But...Dave Ramsey went bankrupt!!

12 Replies

Hi everyone, I'm a newbie to BP and REI and very excited to get started! One of the biggest concerns (or misunderstandings) I have holding me back is the argument over whether to carry long-term mortgages on rental properties or paying them down ASAP. Paying off the loans quickly seems counterproductive to me if you're trying to accumulate mass amounts of properties in just a few years. Like many people, I started my pursuit of early financial freedom by following Dave Ramsey's financial advise. But all I keep thinking about is Dave's story of how he went bankrupt when his bank was sold to another, resulting in his having to pay back millions of dollars (bank notes) within one year! YIKES! What am I missing here? How can I avoid this same scenario down the road?

Being a single guy my goal is to house hack my current home and then purchase one new investment property every year via house hacking. I plan to utilize FHA loans for purchasing future REIs and then after one year refinance with 30-year fixed conventional loans. Am I on the right track here? Any feedback would be greatly appreciated. Thanks everyone!

@James Glavanics
If you continue to buy investment properties you will need 20-25% down

Also for affordability ratios you need to talk to lenders on when you can count rental income in the ratios

There are a number of articles on the internet whom he was targeting and why financial experts do not agree. You can be the judge. I suggest you talk to a licensed financial planner what your goals are and listen to what they suggest to attain your goal.

Going to Dave Ramsey for advice on real estate investing is like going to the proctologist to get advice on a sore throat.  He's excellent in teaching people how to save (which most of us need) and then the few people who seek additional financial independence need a step two approach with different resources.

@James Glavanics , if you only buy wisely, why wouldn't you be able to sell any of your properties to pay out their loans - if you needed to?

This from Investopedia: "At the age of 26, (Dave's) real estate portfolio was worth $4 million, and his net worth was just over $1 million". 

The fact that his creditors then called in his loans (even at short notice) means to me: he shouldn't have needed to file for bankruptcy! ie. Was his net worth really more than he owed? My guess is: not all of his investments at the time were "wise".

Sure, we can/should learn from others' cautionary tales, rather than needing to have any of our own. But in so learning, make sure you don't throw out the baby with the bathwater! 

I reckon you're on the right track, especially if you keep your debt at any given time (before any major economic correction) to no more than 70% LTV. All the best...

Updated 8 months ago

Oh, and: Welcome to BP!

@James Glavanics

There are different phases in your investing career.  In the first phase you're accumulating assets and need all of the free cash flow you can get your hands on to purchase more.  In later phases you're holding what you've got and may choose to pay off your mortgages to enhance your cash flow.  My favorite book, Millionaire Real Estate Investor, speaks to this.  Keller says that most Millionaire Real Estate Investors are leveraged at about 60% of their portfolio.  Worth a read.  But for now, keep that cash working for you.  Don't pay down loans.  Buy more!  

Perhaps talk to long term investors about whether they ever had notes called.  I don't think that the Ramsey story is the norm.  

Hi everyone, 

Thanks so much for getting back to me with your responses. Much appreciated! 

Yes, I was thinking DR's story had more to it than was being revealed and is hopefully NOT the norm. 

I am in the process of reading Millionaire REI...great read. I'm also reading Scott Turner's book, Set For Life. I believe his method of acquiring REI via house-hacking and FHA loans is right in line with my way of thinking...at least in the beginning.

So many great books to read and so much to learn. Gotta be careful I don't become overwhelmed with the "yeah, but..." mentality that can hold us back from ever taking the plunge.

But sure glad I stumbled across the BP community! The feedback I've already received is very insightful.

Thanks again, everyone. 

Happy holidays!!


Dave Ramsey went under due to being loaded up on "subject to" deals and banks eventually called the loans due

It is amazing how many people over complicate this especially in the beginning. Traditional financing should be used until you can graduate to portfolio lenders. Exhaust that before moving to hard money lenders. 

I firmly believe the ability to use financing on your investment is what makes real estate a great investment.

Real estate bought in cash (or with a paid off mortgage) simply does not perform very well. At best, it will be similar to stock market returns.

I think one of the keys to being a good real estate investor is being able to master financing, and its application. Finding good lenders, and being able to understand how to use debt appropriately (just not recklessly).

Hey Kyle M.! 

Thanks for the advice. 

Btw, I'm originally from Cranberry Township, PA!

I can't add much to all of the great stuff already said, only that Dave Ramsey (IMO) is meant as understanding behavior and helping us (everyone) to better discipline themselves.   It isn't the most efficient way to build wealth.

Dave Ramsey has a very large rental portfolio. He has built more wealth than the vast majority of people on this site. He  has multiple revenue streams and low risk. I don’t agree with everything he says but to dismiss that kind of success would not be wise. 

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