From $0 Net Worth to $1 Million in Financing in 2-1/2 years

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From $0 Net Worth to $1 Million in Financing in 2-1/2 years

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

Our Director of Operations, @Scott Trench , is quite young in the grand scheme of things.

But his experience level raises his age considerably, and his thought processes show just how wise-beyond-his-years he truly is.

His latest post, How I Went From $0 Net Worth to Qualifying for $1M in Real Estate Financing in 2/5 Years is a must-read for anyone just starting out.

[email protected]Podcast Guest on Show #261

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Matthew Roder

Lender · Chicago, IL · Member since 2015 · 67 posts · 43 votes

New investors, or even seasoned ones for that matter, should make sure to shop around for their mortgage. The 2 year landlord requirement is a guideline that you may find if you walk into one of the big banks, however, conventional guidelines (Fannie/Freddie) do not require 2 years of experience in order to use rental income to qualify. A good mortgage broker will be able to take a new investor with zero experience owning rental properties and use either 75% of the existing lease on the property, or 75% of the market rent determined by the appraiser. Not to knock the post, as I'm a HUGE advocate of house hacking, if your situation allows for it. Also, the big picture being to not over extend yourself, live below your means, save money, and use that money to grow more money, are time tested, valuable life lessons.

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Account Closed
Johnson City, TN · Member since 2014 · 586 posts · 705 votes
9y
I find it rather interesting that he worked for two years and saved every penny he made? Didn't he eat? Live under a bridge? Walk everywhere?
5 Reply
Armonty Houston
Nashville, TN · Member since 2017 · 3 posts · 16 votes
9y
Wow, this really got to me. I'all almost debt free and will save thousands of dollars a month shortly. I don't even own a house and rent cheaply. I was just thinking about how I'm tired of living so far below my means, strictly budgeting, and driving a crappy but "reliable" car. I just want to have an ignorantly blissful moment and go out and finance a 45,000 dollar mustang gt and giant house that I don't need just like everyone else! But this article has really snapped me back to reality and gave me some motivation. I'm glad to be on the Scott side of the spectrum vs the Joey side! Thanks for his motivation, it was much needed! MOTIVATED DEDICATED!!
14 Reply
Cody Barrett
Phoenix, AZ · Member since 2015 · 345 posts · 138 votes
9y
Really great read. My 1st was a duplex but decided to live at home still to buy another duplex to live in the following year which I'm hoping to close on by 4-21! 13 months after my first purchase. After this year I'll have 2 yrs of experience as a landlord which should help as the article states. Hopefully I can snag a 5unit plus by the end of this year. We'll see! Great work @Scott Trench thanks for posting!
8 Reply
Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
9y
Great post and congratulations @Account Closed!
Podcast Guest on Show #121
0 Reply
Rita Bock
Whittier, CA · Member since 2016 · 45 posts · 4 votes
9y
Congratulations @Scott Trench and thanks for the post
0 Reply
Matthew Roder
Lender · Chicago, IL · Member since 2015 · 67 posts · 43 votes
9y
New investors, or even seasoned ones for that matter, should make sure to shop around for their mortgage. The 2 year landlord requirement is a guideline that you may find if you walk into one of the big banks, however, conventional guidelines (Fannie/Freddie) do not require 2 years of experience in order to use rental income to qualify. A good mortgage broker will be able to take a new investor with zero experience owning rental properties and use either 75% of the existing lease on the property, or 75% of the market rent determined by the appraiser. Not to knock the post, as I'm a HUGE advocate of house hacking, if your situation allows for it. Also, the big picture being to not over extend yourself, live below your means, save money, and use that money to grow more money, are time tested, valuable life lessons.
15 Reply
Abi Wegman
Santa Rosa, CA · Member since 2016 · 43 posts · 36 votes
9y
Tim and Jerry, I think you are being a bit cynical/jaded in interpreting Scott's post. Or maybe I'm naive. Whatever. Scott is house hacking and his tenant income covers all of his property expenses and then a little bit extra. He can save every penny he earns (I don't actually remember him saying exactly that) from his day job because his rental income can pay for his food, etc. Regarding him starting with $0 net worth - why can't this be true? The reference is from BEFORE he started diligently saving his earnings and BEFORE he ever owned a MF property to house hack. Obviously he now has a significantly higher net worth due to the lifestyle changes and sacrifices he made to get to this point. And he's doing it in an extremely competitive and inflated housing market, no less! The purpose of the article, and the message I'm sure Scott would hope you'd take away, is that house hacking a multi-family property and living frugally will open a significant amount of doors for you (pun intended) in just a few short years. If you can deny gratification now you will reap the benefits many times over in the future.
5 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
9y
Just want to put this out there ...
Millennials in the US get a bad rep sometimes while "foreigners" seem to have a knack for finding success.
We have a couple of young guys in our group - they're in their 20s - who were born in South Korea, have been here and exposed to American English long enough to not speak with a strong accent, have been with our group for just over two years and have acquired access to $4.5 Million in funding.
Note: That's not net worth, or even savings - FUNDING! They're both unemployed / unemployable.
They're two of our star investors, actually and are even entering talks with a production company about a REI series on cable.
There's always a down payment of some sort. In general, it does NOT need to be YOUR money! You need only control it - not own it.
That said, I'll echo @Abi Wegman's sentiments: delay gratification now to increase the yield of your future harvest! Learn how to attract and engage private lenders and you'll NEVER be lacking for funding!
5 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Well @Mindy Jensen as I read the article, I thought great job @Scott Trench but at the same time I was a little uncomfortable with how easily the bank is willing to lend so much money. Basically he is saying with house hacking he could acquire $1M worth of real estate with 5% down and less than $50K per year income. That is amazing.
Maybe I am just jealous that as a seasoned investor, I need to put 25% down on my conventional mortgages, even though I have higher salary, high net worth and longer track record.
One key point worth repeating is owner occupied and four plex to maximize units on conventional mortgages.
Great article and good luck with your book!
3 Reply
Anthony GaydenPro Member
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
9y
I liked the article. Very similar to my story.
Podcast Guest on Show #21
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
Mindy the number one best way for young investors to enter the market.
Podcast Guest on Show #222
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4 Reply
Anthony GaydenPro Member
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
9y
Mindy Jensen I found everything Scott Trench stated was true. I have a six figure income and save 35-40% of everything I earn. I put $45000 down on my first investment property. I house hacked my second with a 3.5% FHA loan. My third I bought using a conventional 5% mortgage. I purposefully bought properties that cost less than I could afford and had good cash flow. I have 3 years of landlord experience and tax returns. I have emergency reserves large enough to cover 6 months of PITI for all of my properties. I also have 20% down payment saved for my next purchase. I also have a very good credit score. Keeping those things in mind, banks fall all over themselves trying to lend me money. The markets where I invest are probably all far less expensive than Denver, but banks are willing to lend me almost as much.
Podcast Guest on Show #21
7 Reply
Ryan Naylor
Contractor · Troy, NY · Member since 2017 · 5 posts · 2 votes
9y
Probably one of the best articles I've read on BP. For me, the point @Scott Trench made was so simple, yet easily overlooked on my efforts.
1 Reply
Steve Kontos
Investor · Great Neck, NY · Member since 2016 · 679 posts · 467 votes
9y
@David Dachtera
I couldn't agree more. In today's world, there is so much more accessibility to funding. The "save and buy" method is a stale one in my opinion. Any major company you can think of always uses some sort of leverage to grow.
1 Reply
Raul Flores
Investor · Houston, TX · Member since 2017 · 75 posts · 13 votes
9y
We know there is a way to find money for some investing, remember guys, Cash is the king, with cash on hands you can close better deals or get better finance.
Saving always do good, now other has better ways to save and others they enjoy a lot to save, really enjoy and the result is good.
I like that article
2 Reply
Mike ReynoldsPro Member
construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
9y
I can see this. In fact, I hope I have a success story of my own in 8 months after planning, permitting and several bottles of Motrin. Maybe even less if I can get the inspector on my side. Lots to be determined yet but if it doesn't work out there will always be the next one.
This one is as good as done though and I will post it when it happens.
0 Reply
Stanley Parsley
Investor · Chandler, AZ · Member since 2015 · 409 posts · 214 votes
9y
nice inspiring post
it is all about outside the box point of view and surrounding your self with like minded thinkers
way to get it done
it just goes to show the people you surround yourself with is going to have a impact on the way you do business
don't let the world tell you no
great job
0 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
9y
Cash may be "King". However, that doesn't guarantee he's on YOUR side!
0 Reply
Jon B.
Maspeth, NY · Member since 2016 · 75 posts · 62 votes
9y
To sum this article up, it states the banks allow 75% of current rental income to be counted as an individuals income towards the new/future mortgage, and 75% of the potential future rental income on the property which the new/future mortgage is for to count as well (as long as you have 2+ years landlord experience).
Example: Your day job income is $80,000/year. You currently own a triplex that generates $1,000 each unit while 'house hacking' and living in the third unit. $1,500 of the $2,000 in rent counts as 'income', meaning you tack on $18,000 a year to the $80,000 day job income for a total income of $98,000 a year. Now you're at a bank trying to finance a mortgage on a quadplex that generates $1,000 rent on each unit. Since the bank will allow 75% of the potential rent to count towards income, you can now add $3,000/month of $36,000/year to the now $98,000 yearly income to make it $134,000 yearly income which the bank will finance you for; instead of just based off the $80,000 day job income.
5 Reply
Jay J.
., OH · Member since 2015 · 361 posts · 127 votes
9y
I've read the blog post and I have to say, this is the same kind of story you see on Business Insider (and other sites) all the time. Younger millennial, with the 'not typical' life. Meaning, probably doesn't have school loans or any bills they're responsible for and has parents that afford him the opportunity to 'live freely' so he can save over half his pay for a year. (think, car insurance, cell phone plan, real world adult expenses) If my parents padded my life for the first 5+ years (after HS), I'd be better off too.. seriously, these stories get old.
Its another 'feel good about RE' story. I get it, but sorry, they are all basically the same. There is nothing 'real' for a noob to learn from this. I mean, yea.. work hard and in 3-5 yrs you'll get whatever financing you want.. go to REA meetings, meet people and find a private funder.. I'm a experienced RE pro, check out my great deals.. look at how much I make per flip.. blah blah blahh.. I don't need a blog to tell me that.
..I'm not trying to sound cynical or bash the young guy, I'm just saying is isn't real life for the vast majority of people here. If you know 100 people, how many of them fit this mold?
0 Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
9y
@Matthew Roder Thank you for the feedback here! I updated the post to reflect your point.
@Account Closed - you're right. I did not have school loans and graduated from college with basically $0 Net Worth, thanks to generous parents and hard work during the summers. However, after graduating, I moved to Denver, CO (my parents live near Baltimore MD), and have made my way on my own after that. I started with a median (just under $50K) income out of college and worked from there. An advantaged starting position for sure, but perhaps not so sheltered as you might indicate here.
Podcast Guest on Show #223
2 Reply
Shawn Coverdell
Investor · Clatskanie, OR · Member since 2014 · 212 posts · 233 votes
9y
Jay J,
I see what you are saying but also would like to add, Scott, myself and many others here on Biggerpockets are NOT that typical story. Yes we are that very small minority that have figured out how to delay gratification. I started in a 1 bedroom apartment in a bad part of town. I started with a wine jug that I put my change into. The dream got bigger and my boredom with my day job grew until I became obsessed almost with finding a way out. Yes, this is a rare approach. For most, the answer is usually, "It is what it is."
I have a measly 4 years experience and at my age (late start) that is a blink of an eye believe me. My net worth is right at 1 million and snowballing. Not borrowing limit but net worth. negative net worth to one million starting with an empty wine jug. Momma had nothing to do with that.
I say this because I hope that you find that secret to happiness. It is knowing that you can pay cash for just about any car on that lot, but you keep on going in your 1986 Toyota pick up not because you are afraid to spend money, but because you know a better place to put that 40 grand. That is the victory over money. It is a satisfaction that I hope you too can some day enjoy.
Imagine this. You go on a nice 2 week vacation. When you return, instead of worrying about how much you spent, your bank account went up while you were gone.
You can do the same exact thing! You just don't know it yet.
5 Reply
Anthony GaydenPro Member
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
9y
Originally posted by @Jay J.:

I've read the blog post and I have to say, this is the same kind of story you see on Business Insider (and other sites) all the time. Younger millennial, with the 'not typical' life. Meaning, probably doesn't have school loans or any bills they're responsible for and has parents that afford him the opportunity to 'live freely' so he can save over half his pay for a year. (think, car insurance, cell phone plan, real world adult expenses) If my parents padded my life for the first 5+ years (after HS), I'd be better off too.. seriously, these stories get old.
Its another 'feel good about RE' story. I get it, but sorry, they are all basically the same. There is nothing 'real' for a noob to learn from this. I mean, yea.. work hard and in 3-5 yrs you'll get whatever financing you want.. go to REA meetings, meet people and find a private funder.. I'm a experienced RE pro, check out my great deals.. look at how much I make per flip.. blah blah blahh.. I don't need a blog to tell me that.
..I'm not trying to sound cynical or bash the young guy, I'm just saying is isn't real life for the vast majority of people here. If you know 100 people, how many of them fit this mold?
I disagree for a ton of reasons. I stated it before in another thread but I will share my story again here.
In 2007 I was 27 years old and worked full-time at wal-mart making about $20,000/yr. I was also deeply in debt ($50,000+). I lived in the "ghetto" in Kansas City. I did not have the benefits or advantages like wealthy parents or a high paying career. To make matters worse, I suffered a devastating lay off that led me to being unemployed for nearly 6 months during the middle of the recession.
I think hitting rock bottom opened up my eyes. I knew I was going nowhere fast and that if I didn't change, I would be stuck in a cycle of poverty. To make a long story short, I totally turned around my entire life in the last 10 years and became the success story that I used to believe was fantasy. I admit I have a long way to go, but every day I am amazed at just how far I have come.
What this article states is true regardless of your beginnings. It took me 7 years to pay off my debts, finally get to a decent paying career, and start saving and investing.
Those lenders do not care about race, sex, national origin, religion, or anything else. They don't care who grew up with all the advantages or disadvantages. The only thing they care about is MONEY.
Podcast Guest on Show #21
6 Reply
Tony D.
Portland, OR · Member since 2016 · 7 posts · 3 votes
9y
@Scott Trench - Congrats and thanks for writing a great informative blog post. Definitely inspiring to an aspiring real estate investor! I am in the process of talking to lenders to get a feel of my borrowing power.
@Jay J. - There is no need to discount his success. Sure, there have been plenty of people that have achieved similar success but as a new investor I find these posts motivating as well as encouraging to read!
Keep up the good work, Scott!
1 Reply
Steve B.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
9y
Is this the brilliant San Francisco method for sure fire RE success? 1. Live in a top 5 appreciating market 2. Leverage as much as you possibly can It's complicated but genius - what could possibly go wrong?
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