Dave Ramsey followers and mortgages?
Real Estate Broker · North Liberty, IA · Member since 2014 · 42 posts · 22 votes
Dave Ramsey followers and mortgages?
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11yThink about it. The guy selling the system has CASH from all the people buying his informational products............ : )
67 Replies
- Atlanta, GA · Member since 2014 · 240 posts · 130 votes11y
Josh here, a newer investor from Atlanta. I feel that Dave Ramsey's approach is over-simplified. In my opinion, all debt is not created equal, and Ramsey's teachings seem to gloss over the importance of understanding assets and liabilities.
I think Ramsey is trying to help those addicted to credit card spending, fancy vacations, posh car purchases, etc. He wants to show there is a better way, and I think there is merit to his teaching.
That said, once consumer debt is eradicated, disciplined budgets are honored, and savings are being generated, I believe acquiring assets by taking on strategic, calculated debt can be an excellent strategy for building wealth.
- Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes11y
@Joshua Feit, yes most people justify debt in order to jump into buying real estate investments faster. Dave Ramsey is a very wealthy man and didn't need debt to build up his portfolio. He is just trying to get people to know there is another way then going into debt when investing. Most of us are like cattle in a herd. We're followers.
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes11y
Originally posted by @Marcus Johnson:
@Joshua Feit, yes most people justify debt in order to jump into buying real estate investments faster. Dave Ramsey is a very wealthy man and didn't need debt to build up his portfolio. He is just trying to get people to know there is another way then going into debt when investing. Most of us are like cattle in a herd. We're followers.
Dave Ramsey makes millions of dollars a year--and he didn't do it by building up his portfolio. To follow Dave Ramsey's actual example you'd first need to make millions then invest.
He doesn't teach about investing. He teaches how to get out of debt and stay out of debt. But all debt is not the same. There there truly is stupid debt and smart debt. And smart debt is an investors friend.
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes11y
Originally posted by @Marcus Johnson:
C'mon everyone, let's be realistic about this. Most of us don't have the discipline to pay cash for your investment properties, because it would take a long time to acquire properties.
It has nothing to do with discipline. It is about being smart with your investment decisions.
- Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes11y
Originally posted by @Larry Turowski:
Originally posted by @Marcus Johnson:
C'mon everyone, let's be realistic about this. Most of us don't have the discipline to pay cash for your investment properties, because it would take a long time to acquire properties.
It has nothing to do with discipline. It is about being smart with your investment decisions.
His idea to pay for Real Estate in cash is a smart investment choice as I wrote about in my original post. As for being disciplined, I stated in my first post that believe that most people couldn't have the patience or discipline to pay for real estate in cash. We live in a society where we want things now and if it creates hardship when you have to be patient. Dave Ramsey made millions through creating businesses, buying rental properties and investing in the stock market. He did it without debt, you cannot deny that. Just because most people here don't have the fortitude to follow his ideas doesn't make it no smart. You just don't agree with his methods. I myself don't follow his methods to the tee, I only carry debt on real estate, and I always put 20 to 25% down to limit my risk.
- Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes11y
Originally posted by @Larry Turowski:
He doesn't teach about investing. He teaches how to get out of debt and stay out of debt. But all debt is not the same. There there truly is stupid debt and smart debt. And smart debt is an investors friend.
Have you ever read one of his books? He speaks about investing all the time. Total Money Makeover and "How to make More then enough" to name a few. Please don't make an assumption unless you've read his books. Listen to his radio show once, he has entire espisodes devoted to investing. His talk show spends a lot of time on the subject. - Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes11y
Originally posted by @Marcus Johnson:
Originally posted by @Larry Turowski:
Originally posted by @Marcus Johnson:
C'mon everyone, let's be realistic about this. Most of us don't have the discipline to pay cash for your investment properties, because it would take a long time to acquire properties.
It has nothing to do with discipline. It is about being smart with your investment decisions.
His idea to pay for Real Estate in cash is a smart investment choice as I wrote about in my original post. As for being disciplined, I stated in my first post that believe that most people couldn't have the patience or discipline to pay for real estate in cash. We live in a society where we want things now and if it creates hardship when you have to be patient. Dave Ramsey made millions through creating businesses, buying rental properties and investing in the stock market. He did it without debt, you cannot deny that. Just because most people here don't have the fortitude to follow his ideas doesn't make it no smart. You just don't agree with his methods. I myself don't follow his methods to the tee, I only carry debt on real estate, and I always put 20 to 25% down to limit my risk.
I absolutely do deny that Dave Ramsey made millions by buying rental properties and investing in the stock market. He made millions through creating his debt education program.
Smart has to do with risk vs reward. There is always risk even in putting your money in a mattress or in the bank. Your approach seems fairly smart. To refuse to take on any debt under any circumstances is not smart. I'll use a straw man argument to prove my point. Say you can get a property with a $100K ARV that needs $20K of work for $30K. And lets say there is no other exit strategy besides rehabbing and you have the knowledge/skills to pull it off, but you only had $25K. You either pass or do the whole thing. It would be very smart--to me, at least--to borrow the other $25K to finance the deal. The risk would be low and the reward quite high.
- Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes11y
I absolutely do deny that Dave Ramsey made millions by buying rental properties and investing in the stock market. He made millions through creating his debt education program.
That isn't what Dave Ramsey says.
- Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes11y
The risk isn't low, because you only have 25k to your name and have to borrow 20k. Stuff happens that your not prepared for when investing in Real Estate and not having EF funds can bring you to bankruptcy. Your only looking at the upside. Roofs leak, problems within the walls, other things you didn't see until you starting tearing things apart appear. Now you expenses have doubled. Plus what if you cannot make the mortgage payment each week your trying to finish the project. Do you borrow more money at high interest?
When you buy with cash down or a large DP and cash reserves, you minimize your risk level. I only invest in real estate where I put 20% to 25% down with cash reserves. Yes it is a slower process then most, but during the last housing bubble I didn't suffer at all. Investors that were highly leveraged were losing their face. In fact I was able to buy a lot of index funds in 2008 and 2009 because everyone was selling and I was buying cheap.
Originally posted by @Larry Turowski:
Originally posted by @Marcus Johnson:
Originally posted by @Larry Turowski:
Originally posted by @Marcus Johnson:
C'mon everyone, let's be realistic about this. Most of us don't have the discipline to pay cash for your investment properties, because it would take a long time to acquire properties.
It has nothing to do with discipline. It is about being smart with your investment decisions.
His idea to pay for Real Estate in cash is a smart investment choice as I wrote about in my original post. As for being disciplined, I stated in my first post that believe that most people couldn't have the patience or discipline to pay for real estate in cash. We live in a society where we want things now and if it creates hardship when you have to be patient. Dave Ramsey made millions through creating businesses, buying rental properties and investing in the stock market. He did it without debt, you cannot deny that. Just because most people here don't have the fortitude to follow his ideas doesn't make it no smart. You just don't agree with his methods. I myself don't follow his methods to the tee, I only carry debt on real estate, and I always put 20 to 25% down to limit my risk.
I absolutely do deny that Dave Ramsey made millions by buying rental properties and investing in the stock market. He made millions through creating his debt education program.
Smart has to do with risk vs reward. There is always risk even in putting your money in a mattress or in the bank. Your approach seems fairly smart. To refuse to take on any debt under any circumstances is not smart. I'll use a straw man argument to prove my point. Say you can get a property with a $100K ARV that needs $20K of work for $30K. And lets say there is no other exit strategy besides rehabbing and you have the knowledge/skills to pull it off, but you only had $25K. You either pass or do the whole thing. It would be very smart--to me, at least--to borrow the other $25K to finance the deal. The risk would be low and the reward quite high.
The problem is not usually one property, the risk usually lies with buying multiple properties via credit, those of who went through the great recession with properties got an eye opening lesson in that risk.
Also, according to Dave he made (and lost) millions in Re before he was 26. Since starting his debt education program he has made (tens of) millions off of it. I'm pretty sure he has invested that money and made millions more in RE.
- Investor · Tirana, Albania · Member since 2015 · 39 posts · 8 votes10yThank you Shawn Thom ! I've been feeling the same thing as you described. I have an obligation to make the most of what I've been blessed with. About debt though, ever since I took a mortgage to buy a personal residence I have been aggressively paying it down. I was highly motivated by the lure of no mortgage payment. My plan was to pay off my own home and then use all that cash to invest in real estate. I moved a few years ago and I'm currently in my 4th year of a 5/1 ARM at 2.5% with a remaining balance of 30k. Now I realize I'm sitting on a once in a lifetime interest rate. I've lost my motivation to make those extra payments each month when I could use that money for investing. The low total interest I'm paying each year combined with my curiosity to personally see the interest adjustment play out on a low principle balance changed my thinking. With a small remaining balance, the difference between the two approaches (maximize leverage v minimize debt) is too small to worry about. That said, I think each of us has to choose our own comfort level with debt and be open to adjusting that level of comfort as opportunities come our way. I think the optimal approach is somewhere between the two extremes.
- Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes10y
@Lisa Foreman I agree. I believe Dave's classes and book are more designed for debt abusers and those that could not control their spending. Once being there, what I learned from him was freeing. Having taught it I saw people who were in the same position I was originally in. If they applied his principles, they got on a path to better financial stewardship. Once you learn how to manage money and debt, debt is now one of many tools you use. I have to keep myself in check often as I always want something that is a little outside of my financial grasp. Darn those new shiny objects that try to convince me they need to live in my garage.
- Investor · West Olive, MI · Member since 2016 · 3 posts · 1 vote9y
Originally posted by @Ben Leybovich:
@Tom Webber- one of the greatest advantages to RE is leverage, which comes in the form of OPM...
The liberal arts answer is, just as you've pointed out, that most people don't have the capacity to throw cash around. So, Ramsey's approach would preclude 999 people out of 1,000 from even entering the game.
A more mathematically to the point answer would be to underscore that the two most pertinent ways of measuring the ROI on any investment (including RE) are Cash on Cash and Internal Rate of Return (CCR & IRR). While CCR is static and IRR is dynamic, both are first and foremost a function of the investment of cash. In property, having too much cash tied up, simply kills investment returns.
Now - we are not talking about "too much leverage". Also, there are special times and circumstances when cash purchase may be more appropriate. But, on balance, leverage used properly is a magnificent tool in RE!
Hope this helps.
Hey Ben, what did you mean by "RE"? I don't know that acronym.
Thanks, Grant
- Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes9y
Originally posted by @Grant Young:
Originally posted by @Ben Leybovich:
@Tom Webber- one of the greatest advantages to RE is leverage, which comes in the form of OPM...
The liberal arts answer is, just as you've pointed out, that most people don't have the capacity to throw cash around. So, Ramsey's approach would preclude 999 people out of 1,000 from even entering the game.
A more mathematically to the point answer would be to underscore that the two most pertinent ways of measuring the ROI on any investment (including RE) are Cash on Cash and Internal Rate of Return (CCR & IRR). While CCR is static and IRR is dynamic, both are first and foremost a function of the investment of cash. In property, having too much cash tied up, simply kills investment returns.
Now - we are not talking about "too much leverage". Also, there are special times and circumstances when cash purchase may be more appropriate. But, on balance, leverage used properly is a magnificent tool in RE!
Hope this helps.
Hey Ben, what did you mean by "RE"? I don't know that acronym.
Thanks, Grant
Real Estate :)
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Dave Ramsey followers, in general...
- Financially conservative and responsible, which always makes it easier to get deals through.
- Answer "how are you?" with "better than I deserve," so you know who they are early in the conversation (obviously outing myself here as a Ramsey listener myself, for knowing that :P ).
- No car payments screwing up my DTI.
- Ask about 15 year mortgages, and then get all excited when you tell them that 10 year fixed mortgages also exist. They often actually even qualify for them, too, which takes us back to bullet point #1.
- So far, in my experience, the overwhelming bulk of Ramsey followers thankfully ignore his advice about it being a good thing to have no FICO score, and have solid credit.
All in all, there's absolutely nothing wrong with heeding Ramsey's advice from what I've seen of reviewing the financials of people that do. Obviously you're going to have to compromise a bit and not be a hardcore purist or fundamentalist if you want to get a bunch of mortgages.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes9y
I've listened to DR for a long time and for the average w-2er, his basic advice of avoiding 'bad' debt on stuff that drops in value, to focus paying on one debt to knock it out, avoid keeping up with the Joneses with cars and stuff we don't need, spend less than you make, etc is sound.
But... he was basically burned by a stove once so doesn't cook with a stove anymore. He had a bunch of callable commercial loans that were called during the savings and loan crisis when his loans were bought by another institution following the '86 tax rule changes. 'All debt is bad!' he screams now. Nevermind that 15 or 30yr fixed loans are not callable.
Invest in sound assets, buy right and don't use variable rate or callable debt (for residential property) and the majority of the risk he faced when he went bankrupt is removed!
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
I agree with @Steve Vaughan (And Ive been wondering where the heck youve been, I guess you just changed your picture)
Dave Ramsey's philosophy is good for personal finance, especially those who have not learned to master personal finance. His advice though is not good for running a business. Investing in real estate is a business, and is not personal finance.
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