Flushing, NY · Member since 2017 · 23 posts · 14 votes
I think most of BP would disagree with Ramsey's advice about real estate and debt, but there is one bullet here that states "Real estate should only be about 5% of your portfolio." I understand (but don't agree with) his opinions on debt, but this statement by Chris Hogan about 5% goes unexplained.
Could someone help explain the reasoning here? Is there a reason, or is it just an arbitrary number?
Rental Property Investor · Member since 2019 · 187 posts · 230 votes
7y
I believe 5% is arbitrary or part of their much larger context regarding diversification, as I frequently see figures like 5%-10% used when discussing the maximum amount of your portfolio that should be invested in any one stock, sector, asset, asset class, etc.
Another thing to realize as well is that followers of Dave Ramsey and followers of BP seemingly approach saving and investing in very different fashions but both can work and provide growth and financial stability based on the the person and their situation.
It's up to us to determine which school of thought, or combination of the two (or the countless others, for that matter) is the best fit for ourselves.
Specialist · Member since 2018 · 18 posts · 16 votes
7y
There is no one-size-fits-all financial plan which works for every single person in the universe. Different goals, motivations and risk-tolerances mean that there is space for a lot of different schools of thought. Keeping your real estate investments at 5% might be the correct approach for some but not for all.
Asking this question on BP will result in selection bias. However 5% seems so low that most regular people would never do it. I believe that is by design - Chris Hogan appears to be saying that you should only invest in real estate after you are already rich. I would need a $4,000,000 net worth before buying a single rental property in my market. That approach does not work for me personally.
Flushing, NY · Member since 2017 · 23 posts · 14 votes
7y
Thanks for the thoughtful response @Brandon Roof and the humor @Jesse Rivera. It does seem arbitrary, and the only reason I can think of them deciding 5% is because they are implying real estate is a riskier investment option.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
7y
After many many years in REI it's amazing how quickly your real estate capital appreciation, free & clear ownership & COC returns reinvested accounts for 90% of your net worth. If I held back @ 5% I would still have to have a JOB.
Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
7y
Dave Ramsey is preaching to a different audience or teaching a different grade per say. Real estate is almost all of my net worth and I didn’t have money to invest when I started, but worked real hard to make up for that and pay my bills by way of my real estate holdings at present.
Dave is talking to folks that have a 9-5 job that probably benefits from his simple steps. In fairness to Dave, “ he wasn’t talking to you.”
Thanks for the thoughtful response @Brandon Roof and the humor @Jesse Rivera. It does seem arbitrary, and the only reason I can think of them deciding 5% is because they are implying real estate is a riskier investment option.
I don't know anything about this particular guru person.
There was another guru that I'm not going to name. He had similar really restrictive "rules" that, if you followed them, there was basically only one very specific "acceptable" way to invest in real estate. And, wouldn't you know it, he was affiliated with someone selling exactly that good or service.
Again, I don't know anything about this guru. But don't assume these "rules" weren't created with ulterior motives.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y
@Chris Wilkening for the average person this is good advice. Most people who try real estate investing end up selling and often losing money. A low percentage mix reduces risk.
Of course if you pay all cash for a $100,000 property, you would need $2M in net worth before you buy your first $100,000 property, which isn't really practical. With leverage you are buying a $100,000 property for say more like $20,000. In that case if you have $20,000 invested, then it would only be 5% of a $400,000 net worth.
Many people confuse net worth with property values. Net worth is assets minus liabilities. So you may own $1,000,000 in real estate, but with $800,000 of loans, your net worth of that property is under $200,000. Even less once you include 7% selling expense. Even worse during the 2008 crash with property values dropping, many people were underwater, so the property subtracted from net worth. This is the risk of real estate leverage, which is greater when you are starting out and have low equity.
Dave Ramsey is offering advice for the common passive investor. Owning real estate is really running a business. Of course any business owner is taking on way more risk than the average person. Is the risk worth the reward? With so many businesses failing, statistics say probably not. But of course we all like to believe we are above average and that we are the 5% that succeed not the 95% that fail (or whatever the split is).
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
I think Dave’s right and not because I agree with his percentage for folks like us . You need to remember we are a rare breed ! 97% of the general population are not real estate investors and of the tiny 3% that are , only a small percentage actually own more than one property . That being said his audience can’t even balance a check book make the car payment or pay their student loans so how on earth will they manage multiple properties with a big budget ? Besides how can you buy Dave’s special 14% mutual fund if you “wasted” it on real estate lol you need to understand Dave’s audience . It’s usually a toothless redneck incapable of organizing the time money or resources to pick their own nose .
I love Dave Ramsey and have seen him help tons of typical blue collar 9-5 type people get a grip on their finances.
I don’t like that you are trapped in a 9-5 following his advice. It’s possible to make money in real estate with minimal financial and time commitments. Where else can you do that?
Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
7y
@Dennis M. describing All of Dave’s audience as toothless red necks is a bit much.. There are tons of high paid 9-5 workers that know how to do more than pick their noses. :)
Specialist · New York City, NY · Member since 2019 · 34 posts · 111 votes
7y
@Chris Wilkening
It's very subjective based on many factors that make up a person's investment profile. Income, assets, age, conservative or more risk taker, sophistication and financial goals just to name a few.
So take it with a grain of salt, just do what works for your own investment profile, personal and financial goals and you will do just fine without any specific ratio limits set by someone named Dave Ramsey.
Homeowner · New Boston, NH · Member since 2014 · 9 posts · 6 votes
7y
Ramsey is speaking to folks who are in over their heads in debt. Many times those are the folks looking for a quick fix - aka gamble for a long shot.
I am not Ramseys consumer. I have paid off homes and no debt. I’m currently looking for my first real estate investment myself, have cash in hand but stuck with analysis paralysis.
If you have your debts in order and are saving in your 401k first, and have extra left over for investing, then does it really matter if your returns are in real estate or the market from here?
Rental Property Investor · TX · Member since 2019 · 236 posts · 392 votes
7y
We all started somewhere, right? I used to listen to Ramsey when I had one house, a mortgage and was saving to pay off all my debt. I succeeded with that chapter of life thanks to his tips. I still tune in once in a while for a reality check of where I came from, and I still learn new things. He has been a great stepping stone for many of us.
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
7y
I think diversification is critical. If I have 3 dollars I have always favoured: a dollar in real estate, a dollar in real estate, and a dollar in real estate.
Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes
7y
Most would classify what we are doing as another job (or primary if you’ve gone all in). And they wouldn’t really be wrong. What he is teaching/coaching has to do with people doing a little bit of research (and probably limited to what is offered in 401k plan) and parking some money and letting it grow. That is vastly less involved than what almost everyone here goes through for just 1 deal. For those self managing their properties or doing the rehabs themselves, you definitely aren’t JUST investing, you are also working a job. That’s not what a lot of people want to do, and certainly not what most who have a job and are looking to save money want to do. Different audience, different solution
Rental Property Investor · Knoxville, TN · Member since 2019 · 26 posts · 21 votes
7y
@Dennis M.
I’m trying to put a coherent and respectful thought together in response to your uneducated, stereotypical, and unhelpful comment.
Even though I’m pretty sure you made your percentages up, you are right about a small percentage of people who invest in real estate. I’m one of those.
I also hold a professional, great paying job. I work until 5. When I got out of school, I was in debt up to my ears. I followed Dave’s plan and cleared up all my debt and now I hold a good bit of rental properties. Oh, and I have all my teeth. Cavity free even.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
@Derrick White
I hear ya Derrick .. I’m glad you have your teeth still and please know I said that in satire obviously ..yes I do agree with you on many of those points . I think in general Dave has solid plans that anybody can implement and they are proven to help financially illiterate people to get out of bad debt . I guess my point is asking who his primary audience is. Most on here would look at that advise to pay only in cash and avoid all debt as antiquated and a poor way to ever acquire wealth because it usually requires leverage in RE to have success . Likewise most on BP would say don’t buy mutual funds because you have no control over your money , the returns are poor , and it’s just another part of the market roller coaster we avoid . If you you are drowning in student loans and consumer debt and feel lost Dave’s advise is good meat and potatoes stuff for the common working man that needs help . If you are savvy with money and use debt wisely though like us ,you can leverage knowledge and get much further ahead accelerating the process instead of working for 50 years for an employer to get “ wheelchair wealth” when your body is falling apart and you can’t enjoy your money .
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
7y
Whether or not you agree with the percentages, there's a lot of truth in that article....even for us "rare breed" REIs.
He cites the $300,000 investment portfolio and buying a $100,000 property. Remember, the Dave-method is CASH. If you're following his method 100%, then he's right...it doesn't make sense to put 1/3 of your eggs in ONE basket. Real estate can crash. Tenants can destroy it. So can a flood, a tornado, or a severe loss of major employer in a local economy. There are things insurance excludes like flooding, toxic spills, sink holes, earthquakes, unless you buy a ton of special (and expensive) riders for your policy. He's basically encouraging diversification.
Is 5% conservative? Yep. Too conservative for me? Yep. I've listened to Dave's shows since 2008 and read most all of his books, and this is the first time I've heard this very conservative number. Seems like in the past I've heard Dave says 50% is okay, but advises to purchase more than just one property. Dunno if this is something new or if Hogan is going off on his own. One would think there is some basic vetting process when posting as a "Ramsey personality".
I'm going to meet them (Ramsey and Hogan) on the first ever "Live Like No One Else" Cruise in March 2020, so maybe I can ask about that and get some clarification. 5% means if you want a $100,000 house, you'd have to have a portfolio of $2 million. A bit steep for most folks. If I learn something, I'll post back here or on another thread.
QUESTION: Kerry asks how much she and her husband should invest in their retirement account vs. how much they would invest in real estate.
ANSWER: It depends on how much you love real estate investment. I love real estate and buying investment property and don’t mind the hassle that goes with it. But you have to deal with renters and have a good temperament with them. Put 15% of your retirement into mutual fund and fund the kids’ college and get the house paid off, then talk about this. Then you just ask yourself what you want more money invested in. Mutual funds have a lot less risk.
I don’t think you should be all in one or the other. I think you can settle on a percentage that you both like, and then you’ll be all right. But remember, you have to be able to lay your hands on some cash. If you are more than 75% involved in real estate and 25% in mutual funds, you become too non-liquid and that scares me. Talk about which you like and find a good balance between the two.
Flipper/Rehabber · Cary, NC · Member since 2019 · 29 posts · 13 votes
7y
Dave's advice is directed to the average person's total portfolio and not towards a real estate investor. So for the non RE investor out there, 5% is the target. As a RE investor, you will obviously have a much higher percentage. The rule here is to don't put all your eggs in one basket or you can get scrambled eggs that many of us got in 2008.
Investor · Green River, WY · Member since 2017 · 122 posts · 59 votes
7y
@Chris Wilkening Dave Ramsey is trying to help the most people possible (aka have a big audience) and the best advice for most people is to play things safe and let small gains compound over time. This works well for plenty of people.
I’ve listened to his podcast plenty of times and I think he has pretty good advice for his callers. Almost none of it apples to me or my goals.
Successful real estate investors do their research and work hard, Dave can’t assume his listeners will do that so he doesn’t recommend that path for them.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
Dave Ramsey has more in RE than he has in equities like mutual funds. This is a Chris Hogan thing.
I like Chris Hogan and I liked the article, mostly, except for the 5% part. So I'm ok with a $50,000 junker if I have a million elsewhere? Low value RE has more risk than if it were a larger % of your world, unless you are a low value specialist.
Funny as the Retire Inspired guy, Chris' net worth calculator on his website counts home equity towards net worth. The avg American has more net worth in their house than most anywhere else. How does the 5% RE allocation jive with that I wonder? It doesn't.
Too much in your primary res represents more risk to me than too much strategically purchased imcome property. Chris should focus on what he knows better like 401ks and budgeting than REI.
Investor · Winhall, VT · Member since 2016 · 106 posts · 44 votes
7y
Listen, Ramsey is a self made millionaire and a system that has worked for him. He also preaches to a totally different crowd focused on paying your bills and getting out of debt. If you're looking to grow wealth there has been no better way to do that over time than with real estate.