Dave Ramsey on real estate

33 Replies

So in his book "Complete Guide to Money", he says that you shouldn't even get into real estate investing until you're out of debt, maxed out your 401k and Roth IRA options, have paid off your own house, already have enough wealth built up and can pay cash for the properties. But can that be right?! I mean if so then what? You shouldn't get into real estate investing until you're old and retired? And already wealthy? That blows my whole plan apart! I was planning on renting out my house and then use the equity to put down on a second property and so on. Is that not good to do? I hope someone can shed some light on using debt to build wealth.

Collin - Dave tends to resonate with people who carry a lot of debt and have hit their limit (they tend not to be in control of their money).  This is where his steps work.  He also apparently went bankrupt buying real estate early in his life.  There is risk in investing (in the stock market or real estate) so I would suggest keeping your debt manageable and inline.  Buy the property at the right price.  You can blend the two and live in the rental so paying off "your home" would be in fact be a multi unit building.

DR's advice is excellent for most people because most people are not interested in the work it takes to achieve financial success in real estate investing.  BP members are different...and have that interest.

@Collin Vosburgh there’s a dozen or more ways to buy real estate.  Just because a name brand person says cash only no debt allowed, doesn’t make it right.  You can find another brand name that says to leverage to the max and still others that say to use other people’s money to invest.  

There’s no wrong way to invest as long as it works for YOU.  I use some of my money and mostly someone else’s money to invest.  I have zero need for the money today and as such can take on lower margin deals.  If I needed to live off the cash I would be unable to do some of the deals I currently am doing.  All my deals are self sustaining and so once it’s said and done I’ll be a multi millionaire salary wise from collecting checks. But today I’ll settle for my W2 paycheck to live my “lavish” lifestyle. 

In my opinion, his methodology is one way of going about financial freedom. It may work for some and may not work others — it just depends on your storyline. 

I do agree with some of his ideas IE ‘debt snowball’ although this concept is not anything revolutionary, nor is is exclusive to him. Neither is some of his other concepts that make sense like the emergency fund. 

However, I personally do not agree with a lot of his other theories such as buying real estate all cash and debt free; not pursing a college education unless you pay all cash: I’ve heard him discourage callers from pursing graduate degrees that are required for their profession in order to make ‘real’ money because he would prefer they not pull a student loan.

I just can’t see how he can give viable advice on a 30 second call, right before he dips into a mandatory commercial to pay bills.

He has interesting callers and I think his guidance is necessary for some folks, but not all. Take everything he says with a grain of salt and don’t get bent out of shape if it doesn’t fit your life choices. He is after all a talk radio personality whose in the entertainment world.

To your success!

Originally posted by @Collin Vosburgh :

So in his book "Complete Guide to Money", he says that you shouldn't even get into real estate investing until you're out of debt, maxed out your 401k and Roth IRA options, have paid off your own house, already have enough wealth built up and can pay cash for the properties. But can that be right?! I mean if so then what? You shouldn't get into real estate investing until you're old and retired? And already wealthy? That blows my whole plan apart! I was planning on renting out my house and then use the equity to put down on a second property and so on. Is that not good to do? I hope someone can shed some light on using debt to build wealth.

I like Dave Ramsey and Robert Kiyosaki both and they are opposite ends of the spectrum. Each has his place and time for each individual.

If you are undisciplined and spend all of your money and go into debt, Ramsey has good advice. Change your habits.

If you are already disciplined and can save and you are motivated to be successful (this isn't easy work folks) then Kiyosaki meets that need. 

 

Dave was burned when his commercial loans were called.  That hot stove burned him, so he recommends nobody use a hot stove.

Fixed residential mortgages are not callable commercial loans.  Use responsibly and build wealth with long-term, non-callable cheap money. 

Originally posted by @Collin Vosburgh :

So in his book "Complete Guide to Money", he says that you shouldn't even get into real estate investing until you're out of debt, maxed out your 401k and Roth IRA options, have paid off your own house, already have enough wealth built up and can pay cash for the properties. But can that be right?! I mean if so then what? You shouldn't get into real estate investing until you're old and retired? And already wealthy? That blows my whole plan apart! I was planning on renting out my house and then use the equity to put down on a second property and so on. Is that not good to do? I hope someone can shed some light on using debt to build wealth.

Well, that's one way of doing it. I am the complete opposite, no cash, little wealth, but young and full of energy. I bought two houses contrary to David Ramsey's advice. I never liked David Ramsey or his bad financial advice but I respect him for his way of making money. Honestly, I follow Nike's advice, "Just do it" 

 

@Collin Vosburgh

I’m a huge fan of Ramsey’s “Total Money Makeover”, up to a certain point. So many people are in so much debt that they see no way out. It’s a great start for them. But at a certain point, you need to jump off that bandwagon and make better decisions.

I love low interest rate mortgages. I’d borrow another million at 3-4% right now if I could! Make that work for you. But again, when the country is sitting on $13 tril of consumer debt (mortgages, credit cards, student loans, auto loans), then people need a starting point just to get back to even.

@Collin Vosburgh . If you are the average American who says proudly, "I live paycheck to paycheck" then listen to Dave. If you are really interested in financial independence, can live within your means and not over-leverage, ignore him. One size DOES NOT fit all. But apparently it sells a lot of books.

You have to look at your current finances, skill level, goals, current market condition, and age.  Then you can decide what is the best for yourself. I think you need a combination of being conservative and aggressive.  You just have to know when to be either one.  

Example: If you are younger you can be more aggressive. After a Bear Market. Aggressive.

Thank you very much everyone for all this great info! I didn't know he got burned because he was in commercial real estate and they called in their loans. That's a relief to know. I will still continue with the plan I have. Finding another house to buy and move into (since we don't really like where we're at now) and renting out our current property until we get enough equity on it to sell and put towards a couple multi-units. We already have about 50k in equity on it so hopefully it won't take too long.  

Originally posted by @Steve Vaughan :

Dave was burned when his commercial loans were called.  That hot stove burned him, so he recommends nobody use a hot stove.

Fixed residential mortgages are not callable commercial loans.  Use responsibly and build wealth with long-term, non-callable cheap money. 

 EXACTLY! 

He wasn’t using conventional debt either. I heard him say on air that he used “90 day notes” to be exact. Dave was reckless. 

It’s like he was literally playing with fire, burned down his house, and now tells everyone that fire is inherently evil and you must never use it or you’ll burn your house down too. I like Dave from a personal finance perspective. For real estate investing, not so much. 

no don’t listen to that nonsense . I’d never invest at all if that were the case and most of the millionaires on here would still be working their w2 jobs trying to pay off their only house . Look Dave’s advice is solid meat and potatoes wisdom for the “ average “ slob that watches mindless trash every night sitting on the couch ,who can’t control himself or his finances . It is good practical advice for the uneducated masses with consumer debt so it’s not fair to call it bad advice it’s just not geared for folks like us. We understand how currency works and the proper use of good and bad debt .

@Collin

My question whether you believe in Dave’s ideas is or not is, what’s wrong with having no mortgage debt or any other debt, and having nothing but income to invest and get very wealthy. It will work, so what’s the problem?.

@Collin Vosburgh . So you are young and eager to become wealthy in REI. Well young man tread down this road carefully. If you only buy with cash at a young age don't think you will acquire enough properties to reach your goal. However if you hold too many marginal cash flowing mortgages you have huge risk of losing money. I would suggest you save until you have @30% down payment find a deal that cash flows minimum 8% Don't forget after the first rental save enough to cover repairs and capital expense replacement make sure you have adequate umbrella insurance. The go for # 2. If you follow this formula and don't give up your W2 job then you RE holding will grow slowly at first but then accelerate. I think most wealth in RE comes from appreciation over time and banking your cash flow to reinvest. Owning property can make you wealth, owning mortgage property with little cash flow makes the bank wealthy and the contractors employed and as Dave Ramsey says " Murphy will come knocking on your door". Good luck young man, be a wise investor.

@Nick Rutkowski . I hope when you Just Do It you have a plan that goes along with it. Just Do It is a recipe for a disaster for someone with little experience, such as a young investor.

I didn't have any debt UNTIL I started investing in real estate. Years later, after we collected a LOT of real estate, it all became free & clear & we had no debt period. But invest carefully as REI can be an unforgiving mistress!!!

@Collin Vosburgh

The average consumer has just under $10,000 in credit card debt. Dave Ramsey just like a lot of advice, you need to take it in context. Very few people would ever have started in RE if they had to be debt free. Be smart about investing, take it slow, and it's all about the numbers. One property a year and you will obtain wealth. Even in the Midwest say average ARV of $150K well that's 3 million at 20% down that's $600,000 in equity. Tenants are paying your mortgage, taxes, ins, etc. Don't forget the tax advantages of mortgage pay down, depreciation, appreciation and cash flow. A steady and smart pace of investing can bring you many benefits if your willing to work at it.

Good Luck.

@Collin Vosburgh I like Dave but do not agreed with everything he says. I don’t agree with his advice on this for everyone. I was working full time and had debt. I got into real estate/rental homes at first then fix and flip. In 12 years left a 6 figure income job to have much freedom. Do what works for you. Play with numbers.

@Marcus Johnson

There's nothing wrong with it and probably a great plan if you can do it

 The thing is the average person doesn't have that kind of money to just buy everything outright and Dave makes statements like "don't even think about investing in real estate until you can" and he "promises" it will fail. 

@Collin Vosburgh I think the question you should ask is if anyone has ALL there real estate paid off and do they regret it? I am big fan of Ramsey a lot of people have there input without actually reading the book “They heard” and I constantly have the debate of leverage or pay off properties. 3 years ago we paid off all debt except the house and I do not regret it one bit( even if I could of invested that money) And I realized that you will not be in a bad place if your properties are paid for in cash, Could be a different story with a loan. the hard part that I struggle with as everyone else I know in real este is to have patience. Partnering up with someone is a good way to get into properties without the debt. Investors I know that have paid off property would not take out loans because they are in a good place and have really good cash flow.

I love listening to the Dave Ramsey show, but his advice comes in all forms. Intelligent. Obvious. Moronic. Depends on the day and what we are talking about. I love when he tells someone to sell off their cash flowing rentals to pay for theirprimary residence. If you struggle financially.  Follow his steps to step 3. Then make your own plan. Listen to his advice. Listen to others. Do what's best for you. If I could afford to buy millions of dollars if real estate without financing I would just spend my life spending my money instead... Lol he invests in real estate like a hobby. 

@Fred Cannon

I think after owning a few properties I should have a plan in mind. Normally it doesn’t turn out the same way as I envisioned. But an experienced investor like you should know that.

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