BiggerPockets

Ok, I admit it. I listen to Dave Ramsey. Today he had a caller ask about REI. Here are some of his major issues:

1. Be Patient. Most beginners get all excited and think they are going to make a killing, but they end up paying too much. Be patient and wait for a steal to come along.

2. Hold long term. He only buys with a 15-20 yr expected hold. Wants to be in a growing area to take advantage of appreciation in value.

3. Invest for Cash Flow,Appreciation,Depreciation. Take advantage and understand all of these components.

4. Pay All Cash. Do not use debt to buy RE.

5. Don't Pay Over 70% ARV-Repairs. Make sure you know what is the current value and don't pay more than 70% less the cost of repairs. Hard to find, but be patient.

Do you agree? #1, #3 and even #4 certainly makes sense, but what about #2 & #4?

Now, I know that there are many who rehab and flip. So I'm not sure that falls under this definition of RE Investing. Those of you who hold and rent, what is your time frame? Is there anyone on BP, or perhaps in America(besides Dave and his employees) who pays all cash? As you may know, he views debt biblically, and percieves it as a master/slave relationship. I like this idea as a theory but is there an ultra conservative compromise, say 50% LTV?

I think you meant 1,3 and 5. I agree 100% with all 5. I also buy highly leveraged property, but it goes in a different entity for estate planning purposes.... Rich

No shame in listening to Dave Ramsey, Tod. To me, Dave's niche is the "financially illiterate/ irresponsible" segment. The people that seek his advice are often in debt up to their eyeballs (consumer debt for ex.), and have no idea how to manage their personal finances. If memory serves, he made a real crummy RE deal once or twice that (contributed) to ruining him. I don't recall the details but he is open about his past (this was many years ago.) Anyway, he wised up and paid his debts down aggressively. Obviously, he is a "cash only" kind of guy now.

That being said, he preaches good advice for the most part. But to answer your question, he is dead wrong on point #4. Leverage, used responsibly, is a great way to grow your business. I disagree wholeheartedly with his "all debt is bad" outlook. "cash only" is his method. He is rigid about this.

It would be interesting to see his company credit profiles on D&B and Equifax Biz. Lampo Licensing LLC is one of them. I'd bet one would find several non-cash tradelines.

My wife and I took Crown Financial Ministries in the late 90's, and were certified to teach it. I prefer that to Dave Ramsey's FPU primarily because I do not agree with some of his hard line stances, including his no leverage and no credit card stances. Reward CC's work great if you pay them off during the grace period. You get to use OTP for a month and get to fly for free.

Anything other than #2 is, IMHO, not "investing". Its a JOB. For all the bull that's slung around about not "working for the man" or "trading hours for dollars", anything except buying with an expectation of earning some return on the money you have invested is a J.O.B.. Wholesaling, fix-and-flipping, property management, being an agent, developing, etc., only produce returns when you turn the crank.

Not convinced about #4. Dave Ramsey, who I really like, is very anti-debt. If you buy right, the returns with financing are higher than without. That said, lots of folks who bought with financing during the bubble are much, much worse off than if they had put the cash under the mattress. So, the downside risk is much higher.

Buying with leverage was the only way I could have created any wealth with RE.

Have bought in up and down markets, learned being patient is the way to go. Buying for the sake of buying is a huge mistake. Following the crowd can ruin you. in 1991 RE was unpopular and I was laughed at. That is the time to buy.

Right now I am on the fence because going debt free is an option. I can't help but think that piling up some cheap cash will be a good move but interest rates just keep going down and the world seems pretty unstable.

in today's super low interest rate enviroment, if your paying cash, your saving yourself about 5% annually,,,(the rate you would pay for a conventional investment mortgage,,,I can do a lot better than 5%,,so I use leverage.

I have had dealings with dave, and don't care for him,,this was several years ago before he became so big,,,they wanted to use a crazy excuse to get out of an agreement,,,I let them out because I was tired of dealing with them

Rich, I gather what you are suggesting is to finance new purchases and pay-off older ones to benefit cash flow.

It makes sense to me to only buy that which can be fully financed and have some cash flow.

It really depends on what you are trying to optimize. Buying for cash certainly does not optimize how hard the dollars are working. It does optimize the dollars out though.

Of course you cash flow more with no debt! You also have better returns on the tennis court without a net. No debt equals lazy/idle money in deals. That is fine if that is your goal, but it is certainly not optimal.