Dave Ramsey is a Genius now

125 Replies

I've been a hardcore follower of Dave Ramsey and have done his Debt Snowball in the past and it was very rewarding.  The problem was that I started to veer in the past 4 years and take on more debt such as buying a Lake Property that I run as an airbnb.  Although the Airbnb has been quite successful, I"ve noticed that I don't sleep as well as I used to because I'm leveraged.  I know a lot of people have been struggling with Airbnb during Covid-19 because their properties rely on tourism and now that that's buried, I feel for those property owners that are taking losses right now.  The reason mine is successful during this trying time is because it's on a private drive, in a rural area that is very desirable for people from the Twin Cities looking to get a way from the big crowds and bright lights.  I get a lot of people from Wisconsin, Iowa and south Dakota for both work purposes and vacations.   I was lucky and was able to get two workers that are staying for almost 3 months.  All this being said, I'm no longer interested in this business, because it takes up a lot of time and the money isn't worth it, nor is the stress of having to deal with the business.   I have a lot of equity in the property, but we have it listed and have a potential buyer that is making a decision hopefully today from what their agent said. 

Anyways, what I"m trying to say is now I understand why Dave Ramsey is a genious.   During these times, can you imagine that if you owned your properties free and clear, and had a large emergency fun for each property, you'd be sleeping at night quite well.  Having zero debt is king.  No one ever expected this would happen (Covid-19) and there are tons of renters who have been laid off that won't be making their rent payments and guess what?   As an owner and landlord you still have to pay your mortgage, taxes, insurance and 50% maintenance fees.  If you owned free and clear you wouldn' t have any mortgage payments.  How lovely that would be.  

So I'm really hoping that the lake property sells today or soon and my plan is to start paying off my primary home first and then start working on our duplex.  Once those are free and clear, then I will start saving to buy another rental property with cash.   I've been alive for the S&L in 87 debacle, the tech bust in 2001, the housing crash in 2008 and now this one.   So this is my plan and thanks Dave for all that you do.  

for average american home owners who are not in the real estate rental game I totally get DR approach.  especially as it relates to consumer debt  etc.

the issues come with the very real situation that most people cant get from here to there without some debt especially if they want to become landlords..

the only folks i have seen do that are those that happen to live and work in areas were the prices of properties are far less than a new car.. IE 10 to 20k each.. its much easier to do the cash no debt and build up doors in those areas and its the only way i would do it in the low end..  But higher end A B type props pretty tough to just own them outright unless your a 1 million dollar a year earner.. that type of thing.

@Marcus Johnson , I also started down the DR method personally before diving into the long term rental world.  But I think it depends on the situation regarding debt and sleeping at night.  My 12 doors (4 properties) are leveraged  on average of 70% debt but the kicker here is that they cashflow a couple K per month after expenses when tenants are employed.  

In Iowa, so far, it doesn't look like we will not have a stay at home order longer than the April 30th that Mr President Trump stated yesterday. 

I also have reserves for my rentals that can handle 1/2 vacancy for 2 months.  Which is conservative for what I'm seeing in our area. 

Yes ultimately cash is king, but significantly limits your growth potential.  Even if you only leveraged up to 50% you could have great growth and still be VERY under leveraged.


@Darson Grantham

Yep, it all depends on what each of feel comfortable with as far as risk, because as we are seeing is one of those events that cause real estate investors to go bust should this last longer then expected and renters stop paying.  This will expose those with slim margins and no EF funds.   I'd rather sleep better at night and still generate wealth, with less risk.    

Age is a factor as well, a 40 year old can recover from a disaster and rebuild their empire. Much harder for a 75 year old like me, I live off my rentals and the little monthly amount from Uncle Sam. Everything I own is paid for-zero leverage. I have reserves and fortunately had little in stocks-there again I'd probably be in the ground before that got back above water. Stock market was never really my thing anyways. Real estate is great and if it is in the area you can drive by it and smile. What were we talking about again?

Unless you have inherited wealth, most of the paths to financial freedom include the judicious use of debt and the risk associated with it. Even if you keep most of your capital in super high quality low-risk bonds, you will have to deal with the risk of inflation and government insolvency.  If you stuff your cash in a mattress you have to deal with the risk of inflation, fire, and theft. If you buy physical gold there is opportunity cost and risk of theft and fluctuations in the price. If you decide that owning and operating a rental business (or other type of business) is just too risky for you-- and you decide to trade your labor for pay to a business owner, you take on the risk of disability, the risk of an inadequate income stream when you quit. You can mitigate risk by insurance and diversifying but you can't eliminate risk. Managing risk is part of doing business life.

While Dave Ramsay has helped many folks find their way out of the consumer debt trap, the debt (and work)associated with a cash-flowing business is a different beast and it's a mistake to conflate the two.

PS. I don't mean at all that your choice to sell your airbnb biz is a bad choice-- It sounds like you have reflected on the options and made the choice that is right for you. 

Originally posted by @Marcus Johnson :

Anyways, what I"m trying to say is now I understand why Dave Ramsey is a genious.   During these times, can you imagine that if you owned your properties free and clear, and had a large emergency fun for each property, you'd be sleeping at night quite well.  Having zero debt is king.  No one ever expected this would happen (Covid-19) and there are tons of renters who have been laid off that won't be making their rent payments and guess what?   As an owner and landlord you still have to pay your mortgage, taxes, insurance and 50% maintenance fees.  If you owned free and clear you wouldn' t have any mortgage payments.  How lovely that would be.   

So I'm really hoping that the lake property sells today or soon and my plan is to start paying off my primary home first and then start working on our duplex.  Once those are free and clear, then I will start saving to buy another rental property with cash.   I've been alive for the S&L in 87 debacle, the tech bust in 2001, the housing crash in 2008 and now this one.   So this is my plan and thanks Dave for all that you do.  

 I'll bite. 

Keep in mind that Dave says to not invest in real estate until after you have all your debts paid off, you have an emergency fund of 3-6 months, you are putting 15% toward retirement, you are saving for your kid's college, and your primary residence is paid off. If you do all of those things he only thinks you should pay 100% cash for investment property. 

If you have an income of $75,000 per year it is likely that it will take you 5-10 years to save up and buy 1 rental property if you follow his plan. You buy a single family home for $150,000 it will take you 5 years of saving $30,000 per year to buy it. You may be able to get $1500/month in rent. After taxes, insurance, maintenance, and reserves, you may bring home $1000/month. That is a terrible return on investment.

As others have said, the only way his plan works is if you have a very high income (doctors, lawyers, etc.) or you are buying very cheap properties (10-50K homes in the hood or rural areas). That is why I completely ignore his advice about real estate investing.

I like Dave Ramsey and I follow a lot of his teachings. I have no consumer debt, I have a 6 month emergency fund, I contribute 15% of my income to retirement and monthly to my daughters 529 plan. That is where I draw the line though, I have over $1,000,000 in mortgages on rental properties, I use credit cards and pay them off every month so as not to carry a balance, I have a HELOC. I use debt and it has made me a lot of money, even in these rough times.

I sleep just fine at night with my millions of dollars of debt.  Without that debt, thats millions that would never be added to my net worth. 

I have almost no concern for the coronavirus crisis. I could last somewhere in the range of 2 years if I didnt receive a single penny of rent. As of now, 93% of my tenants plan on paying their April rent. If you own high quality assets in high quality locations, getting your rent isnt really a concern even during the apocalypse.

As has been said by others, it depends on each individual situation. What works for my neighbor might not work for me. Zero- to no-debt is an excellent approach for many people. Your overall growth will be slower, but you are less risky overall and insulated when hard times come along like what we are seeing right now.

Debt isn't all bad, though. $100k cash can buy you one free-and-clear house or four/five financed houses with 25/20% down. If you intend to build significant wealth, debt is a tool. You just have to be careful. I'm sure a lot of people are learning that right now.

To your point, though, Dave Ramsey's approach is looking pretty good right now. Anyone who listened to him is probably more protected than your average joe.

@Marcus Johnson

DR isnt any smarter today than he was 6 months ago. He teaching principles are very sound advice to get out of debt and to make sure your current lively hood stay in tact for the rest of your life. He also strongly suggests to invest in 401k/IRA instead of RE or traditional stocks. I havent looked at my 401k (and dont plan to) and I'm sure its value has been cut in half this last month. People sure arent pour their cash into their 401k right now. Even if they have zero debt. Dave's focus is getting people out of bad debt and staying out of bad debt (he also refuses to see any debt as good debt when in reality there is a difference). He is not an investor type person. The type of investing he supports in long term investing to secure your retirement...NOT to improve your current wealth. Its pretty easy for him to say to pay cash for everything when he rakes in millions each year. The vast majority of us dont have that kind of money...and never would, unless we took it upon ourselves to take our cash and make it work for us at a much higher return than any long term investment could.

This is scary times for sure. But you picked an investment type that had high up front return but low stability and high volatility when the markets are down. You took on that extra risk (along with many others) on a higher return instead of a steady stream of income from a more traditional rental. Many STR are priced at a point that they do not work as LTR. Many people agreed to take that extra risk. Many people, like yourself, are finding out that that risk came a lot sooner than they would've thought. Though it sounds like you were already planning your exit (for different reasons) before this all happened.

I'm not saying all STRs are going to be doomed from this. The economy will return back to a normal state at some point. It just will be much harder for STR to stick through this rough patch than LTR. It will all come down to who had bigger margins in their numbers...those will be the ones that survive this. 

My history is as follows:

Early Childhood - Dirt Poor in the 70s in NYC.

Teenager - Dirt Poor but studied hard to get into College

College - Delayed due to family crisis. Had to go to work to support the family. Studied hard, got a BS in Computer Science around 27 y.o.

Professional Career - Worked Hard and Studied Hard, reached probably the top 10% in my profession, achieving a salary over $100k before the age of 30.

Started RE Investing - Bought my first House Hack in the late 90s.

2 Decades of Investing / Kept LTV down - I kept my professional career as I invested in more RE so I can keep the LTV below 70%. The cushion is to make sure that I'm safe in a Crisis such as this, but also from past Crisis like the Dot Com Stock Market Crash in 2001, the 9/11 Crash.

Financially Free - When I achieved Financial Freedom in 2004, and just before I quit my job, I paid off one of my Mortgages to ensure I can weather any upcoming storms the scale of 9/11. This was my BEST move I have ever made because it allows me to weather ANY storm, including the Coronavirus of 2019 (COVID-19).

As a seasoned Investor that when through ALL of the crashes since 1997, I would like to impart 3 things:

1) If you cannot achieve a level of expertise in a profession you have studied for in all your educational history and young professional history, how can you think you will be able to achieve a high level of success in a new profession such as RE?

My recommendation is make sure you can achieve the easiest of success which is the profession you have studied for all your life. If you can't do that, question yourself about your abilities to achieve it in RE.

2) AFTER attaining at least a medium level of success in your profession, build a business from it. The easiest business is a Consulting Business in your profession.

If you are an IT Professional, build a Consulting Business by starting a Corporation and hiring yourself out as a Consultant. THEN, hire other IT Professional and hire them out to clients. You will learn HUGE amounts of skills you will need later on.

Another example would be Construction Skills. If you work for  a company, start a side business and win bids for jobs. Expand it by hiring other Contractors. Etc.

This transition, while the easiest, is actually very difficult because there are a lot of aspects to it including legal (putting together Contracts such as Independent Contractors Agreements, Work to Hire Contracts, etc.).

3) If you can do 1) and 2) to some degree of expertise, then you should prepare to add a BRAND NEW business to your growing set of Entrepreneurial skills. This is where RE comes in.

HOWEVER, to be as safe as possible, don't QUIT 1) and 2). Keep those as your fallback.

When 3) affords for you to become financially independent, then you have the OPTION (note, it's an OPTION) to leave 1) and 2) behind and work solely on scaling 3).

Dave Ramsey aside, this is the way I did it. The safety nets are always there until you don't need it, even in the Coronavirus Crisis of 2019.

DR advice is good for about 95% of the people out there!  So he is doing a great service for those people.  However, for the other 5% his advice is terrible. @Marcus Johnson started to veer off course and hits a snag and is ready to pack it in.  Mike Tyson (boxer) was right when he says: " They all have a plan, until I hit them in the face".  So it goes with investing with real estate.  Your plan needs to have conservative projections and the ability to absorb a punch.  For as experienced investors know, we get punched all the time.  The first time is far more dramatic than later punches.  Punches we handle today with ease are a big deal to new investors.  

You have to understand and be convicted to your WHY to be able to sustain yourself through the tough times.  Why are you investing?  You see, when I tell people I have 19 rentals, the reaction I get sometimes is "is man, isn't that hard to manage all those properties, I would never do that!"  To that I say, "Nah, its not that bad, but hey is it hard to get up and go to work everyday, work for a company that can fire you for any reason, pay you what they want  and require you to work when they want .....is that hard at all?"

Because you veered off course, you encountered a side business that you're willing to leave, but sounds like you did well with it and that you might even make some money on the sell of the property.  If you had taken DR advice you wouldn't have had none of this.  Apparently, your mistake was not forward looking and anticipating road blocks ahead.

What is great about RE investing is that you can start out as a hobby and not quit your day job.  Then one day you wake up and realize this hobby is now approaching  a small business.  I realized that with this side business, I can decide to quit my job and focus full time on this business to allow me to retire earlier.  

Of my 19 rentals, I have only one that is an Airbnb. I made it an Airbnb only because I would want to use it from time to time. It is a duplex and only one side is a STR. I realize that there is more risk with STR but also potentially more reward. I didn't do it for the more reward in as much as I wanted it available for my use. Because my other long term rentals are doing so well, I can afford to withstand this crisis as I have lost 5 bookings so far. I might even put it back to a long term rental, but the key here is don't run a business that has no safety nets in place.

I get it, some people are not cut out to be real estate investors. For the young people getting started, I let them know it is not just finding the property but managing it as well.  If you're just starting out; you should plan on being your own property manager.  That will season you to learn the ins and outs of RE.  Later as you acquire additional properties you will be in a better position to make a decision to hire a property manager or not. 

A lot of people fail at RE for various reasons.  But those who succeed, find Life, Liberty and Happiness!  Cheers. 

@Nik Moushon


"But you picked an investment type that had high up front return but low
stability and high volatility when the markets are down. You took on
that extra risk (along with many others) on a higher return instead of a
steady stream of income from a more traditional rental."

You may want to read my post again, because your above statement shows otherwise.  I'm not selling the lake property (Airbnb) because it isn't doing well or not bringing in money.  I'm booked constantly and have people line up out the door, even during this pandemic unlike many Airbnb investors.  Just listen to episode 369, where seasonsed investors are taking large hits because their Airbnb's are in tourist areas.  My business is doing quite well, but I'm tired of the time it takes to run the business and don't want the property anymore.   Time is money and I'd rather be vacationing with friends and my family while they are young.   To me that is more important.   My family networth is quite good and we are well diversified.   Real Estate is my love, but not at the cost of high debt.  No thanks.  


Originally posted by @Anthony Gayden :
Originally posted by @Marcus Johnson:

Dave says to not invest in real estate until after you have all your debts paid off, you have an emergency fund of 3-6 months, you are putting 15% toward retirement, you are saving for your kid's college, and your primary residence is paid off. If you do all of those things he only thinks you should pay 100% cash for investment property. 


Save for your kids' college before you invest? What kind of crapbag advice is that? 

DR is also the nimrod who wouldn't shut down his offices after one of his employees tested positive for C19. There are plenty of other wealthy folk out there who I can get fabulous financial advice from who realize that their secretary can do her job just fine from home for a few months.

@Joe Scaparra

Actually No.  I'm so glad we bought the vacation home for our family to use and have Airbnb guest pay for everything.  The interesting thing I learned is that I'm really good at it, made lots of money and really learned a lot about cabin and lake life.   My wife and I discussed this in great detail and we don't want to spend our current lives running this Airbnb right now, it's to much work and we'd rather buy a travel trailer again and go back to camping which is our love.  Plus were not going to lose any money on the sale of the property, we might end up with a good amount.   You don't have to agree with our decisions, but using math isn't the only thing that matters in life when it comes to happiness.  For me it's working towards having no debt on anything and continue to grow my duplex or multiplex portfolio.  We are well diversified and have made a lot of money in Index funds for the long haul, real estate and other investments, pensions and etc..   I look forward to the day when I can walk on the grass of my properties and have the relief of no mortgage payments and nothing but money coming in.  

@Nicole Heasley

maybe you should research before you hate on DR. 

  • Baby Step 1 – $1,000 to start an Emergency Fund
  • Baby Step 2 – Pay off all debt using the Debt Snowball
  • Baby Step 3 – 3 to 6 months of expenses in savings
  • Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Baby Step 5 – College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give!
Originally posted by @Marcus Johnson :

@Nicole Heasley

maybe you should research before you hate on DR. 

  • Baby Step 1 – $1,000 to start an Emergency Fund
  • Baby Step 2 – Pay off all debt using the Debt Snowball
  • Baby Step 3 – 3 to 6 months of expenses in savings
  • Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Baby Step 5 – College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give!

There is no new information here that changes my comment.

Originally posted by @Marcus Johnson :

@Nik Moushon


"But you picked an investment type that had high up front return but low
stability and high volatility when the markets are down. You took on
that extra risk (along with many others) on a higher return instead of a
steady stream of income from a more traditional rental."

You may want to read my post again, because your above statement shows otherwise.  I'm not selling the lake property (Airbnb) because it isn't doing well or not bringing in money.  I'm booked constantly and have people line up out the door, even during this pandemic unlike many Airbnb investors.  Just listen to episode 369, where seasonsed investors are taking large hits because their Airbnb's are in tourist areas.  My business is doing quite well, but I'm tired of the time it takes to run the business and don't want the property anymore.   Time is money and I'd rather be vacationing with friends and my family while they are young.   To me that is more important.   My family networth is quite good and we are well diversified.   Real Estate is my love, but not at the cost of high debt.  No thanks.  


You might want to reread mine as well where I said: "Though it sounds like you were already planning your exit (for different reasons) before this all happened.". I had noticed your reason for selling. The only reason I dont do STR is because it is truly a full time business, especially for people starting out in it, and I already have a full time job that I'm not giving up (nor want to..I love being an architect). So i totally understand and get where you are coming from.

But your reason for selling doesnt change any of the risk factors. The risk stay exactly the same whether you are still doing good business or not right now because you cant predict that it will stay the same. Nothing wrong with that. Nothing wrong with STR business model at all. As long you are prepared for the riskier business model. But with risk comes rewards. Thats why so many people do it. The people who are not over leveraged and have put the proper amount of money aside should weather this storm all right. Those that took advantage of the extra income and didnt properly put money aside are the ones that are going to hurt the most. That can also be said for pretty much any business model too. So dont think Im try to bash STR here, I'm not.

But praising DR for this way has nothing to do with how STR's would've been effected by this. If you had (or anyone) followed completely DR advice and bought this all cash, the odds are, you would be dependent on this STR as your monthly income (as do a lot of people). Why have a full time job when one STR, thats completely paid off, can bring in several thousand dollars a month in income. Then all of a sudden your income is completely, or nearly so, dried up because of this virus. You have zero income even though you have zero debt. So you are having to survive off of anything you put in savings. Now if you (or anyone) had done the same thing, except they had a mortgage, they would be in the EXACT same position. Because they were suppose to save 6 months of emergency fund. That EF would have accounted for the mortgage payments. So they would be out no less money than someone who has no mortgage. So really the only part of DR style of investing is that it really harks on the fact that people need to have emergency funds in place to cover ALL expenses. NOT that having no debt is the best way to invest. Now yes, I realize that after the EF is drained those without debt are better off...but 6 months with zero income is very rare. Even in a down turn. Also at that point it would be obvious that there are going to be the need for drastic measures in place. 

 

Wealth generation with zero debt is a fools errand.

Responsible leverage is far different from the “squeeze every drop/ refinance to pull every dollar/ maximize leverage/ you don’t need to even see the building just cash the cheque’s!” crap pumped by many many Instagram & podcast hero’s these days.

@Marcus Johnson I get you about not wanting to put the time in for Airbnb.  But your original post touts how you veered off the PROVEN PATH that Dave Ramsey lays out and you're going to get back to this safe and proven way.  

AND, then your second para really tells the story, it is the stress that being over leveraged coupled with the Cornonavirus that makes this a bad investment. But you say "How lovely that would be" to be paid off and just collecting the rent, no stress.  Just how in the hell do you think the properties got paid off!  Taking on debt, using positive cash flow on the property for about 12-14 years gets them paid off.  Not living off the profits for those 12-14 years but paying down the note.  

I am sorry but I don't see Dave Ramsey as a genius for most of the people on this board is using leverage for their investment properties, but because they are investors for the most part making good decisions it is working for them.  

If you would have just said, we tried the Airbnb and have decided it was too management intensive for us and we are going to concentrate on our long term multi-family properties, I would have got that but that is not what your post said.  Cheers.

@Joe Scaparra

I'm not overleverage as you call it, my LTV is 65% so that's hardly overleveraged. Properties can be paid off by living well below my means and using other investments and my W2 to pay off properties. Who said you had to use leverage to do that? It's ok if you and I don't agree on this, we all can have our own beliefs. I have tried many strategies and a lot of them have worked out quite well and have built my family wealth, but this is my new path.

@Marcus Johnson , Dave Ramsey would say that any investment property bought with a loan is OVER-LEVERAGED.  That was the point I was making.  You're flip flopping on us.  You first tell us how you made a mistake of veering off what DR professes.  You add in that I don't sleep good because and I quote "because I'm leveraged", coupled with the on going Corona19 problems, but quote "I'm lucky" but concerned no!  You imply that had you listened to the genius Dave Ramsey you would be in great shape.

Then called out for referencing DR, you change your tune and say, no it not that, as I am making all kinds of money and i know how to do this business well, it just that i don't want the management headaches.  

Here is what I think.  I think this whole Airbnb has you very concerned, and you want out.  No problem, just leave Dave Ramsey out of your justification as that is not the reason you're scared.  You knew what the leverage was before you bought, nothing has really changed in terms of leverage.  You say you're very profitable, but still you don't sleep.  Is it possible that you just now are realizing that this environment we are in just might have a sever impact on your ability to bring in revenue.  You stated you felt lucky so far, but just maybe your luck is running out.  

BTW, you indicate you have other long term properties which I assume you have some leverage on those as well but maybe the renters are able to make their rents so no problem.  Again, i get it, Airbnb especially in today's environment is a lot more risky.  I have one and I am seriously considering converting it back to a long term rental.  My motivation was that I would use it sometime and I was willing to forego some of the $$$ for that connivence.  But now with the loss of rent, maybe my use of the property is not the priority I initially gave it.  

In this circle (BiggerPockets), this website would not exist, if everyone took DR advice. Again for 95% of the people out there he is spot on for them.  It just happens that the other 5% dominate this website.  

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