“A detailed look at how an average college graduate became a millionaire in 10 years”
By Mark Gurich
At the age of 25, Mark had graduated from a local state university with a degree in Sociology. Destined to be financially self sufficient and independent from government hand outs, he quickly realized that there were few well paying entry level positions in his chosen major. Not to mention it wasn’t his calling in the first place. In 1995, a job placement company arranged an interview with a large bank for the position of Credit Manager. Starting salary $28,000 with potential upward mobility.
Fresh into his new career in banking, Mark was able to buy his first house with a $20,000 gift from his parents. He purchased a $239,000 single family home in Thousand Oaks CA, while financing $219,000 over 30 years at an interest rate of 8.75%. (note; loan programs were less restrictive in 1995, and today his limited income would require a co-signor). This single guy had made a decision at that moment to pay down his mortgage as quickly as he could on his moderate salary. He accelerated his mortgage payments by making half a mortgage payment every two weeks. This amounted to an additional mortgage payment every year and a reduction in principal while not really feeling the burden of paying more. Three years had passed and Mark was promoted within the bank, realizing a modest increase in his salary and the potential for an annual bonus. He decided to refinance to a 15 year term and take advantage of the lower interest at the time. His new mortgage of $207,750 at 7.25% was scheduled to payoff in 15 years. He made the same payment arrangements as before accelerating his monthly payments by paying half a mortgage payment every two weeks.
He successfully climbed the corporate ladder receiving an increase in salary each year and promotions along the way. In 2002, his salary had increased to $98,000, the balance on his mortgage was $147,800 and the woman of his dreams wanted to start a family. Together, they decided that it was time to move to a larger house with room for the future kids. The real estate market had appreciated over 100% since they bought their house in 1995. (CAR Historical Housing Data supported at (https://car.sharefile.com/share/view/s0c02663a5c54e23a). They sold their house for $482,000 and bought a newly built property for $849,000 with a loan of $500,000 over 15 years at a rate of 5.25%. It took an additional 7 months for the construction to be completed and during this time they stayed at his parent’s house saving what they would have been paying towards the mortgage. Using the same principal of paying the mortgage every two weeks and periodically refinancing to reduce their interest rate, in 2005 their mortgage balance was $349,620 while the value of their property was estimated at $1,352,000.
Mark was an average guy determined to reach financial stability and use the real estate market to his benefit. He turned a $20,000 gift from his parents and an additional $20,000 when he purchased his new house into over $1 million in real estate equity in just 10 years.
- Annual Real Estate appreciation over past 53 years is 4.14%.(https://www.in2013dollars.com/Housing/price-inflation)
- Mortgage rates are significantly lower today than anytime in the past (2.375% avg 15yr)
- Each refinance was done at no cost and significantly reduced the rate of interest