Your home is likely the biggest financial investment of your life. It is also probably your biggest monthly expense. Learn how to turn your life’s biggest expense into your life’s most valuable asset.
Who doesn’t like to save money? Who wouldn’t like to have an extra $100,000 or so? What most homeowners don’t realize is that by managing their $1’s and $2’s in every day spending, they could save $1,000’s here, and $100,000’s there. The secret is compound interest. It’s just math. And when you discover how it works, get ready to compound your savings.
Jeremy Washburn, author of Homes in Order, is a happy husband and father of three. He enjoys anything outdoors, including biking, hiking, skiing, snowboarding, camping, fly fishing, ice fishing, 4-wheeling, horseback riding, rollerblading, golfing, and even working in the yard.
Jeremy had front row seats to The Great Recession, The Real Estate Crisis, and The Mortgage Meltdown starting in 2006. Already specializing in foreclosures, Jeremy looked at his own finances when the downturn started and realized that he didn’t understand finance as well as he should. He determined to get his own house in order, if only for himself. He broke out his MBA school laptop, and the formulas he discovered changed his financial life. He hopes it will change yours, too.
Washburn Real Estate
Jeremy Washburn founded Washburn Real Estate in 2005. Working with his brother and dad, they specialized in acquiring, rehabilitating, and selling foreclosures. While selling foreclosures can be a profitable business, it broke Jeremy’s heart each time he saw a family lose their home. How can a family can lose a home, and just a month or so later, a savvy investor can do some clean-up and remodel a home and sell it for a significant profit? What’s the difference? Most of the time it comes down to understanding how money works, and it comes down to the mortgage.
The Crash & Compound Interest
In 2007, the real estate market in America crashed. Home prices plummeted, foreclosures skyrocketed. The American economy was on the brink of complete failure, and world economies followed suit in a global economic crisis. What was the root cause and epicenter of the crisis? The home mortgage. Jeremy Washburn’s real estate business was right in the middle of the crisis, and one day in 2007, Jeremy was sitting at his kitchen table looking at his own mortgage statements. He did a calculation on one of his mortgages. He was paying 95% interest that month on that mortgage. The words often credited to Albert Einstein or Benjamin Franklin or some other bright financial guru came to Jeremy:
Those who understand the principal of compound interest are destined to collect it. Those who don’t are doomed to pay it. Attrib. to Albert Einstein or Benjamin Franklin. Actual author unknown.
Jeremy Washburn, hotshot MBA, 30-something year old real estate brokerage owner and investor did not understand compound interest. Jeremy was paying 95% interest, and had been for a long time. This was Jeremy’s big “ah ha.”
Homes in Order
When Jeremy Washburn realized that he obviously didn’t understand compound interest (he was paying 95% interest), he decided that day at the kitchen table that he was going to figure it out. He was determined to understand as much or more about compound interest than anybody. He broke out his MBA school laptop and opened the Microsoft Excel Spreadsheet. He started creating models to determine if it was a good idea to refinance, or how to best invest his money. He remembered reading the New York Times #1 bestseller Standing for Something where Gordon B. Hinckley encouraged families to pay off their mortgages as quickly as possible.
While that was good old fashioned advice, Jeremy determined to put his counsel to the test. What would the financial benefits be for paying off the mortgage early?
A Dollar Saved is Five Dollars Earned
Countless spreadsheets and models later, and millions and millions of Excel calculations later, Jeremy discovered something amazing. If he were to pay just $1 extra on the next payment on one of his mortgages, he would have saved over $25 in interest. The numbers didn’t make any sense to the mind, but the Excel Spreadsheet proved them to be true. That was in the days of 80/20 mortgages and interest rates have gone down a couple of percentage points. But the discovery was amazing. There are infinite loan scenarios and absolutely no two loans are the same. However, Jeremy simplified the concept to A dollar saved is five dollars earned, or $1 = $5, for understanding purposes. Then he created the calculators that can analyze just about any loan.
Jeremy Washburn married Liz Olmo in 2008, during the worst part of the mortgage crisis. Liz holds bachelors and masters degrees in music education from BYU. They live at the foot of Mount Timpanogos in the Rocky Mountains.