I came back home and followed up with the agent every week, “Is this sold yet? If not, here’s my offer.” I was making it slightly better each time. I will raise it a point to 0.25% interest rate or I went from a 5% down payment to a 7.5% down payment. I continued to push those levers up, and I was still way below what I was comfortable with. I was okay if he accepted at any time. Ultimately, he ended up accepting, and it worked out.

He didn’t keep waiting and waiting. If you are putting a new offer in every week, he wasn’t like, “Give me your highest and best. Quit joshing around with me.”

Surprisingly, it didn’t happen. What I also found out was the investor was a big-time investor in Kansas City. He had about 30 more properties in the area. He was flying back and forth between spending his winters in Florida and spending his summers in Kansas City. What I did was continue to follow up and build that trust. I also threw out the offer, “If you are ever willing to sell the other 30, I will make a good offer, and let’s use this as a test so you can trust me. I will make those payments to you. In the future, I can be another potential buyer for your other properties.” It was mainly an issue of trust.

There are a lot of good nuggets here. Between building a relationship with someone that you wouldn’t expect to build a relationship with like the listing agent as the buyer, and asking about the seller financing and getting something that you need, which is a crazy good deal. You keep talking about these four levers. I probably know what they are but why don’t we say them out? That way, if anyone is interested in doing seller financing, they know what they can pull.

The first one is the interest rate. The second one is going to be amortization. Usually, for your Fannie Mae products, it’s going to be a 30-year fixed amortization. The third one is the balloon. For Fannie Mae, it’s for 30-year but with seller financing, you can do 5, 2 or 7 years, it’s your choice, and the fourth is your down payment.

These levers are pretty set in stone with your Fannie. You can’t negotiate with a conventional lender and say, “For this one, I want to put 10% down.” You can’t do that. With seller financing, as long as the numbers work for both of you, I didn’t even know you can go to 35-year amortization. I didn’t even know that was possible but it apparently was. I learned a lot of lessons along the way as I was doing this as well.

To recap, in case you are confused with a 35-year amortization, what that means is that let’s say Bo buys this property for $100,000, and he puts 10% down, so it’s a $90,000 loan. That $90,000 is going to be paid monthly as if it were going to be paid over the course of 35 years. The monthly payment is much smaller than it would be over a 30-year loan or a 20-year loan. The longer the period, the less the monthly payment.

ITF 24 | Accidental House Hack
Accidental House Hack: Go out to build a brick wall, and not straight up build that wall. Go out there every day and consistently place the bricks as neatly and straight as you can until you have a beautiful wall.

 

That balloon comes into play because the seller does not want to wait 35 years to receive his money. At year seven, Bo is going to be maybe $10,000 or $15,000 off the principal, and he’s going to owe the remaining $80,000 right at year seven. That’s what the balloon payment is if you are not familiar with that. I love that strategy and that you are a perennial learner to know what to do and how to tackle these strategies when it comes time to do it, and you did it.

To add to that, you brought up a good point, which is that listening to your seller is going to be very important. When I was talking to the seller on the phone, oftentimes, I will talk with his wife. When I made that lowball cash offer, the guy was pretty upset, and he didn’t want to talk to me but his wife still wanted to sell those two duplexes. I talked to the wife for the first month of negotiation, and the second month I talked to the guy, he was no longer upset at me.

What I realized was that the selling price was very important to them. If it wasn’t, they were distressed, and they needed to quickly close, I would have stuck with the all-cash low offer but because the price was so important to them, that is why I had to get creative, do a lower interest rate and stretch out the payments over a longer time because it still allowed me to cashflow while holding these assets. I wanted to add on top of that comment there.

You need to understand what the seller is looking for. You can cater 100% of their needs, still get 100% of what you want, and it’s a win-win. That’s how the real estate game is played. Both the buyer and the seller should win. It shouldn’t be a sum game. Were you intimidated at all, going in and buying a 10-unit, a 16-unit, and making that big jump? There’s always imposter syndrome, “Do you know what you are doing,” and all that. How did you feel through all this?

I felt nervous at times jumping into a 10-unit and a 16-unit. It happened around the same time. For the ten-unit, I closed in December of 2019. For the sixteen-unit, I closed in February of 2020, right before COVID hit. When I was underwriting the ten-unit, thankfully, it wasn’t such a big leap like 100-unit where I felt like I needed some coaching and guidance.

It was big enough where I can utilize my past experience but not too big enough, where if I make a mistake, I cannot recover out of this hole. That was what was important to me. As I was underwriting the ten-unit, I was conservative because I knew that if you make a mistake on some numbers on a single-family, it’s times one. If you make a mistake in your Excel spreadsheet on a 10-unit, it’s multiplied by 10 exponentially.

The way that I overcame that fear was a lot of education. A lot of the fear was stemming from the fact that I did not know this new asset class or commercial asset class. There were a ton of resources on YouTube, BiggerPockets, and podcasts like the FI Team Podcast. If you apply yourself and you are diligent in terms of studying this, there are people who have already done a ten-unit, for example. I looked at what were their underwriting criteria, what were some of their blind spots, looking back. I took all those into consideration. I underwrote it conservatively, and it worked out. It was a BRRRR on a ten-unit property.

Was that also through the turnkey?

No. By this time, I have probably done a couple of dozen deals. I have built a relationship with a wholesaler in Indianapolis. This was also interesting. This was a ten-unit that he shot over to me via email back in November of 2019 and I missed it. I went back to him, and I was like, “I want this deal.” He’s like, “It’s already gone.”

I was like, “I knew it was a good deal and a good location.” The price point that we are asking for was $370,000. It’s $37,000 a unit. That was a good rule of thumb for me. I followed up weekly saying, “Was it sold? Did it sell? Did it go through?” He said, “The buyer backed out.” That opportunity came to me. I underwrote it. I sent my contractor over there, and he told me it would be about $120,000 rehab.

At $370,000, a $120,000 rehab, holding costs, carrying cost, and all of that, I was going to be all in at $500,000-something. I knew that the property was only worth $550,000 to $600,000 ARV, so I had to do the tough thing of negotiating with the wholesaler. It’s a lot of back and forth, and I ended up closing on it at $315,000. At $315,000, the numbers started to look good. It’s $315,000, $120,000 in rehab, and this was a new roof, all new cosmetics, vanity, flooring, paint, kitchen painted, and all that jazz. It appraised at $585,000. It was a pretty good deal on that one.

For new investors, definitely don't be caught off by the number of units or anything like that. Click To Tweet

I’ve got a question for you on this ten-unit. Those are valued differently than a single-family. It’s more based off on a cap rate and net income. A lot of people may do small rehabs to bump the rents up or they will figure out a way to reduce expenses. It sounds like you did a rehab. Ultimately, if you do rehab, it’s going to bump up the rents a little bit. Did you do anything to reduce the expenses?

Yes. The basement units were tied to the house, so the owner was responsible for paying for the utilities on the basement units. There are two basement units. I ended up separately metering those to reduce some of my expenses. I also put in the laundry, so it’s coin laundry where I share the profits with the laundry company to add additional income. The NOI divided by the cap rate is what’s going to be my new ARV. I wanted to reduce expenses as much as I can but also increase the top line as much as I can. Ultimately, that’s what brought up my ARV quite a bit.

This is a small version of syndication. Bo didn’t sound like he syndicated with anybody. He did it himself. This is what large multifamily people do. They buy 300 units in an apartment. They go ahead and figure out how they raise the rents, how they reduce the expenses, and in three years, they get it re-appraised. They either resell it or refinance it, and then you’ve got your cashflowing property. This is incredible. You have had quite the journey in less than a few years. You went from accidentally buying a townhouse to selling in 10 and 16 units, doing BRRRRs, and having properties in four different states. Is there anything else?

No. I’m enjoying this journey one step at a time. For the new investors, don’t be caught off by the number of units or anything like that. I never imagined that I would hit 63 units. My goal in my first year was to buy one property. In my second year, buy two. The third year, buy four. I wanted to double up each year slowly and securely.

This is a quote by Will Smith that I love, “When you go out to build a brick wall, you don’t go out there and straight up build that wall. What you do is you go out there every day consistently, place a brick as neatly and straight as you can. You come back and put another brick. One by one, you have a beautiful wall.” That’s exactly what I did.

Every step that I took of buying a single-family or duplex, expanding to a new market, utilizing different financing strategies took me to the next step of where I eventually wanted to be. I didn’t even know where that was but looking back, those dots connected in a way that was meaningful to me. That would be my word of advice.

A lot of people, when I talk to them or they message me on BiggerPockets or email me through my website say, “I saw you did 60 units. How can I get to 60 units?” That’s what their focus is but that’s not where the focus should be. It should be, “How can I do one property well and get the foundation laid up, so I’m not buying a pool of properties to get my unit count up, and later on, you are holding a bag of duds?” You can’t even get rid of those. Buying a property is easy. Selling them is much harder. That was my soapbox of sharing.

I’ve got a couple more questions. It’s all under property management. You are not doing much hands-on stuff in terms of maintaining the property. You do the BRRRR thing. How many hours a week do you work with your property managers, and that includes answering emails, paying invoices, and stuff like that with your property managers?

Not to give a cop-out answer, it’s difficult to gauge immediately because I started to do fix and flips after COVID hit. I was strictly a buy-and-hold investor. When I’m looking at the buy and hold side of my portfolio, probably no more than 1 a week and 4 hours a month. Quarterly I do bookkeeping, I do it myself. I shouldn’t. I need to hire a bookkeeper. It takes me probably a good four hours to do quarterly bookkeeping for all my rentals. That’s because I have an accounting background.

I’m an auditor, so I like to look at the numbers and audit my own financials but I need to outsource that. To answer your question, it’s four hours a month and every quarter another 4 to 8 hours. On the fix and flip side, I probably spend about 10 to 15 hours from start to end for each project like sourcing the deal, underwriting it, acquiring financing, project managing, and seeing it all the way through the same process.

That’s still an absurdly low amount of time for a fix and flip because you sound like you’ve got a great team in place. That’s what a good team will do. It will relieve you of a lot of work hours. My last question until we move into the last part of the show is, how much passive income does the 63 units generate you?

ITF 24 | Accidental House Hack
Outliers: The Story of Success

Half of those I owned by myself. For the other half, with the 10-unit and the 16-unit, I’m working with a silent equity partner. I run all the operations, he fronts all the money, and we split everything 50/50. If I consider my portion, probably about $5,000 a month passive. This is utilizing about 8% to 10% of vacancy and maintenance.

In a few years, you’ve got $5,000 of passive income. Does that make you financially independent? Where does that leave you with your job?

Looking at my expenses, it wouldn’t be the ideal life that I look for but you could technically say it pays for my expenses. I did buy a house. I ended up selling that townhome, and I bought a larger single-family residence. For different reasons, it’s in a better location. I was able to buy it, renovate it, and get the equity on this new single-family. With that $5,000, it technically covers my expenses but not a fulfilling life.

You are baseline financial independent, where if it should hit the fan, you could survive and would be fine. It’s a good safety net. It’s a good time maybe to go out and take a big risk. Maybe work for free for a little bit to have a huge payday or something like that but you are not quite at the level of where you want to be, so that’s why you are continuing to work. This has been an incredible episode but before we totally finish up, let’s move into The Final Four. The first question of The Final Four is, what book are you reading?

I’m re-reading a book that I have already read. This is a book called Outliers by Malcolm Gladwell. This is the first book that got me interested in reading. It’s not a real estate book but it talks about the concept of 10,000 hours and how outliers are the ones who have been given opportunities and have the awareness to seize them. I’m re-reading it to digest it a little bit more.

The second question is, what is the best piece of advice you have ever received?

One of my mentors told me a quote by Zig Ziglar, “You can have everything in life you want if you help other people get what they want first.” This has been foundational in everything I do. At first, it was a rah-rah thing. I was like, “How is this going to apply to my business?” As I was dealing with people, I realized that a lot of people immediately think of WIIFM, “What’s In It for me?”

I like to flip it around and say, “What’s in it for them?” That’s how I approach every deal and new relationship. I want that person to benefit from knowing me and working with me so the next time, I don’t have to make money with them or from them. If I call them the next time, they are so eager to pick up my phone call because it’s beneficial to them. That’s how I try to approach things, and it’s done wonders for my business.

Third question, what is your why?

This is the short version, so without getting too deep, it’s two reasons. Number one, my parents. My parents are Korean American immigrants from Korea. They don’t have traditional jobs, so no pension and 401(k). They don’t have anything saved up for retirement. I’m going to continue to build my rental portfolio and help subsidize their retirement through the cashflow. My wife and I are continuing to climb up the corporate ladder, and we will have a good income, so we want to use that to help both of our parents’ retirement.

Last question, if peanut butter was not called peanut butter, what would it be called?

I love peanut butter, so love butter.

Bo, last official question, where can people find out more about you?

After I had the painful process of losing my $10,000 on my first rental property, I created a blog on www.BiggerCashflow.com where I documented the journey of my real estate and all of my holdings. I have a blog, and I also have a podcast that talks about my journey. Feel free to check out my journey there and shoot me an email if you have any questions. I would love to pay it forward

You can have everything in life you want if you help other people get what they want first. Click To Tweet

Definitely check out BiggerCashflow.com. Check out the podcast. He puts out some good stuff. His progress speaks for himself. It’s 63 units in four years. Bo, thank you so much for coming to the show. This was phenomenal. There’s a lot of value and creativity that you do. You are doing that all from sunny Southern California. You are investing out of state halfway across the country. It’s amazing what you are doing. I’m looking forward to keeping a track of you and your journey.

Thanks for having me, Craig.

No problem.

That was Bo Kim. He is super impressive. The fact that he is in Southern California, one of the most expensive markets in the entire country, and investing in these Midwestern states because that was his goal, which is cashflow, he is completely aligning his investment strategies with his goal. He built a team to help them do it. This is something that anyone can do. You can do it from anywhere, so there’s no excuse about being in an expensive market, not having a team, not knowing things, not having the money.

If Bo can figure it out, anyone reading can also figure it out. You don’t have to do it right away, though. You can still buy 1 property in year 1, buy 2 in year 2, buy 4 in year 3, 8 in year 4. Before you know it, you will probably move faster than that but that time you hit your four, that’s how you exponentially grow your portfolio.

That’s a great way to achieve financial independence through real estate investing. He’s already got $5,000 of passive income coming in. He probably can retire off that if he wanted. He wants to live a little bit more of a lavish lifestyle. I can’t blame him, so he’s going to keep pushing but he’s doing great things.

That’s the episode. Sorry, Z couldn’t make it. It’s just me, so I hope I did a good job. Either way, if you can, please leave us a review and a comment. Give us a rating on iTunes, Spotify or wherever you can because the feedback is so valuable. We do look at every single comment to make sure that we are putting out the best possible stuff. We will see you next time.

 

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About Bo Kim

My name is Bo and I have started my journey toward financial freedom. I have a business degree in Accounting and currently work for a high-growth tech start-up in sunny California. I have previously worked at a Financial Services Company and CPA firm where I started to grow my passion for personal finance and obtaining financial freedom through passive income. Fast forward to today, I own 63 rental units across the markets of Kansas City, Indianapolis, and Little Rock.

Through this platform, I hope to share with you the following topics:

1) Personal Finance: Covering various topics such as using credit cards to redeem travel rewards, budgeting, and saving tips for big life events such as a wedding or your first home downpayment.

2) Investing: Real Estate Investing (Rental Properties), 401K, IRA, Roth IRA, and taxable account investing (mutual funds)

3) Books/Courses: I love to read business and self-help books! I will share my top recommendations and summaries so you can benefit from the nuggets of information.

I am not an expert in all subjects by any means, but I have created this website to document my experiences (hopefully more do’s than dont’s), share my knowledge, and connect with others who are looking to do the same.

 

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