Successful investors who use Dave Ramsey's strategies

43 Replies

I have held true to the debt free mentality for several years, and it has worked great for me.  I started out buying a 5 lots on an online auction.  I only paid $2250 per lot and there were others listed in the development for 30k.  After paying cash for the lots i sold them to a builder for 15k per lot.  Then i took that cash and bought a house to rehab and sell.  I have continued this process very successfully useing all if my own cash.

After selling 3 to 4 rehab houses, i have enough cash in the bank to purchase a rental, rehab it and continue my flipping business.  Its a slow growth model but eliminates most of the risk.  At the ripe old age of 32 i own over 2M in real estate free and clear and never have to work another day in my life.  My rentals have made us financially free and i dont have to flip a house to survive.   Which is very helpful in today's market.

I like the Dave Ramsey model but choose to use leverage because I am older and do not have years to go the slow route. The key to using leverage is to have a large fund for vacancies, repairs and maintenance. Investors get into trouble using loans when they do not have that cushion to pay for that new roof in one home and the HVAC in the other that is sitting vacant. Have good reserves and leverage can work.

Where I am confused, Dave counters Rick Edelman's & George Antone's advice to NOT payoff your mortgage, and get the longest 30 or 40 year one you can. By devoting all your spare income to paying off your mortgage leaves you with a house, and no money to invest. I think Dave's advice might be for lower income people to follow, or am I missing something? 

Dave is just bitter because he was a high roller investor who was highly leveraged in the bust of the early 80s and the banks called in his loans. It's like my grandparents who lived through the depression so they wouldn't even throw away a newspaper. Now he can finance his re investments with his large wealth and income. Good luck getting there by working 9to 5 and saving 15 percent in a mutual fund.

I have a hard time understanding how you can acquire real estate assets, while paying down your mortgage on a "meager" paycheck. Even for the most frugal of us, it is a big challenge. When you combine student loans, the necessity to be mobile (most places don't have a functioning transport system), ... etc .

I have never read Dave Ramsey. I have heard him on the radio a few times, and he sounded more like a "preacher" than someone giving financial advice.  

As I understand Dave was a succesful investor that was over leveraged and it bit him. Although Dave does have a service that is helping people, it is still a business. His business markets to the majority of Americans with very little financial savvy for saving, eliminating personal unsecured debt, and building wealth. Likely not real estate investors.

Gary Keller highlights a couple that used the snowball method to build their wealth and were successful. THere are plenty of people on BP that do also, and have been successful. It is not as sexy and it takes time. But if your goal is to build enough wealth to live out your retiremnet on your properties then it is absolutley doable.
Currently my strategy includes this. I will take all income from the properties to improve, build a larger emergency fund, and payoff debt service. I will use my W-2 income to purchase more properties.

Originally posted by @Henri Meli :

I have a hard time understanding how you can acquire real estate assets, while paying down your mortgage on a "meager" paycheck. Even for the most frugal of us, it is a big challenge. When you combine student loans, the necessity to be mobile (most places don't have a functioning transport system), ... etc .

I have never read Dave Ramsey. I have heard him on the radio a few times, and he sounded more like a "preacher" than someone giving financial advice.  

Paying off the home mortgage is step 6 (See * below).

I think you can for the most part follow DR philosophy while "taking calculated risks" being an REI. DR purists will disagree, but with a small change to baby steps(*) 2 and 4, a leveraged REI can follow the program. Baby step 2 involves paying off debt. Well, I'd contend you could change the word "house" in DR quoted "List your debts, excluding the house, in order" to "houses" and still follow the fundamentals that DR preaches.
Just make sure the true income from "houses" greatly exceeds the expenses (including non-cash and reserved cash "expenses".) Note that "house" (your personal residence... excluding those airBNB folks;) creates no income and is actually an expense.

(* Notes: See http://www.daveramsey.com/new/baby-steps/ for the baby steps)

Dave Ramsey is a fine first taste of financial planning for people who are in debt and have no financial literacy, but anyone who has thought about the relationships between money, time, work, investment etc. would do well to forget the whole thing. Its cookie cutter infotainment, but he is doing good by converting financial infants into financial toddlers.

He is telling people to put their money into paying down their 4% mortgages instead of investing at 20% COC. That's pretty darn conservative.

I used the snowball method to pay off over 80k in debt in about 1.5 years. Now I maintain no personal debt and use all of my income for down payments on rental properties (good debt). I've bought 3 houses in the last 8 months. My goal is to buy 4 properties a year (good debt). 

I too like the snowball effect. I am not a big fan of debt, but some debt used wisely is the best way to grow your portfolio. I am very aggressive with my rentals and usually get 5 year straight amortized loans. These cost me cash out of pocket but I have enough income from the free and clear ones to cover them. Don't be afraid of good debt. Make sure and hold money in reserves for unforeseen problems such as evictions, a new A/C unit, a new roof, etc.

Originally posted by @Jake Hartnett :

He is telling people to put their money into paying down their 4% mortgages instead of investing at 20% COC. That's pretty darn conservative.

 If Dave was checking this out, he would say two things

a) 20% is very unrealistic over a long long period of time and 10-12% is more realistic

b) if you borrow against your house at 4% and make 10-12%, you are not adding risk. That risk you take, gets you the 6-8% profit and not your investments.

I personally partially disagree with that, but just saying

Dave Ramsey's advice is very sound for 90% of the population. I think there is a time to use leverage for assets that produce income like businesses and real estate, when purchased and managed correctly. His message to avoid consumer debt and to "live like no one else so later on you can live like no one else" is good. Better than the guru's giving interviews by a pool, beach or sports car.

They way I look at it is Dave is worth around $55 million.    Is anybody on this site worth that much or this thread?   If so, I'll listen to you.    I think the one guy is 32 and worth $2 million can attest to that. 

This post has been removed.

Originally posted by @Henri Meli :

.

I have never read Dave Ramsey. I have heard him on the radio a few times, and he sounded more like a "preacher" than someone giving financial advice.  

 He's kind of both. There is definitely some value in what he says. But I agree. More preacher than teacher.

Originally posted by @Carl C. :

building massive amounts of wealth in real estate without using loans ? Starting from the bottom ?  Crickets....

It can be done. I have a buyer that is now up to 35 doors, mostly SFH, all but 2 are free and clear. I've probably sold him 10 of them. I carried short term paper on 2 of them (5 years) that are now paid off. He's been buying with cash for 20 years, he's not quite 50 years old. So far he's only used short term seller financing. He's no stranger to lending. His primary residence is mortgaged. He had a few business loans. But he's old school on the rentals.

His strategy was/is cash producing businesses and the willingness and ability to save for RE buys.  He had an auto paint franchise for many years.  He's a general contractor but he and his crew will fix, haul or clean anything.  He'll buy and re-sell anything from cars to building supplies.  He has a rental storage and parking lot side hustle on one of his vacant lots.  He self manages the rentals and monthly gross is $25K+ at this point.  He's aware he could buy more with lender funds but he likes being debt free on the rentals.  Gives him peace of mind.  And put his 4 kids through college.  

He started with no cash and no college.  What he had and has is drive and a clear vision.  And serious family support.  Most people I know don't have that kind of clarity at a young age and willingness to hustle. I know I didn't.    

I tend to agree with DR on the debt snowball, emergency fund, and some other items.  I will admit as noted by some of the member's here he definitely is a preacher and that is what he does.

As some one who has a difficult time in acquiring a full house payment I think that in order to be successful in RE then you have to be some sort of leverage and with rates being so low how could you not.  I am paying off my debt and am certain that I want to pay off my CC but to think that I should pay down the 2 and 4% student loans is a bit hard to accept.  Also thinking that I should pay off my debt and not invest in my 401k is impossible to me to accept, I kindly disagree with waiting till baby step 4 for this.  I mean I get 6% for putting 8% in which is not a bad return.  My company also has a gracious stock plan that I purchase $9 worth and they give me $1 I can't say no to a guaranteed 11% return.

I did do the mistake of convincing my better half that debt is bad but now I have to switch her mind to that of knowing and properly applying good leverage.

I happened to be able to hear Dave Ramsey for a while a few days ago, when a caller asked about investing in real estate vs stocks.  Dave told him that he is 70% in real estate, and that those who like real estate should invest in it.  he also pointed out that the market for single family houses is very broad, while that for duplexes, triplexes, and quadplexes is quite limited.  He stated that he owns single family houses and larger apartment buildings.  It was wonderful to hear him not just pushing stocks and ELPs.      

We're debt free. I'm almost 59 and Rima is 53, and we have a $3.3M net worth.

We paid off the house we live in 2007, and the only two rental mortgages we had in 2010.   

Originally posted by @Brian Gibbons :

Omg 

@K. Marie Poe

That's amazing!

And that is worth a podcast that I would listen to very carefully!

Actually, he's not that uncommon.  But to meet B&H investors like that you do have to get away from the coastal markets.  :)

A podcast would bring up the inevitable ROI and COC return argument that always comes up here. His untapped $4M in equity would freak out the leverage lovers. He's the first to admit that it's an emotional issue. I think it's because he's lived through two major RE market crashes in his adult life and has seen friends and some family members get wiped out. He's a cash guy and likes things that are tangible. He's not the only investor I know who prefers F&C properties over leverage, even when they know how to do the math.

I thought the orginal post was about successfull investors who use DR not about Cash vs. leverage. I am new to this site is there a rule that you can't use all cash you have to use leverage or you can't be a part of BG. Every thread that starts this way goes this way. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here