Dave Ramsey is a Genius now

Dave Ramsey is a Genius now

Investor 路 Saint Paul, MN 路 Member since 2015 路 663 posts 路 512 votes

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.  

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Russell BrazilBusiness Member
Moderator
Real Estate Agent 路 Washington, D.C. 路 Member since 2012 路 17k+ posts 路 30k+ votes
6y

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.

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  • Rental Property Investor 路 Dallas, TX 路 Member since 2019 路 88 posts 路 55 votes
    6y

    Almost every business has debt. Even businesses that are worth billions of dollars carry debt. It's just important to have cash reserves or a business line of credit for worst case scenarios.

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor 路 Sioux Falls, SD 路 Member since 2015 路 9k+ posts 路 18k+ votes
    6y

    @Marcus Johnson I am always surprised how much hate Dave Ramsey gets on here. He tells people to use a budget, reduce spending, pay off debt and hold 6 months income in an emergency fund. Heaven forbid someone follow that horrible advice! (sarcasm) 

  • Rental Property Investor 路 Peru, NY 路 Member since 2020 路 26 posts 路 4 votes
    6y

    @Jill F. Very well said. 馃憤

  • Rental Property Investor 路 Savannah, GA 路 Member since 2018 路 174 posts 路 129 votes
    6y

    @Marcus Johnson I think the Dave Ramsey mindset is detrimental to younger investors, it's a limiting mindset instead of a growth mindset. Like @Jay Hinrichs was saying, it's quite difficult to grow at any decent rate without leverage, especially when starting out. But I also agree that Dave is great for people that have no financial education or wherewithal, especially on the consumer debt topic, I don't know many people that would disagree with that. But ultimately it all comes down to not being over-leveraged and having plenty cash reserves.

    If you own a free and clear property with 6 months of expenses in reserves, and I own a leveraged property with 6 months of expenses (yes, including my mortgage) in reserves, then we are just as prepared for something like this. Except I get great tax advantages with my mortgage and can own more property and diversify. But I am young and more aggressive, and I'm sure I'll change over time as well. To each his own.

  • Investor 路 Austin, TX 路 Member since 2013 路 662 posts 路 1k+ votes
    6y

    @Joe Splitrock, just what do you bring to this conversation?  We are NOT talking about budgeting, reduce spending, paying off debt, 6 months emergency fund.  You posted in the wrong thread.  Let me clue you in, we are talking about using leverage for INVESTMENT PROPERTY.  That is the subject, that is where Dave Ramsey fits into this thread.  

    As i said earlier, 95% of the people out there benefits from Dave Ramsey advice!  That sounds like a compliment to me, and a fairly big one at that.  But the SPECIFIC topic concerning Dave Ramsey in THIS thread is the use of leverage for investment properties.  Exceptions exist, but for the GENERAL POPULATION ON BIGGERPOCKETS, how do you assess Dave Ramsey's advice on using leverage for investment properties.  I am all ears my friend.

    His advice on budgeting.........OUTSTANDING

    Reduce Spending...................Outstanding

    Paying off Debt......................Very Good

    6 Months Emergency Fund..........Outstanding

    Using Leverage for Investment RE....Terrible

  • Rental Property Investor 路 Durham, NC 路 Member since 2016 路 7k+ posts 路 7k+ votes
    6y

    @Marcus Johnson I think there鈥檚 a middle ground. DR isn鈥檛 really middle ground, but he鈥檚 got a lot of good ideas. For most real estate investors smart and calculated debt is good. Have ample reserves and dont over leverage compared to your income and you鈥檒l be fine.

    The people who are getting hosed right now are the people who BRRRed too aggressively and who were doing STR rental arbitrage.

  • Rental Property Investor 路 Durham, NC 路 Member since 2016 路 7k+ posts 路 7k+ votes
    6y

    @Jill F. I disagree with your earlier statement. There is another way, which doesn鈥檛 involve real estate or Inherited wealth.

    Pick a high paying and lucrative career and get really good at it. You鈥檒l make More Money (and it鈥檚 way more stable) than most real estate investors.

    That being said it鈥檒l also take a long time.

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent 路 Washington, D.C. 路 Member since 2012 路 17k+ posts 路 30k+ votes
    6y
    Originally posted by @Account Closed:

    @Russell Brazil

    A 2 year float is extremely commendable. Was that intentional or did cashflow just get away from you and have been too busy or disinterested in acquiring more?

    I maintain a pretty sizeable emergency fund and business operations fund in general. Then in addition I had an extremely good first quarterer, and had not spent or invested my cash from the quarter yet.

  • Rental Property Investor 路 SW Ohio 路 Member since 2020 路 22 posts 路 8 votes
    6y

    Good luck with the sale of your cabin. Sounds like it was a great opportunity, just maybe the wrong time for you.  I hope the equity you get from it offsets any headaches you had with it.   

    I'm considering REI at a rate that would be on pace with what my mortgage payment would be once my residence is paid off, which will be in the near future. Maybe that's something for you to consider as well. I'll throw that (previous mortgage payment) plus whatever cash flow I get from the investment property and go from there. I have no plans to leverage my residence to buy an investment property. I could see using equity in the paid for Rental for a future purchase though. I want a clear separation of business debt and personal debt (I won't have any at that point) if possible. I'm new and I need to research more on the best way to go about that legally. I understand this may slow things down, but I'm looking for diversity of investments and additional income in retirement over and above what my other investments will provide. Hopefully, it snowballs into a nice income stream and everything else I've saved just grows without being drawn upon besides what's required by law.

    Do what鈥檚 best for you and your peace of mind. It sounds like you鈥檙e doing great to me. Nothing wrong with taking some risk off your plate in my opinion.  Take care. 

  • Investor 路 Saint Paul, MN 路 Member since 2015 路 663 posts 路 512 votes
    6y

    @Joe Scaparra

    our post is quite humorous. First your having problems understanding that I bought a lake home that we use for vacations as a family back in 2018 because we wanted to try the cabin life. We also started an Airbnb business because we don't use it very much especially in the winter time. It has done very well and we are good at it. What's really funny is you have made up a story and insulted me by determining in your own mind that we are scared and somehow are concerned and want out. You also think we are scared because of the Covid-19 pandemic. If you had actual facts to work with or did your research, you would know that we no longer want to do the cabin life, aren't concerned about the money the Airbnb was making and are making a life style change to eliminate the mortgage by selling and taking the equity to help pay off our primary. We want to go back to travel trailers for camping, which we have found to love more at this point of our lives. We also had the cabin on the market back in August to November of 2019 and took it off the market when there wasn't any buyers. We had the price to high IMO. Covid 19 wasn't even in the picture. To bad the timing of this outbreak happened exactly as we went under contract for March 15th. We had been making preperations since December to get it show ready. So there goes your ridiculous assumptions that have no fact based evidence. You might want to not make stuff up in the future, your credibility will be shot. Good luck making stories up in the future.

  • Investor 路 Saint Paul, MN 路 Member since 2015 路 663 posts 路 512 votes
    6y

    @Joe Splitrock

    I know, people seem to have such anger when you bring up his name.  

  • Investor 路 Saint Paul, MN 路 Member since 2015 路 663 posts 路 512 votes
    6y

    @Anthony Wick

    Is this what you do on this site, is make fun of people and bash them for making a family decision to sell a cabin we no longer want. Wow, I didn't know you control my life decisions. Wouldn't you think if it was the money I cared about only, I would want to keep this money making machine. I care more about my time with my family and I hate debt. You obviously ddin't know I have a very successful duplex in South Minneapolis that has been a cash cow and the LTV is 40%. I guess that's because I don't have it for real estate investing.

  • Investor 路 Saint Paul, MN 路 Member since 2015 路 663 posts 路 512 votes
    6y

    @Anthony Wick

    If DR is such an idiot with money, then why is he broadcasting from an 18 million dollar facility that he paid for in cash.  The guy must really be an idiot.  

  • Rental Property Investor 路 Douglas County, MO 路 Member since 2014 路 1k+ posts 路 1k+ votes
    6y
    Originally posted by @Marcus Johnson:

    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.

    .  

    Yes, I can imagine. And yes, I sleep quite well. 

  • Investor 路 Austin, TX 路 Member since 2013 路 662 posts 路 1k+ votes
    6y

    @Marcus Johnson your last post directed at me tells a compeltely different story than your 1st post.  I love your last post and it makes complete sense to me.  Had that been posted as your first post, I would not of even chimed in, or I would have affirmed the decision as that is very similar to what I am facing about my Airbnb now.  For the life of me, I just don't know how Dave Ramsey even enters your post as I tried to make a connection with it and the mention of Corona19, it seemed those were issues affecting your decision. You have made it clear that they didn't.  

    Having said all that above, I sincerely apologize in characterizing your actions in a way that became misleading. Cheers and good luck with your sale of your lake house.

  • Rental Property Investor 路 Douglas County, MO 路 Member since 2014 路 1k+ posts 路 1k+ votes
    6y
    Originally posted by @Dylan H.:

    Except I get great tax advantages with my mortgage

    Seriously? I tell you what. I'll make you an even better deal than your great tax advantages. Are you in the 24% tax bracket? Send me $100 and I'll send you back $30. That's 6% more than the IRS gives you. Or maybe you're in the 35% bracket. In that case I will be even more generous. Send me $100 and I'll send back $50. 

    No limit! Repeat as many times as you need to to learn that "great tax advantages" is a very poor reason to pay interest to a bank.

  • Attorney 路 Raleigh, NC 路 Member since 2008 路 4k+ posts 路 1k+ votes
    6y

    Heck Mormons looks like geniuses too now.  If you live your life never taking risks you will look like a genius for that worldwide pandemic that happens once every 100 years.  What about the other 99?

  • Investor 路 Saint Paul, MN 路 Member since 2015 路 663 posts 路 512 votes
    6y

    @Joe Scaparra

    No problem, thanks for challenging me and making me work at detailing my posting.   I'm not an expert at writing, but am working at it.  I am better with actions, not words.   

  • Rental Property Investor 路 Medford, OR 路 Member since 2017 路 94 posts 路 115 votes
    6y

    I believe you wrote this post to get responses and to fire people up as you know this is a forum for real estate investors. If we did what Dave Ramsey says, we wouldn鈥檛 have the success we have. Bottom line, no wealthy individual has ever gotten to where they are without leverage. What Dave Ramsey touts is for those (majority) who do know how to be responsible with debt. For those of us who know how to make big things happen with debt, the sky is the limit. 

  • Rental Property Investor 路 Savannah, GA 路 Member since 2018 路 174 posts 路 129 votes
    6y

    @Sylvia B. Ummm that's not quite how it works. My tenant pays that interest & equity. I'd be happy to show the COC ROI differences between a leveraged and unleveraged investment.

    Everybody has their own tactics, not saying yours are wrong. Depends on your risk tolerance.

  • Investor 路 Cardiff by the Sea & Baja CA 路 Member since 2018 路 18 posts 路 5 votes
    6y

    Leverage = increased ROI

  • Rental Property Investor 路 Los Angeles, CA 路 Member since 2013 路 1k+ posts 路 1k+ votes
    6y

    @Marcus Johnson I too am a huge DR fan. The debt debate will forever continue among investors. Wherever one ends up on the use of leverage, this will be a great learning lesson for all of us. As has been mentioned many times on BP, it's really the liquidity that is the issue in the end. For hyperbole sake: If I had $1BN in the bank, I wouldn't be worried about whether or not my tenants are going to pay rent over the next couple of months no matter how many properties I owned. No doubt there will be many lessons learned through all of this and it's a great opportunity to rethink our personal strategy, liquidity, etc. 

  • Green Bay, WI 路 Member since 2019 路 22 posts 路 23 votes
    6y

    I just can鈥檛 get behind DR鈥檚 approach to dropping all cash on deals. Not scalable for anyone other than silicone valley earners poaching homes up and down the Midwest. Just not realistic for 90% of us we鈥檇 be dead before we were able to scale to our goals.

    However, this entire ordeal has re enforced my appreciation for the discipline to keep a solid 3 months PITI reserve (at a minimum) for each property. I do sleep much better at night knowing that even if legislation weren't to catch up, I'm self sufficient for at least 3 months.

  • Rental Property Investor 路 Douglas County, MO 路 Member since 2014 路 1k+ posts 路 1k+ votes
    6y
    Originally posted by @Dylan H.:

    @Sylvia B. Ummm that's not quite how it works. My tenant pays that interest & equity. I'd be happy to show the COC ROI differences between a leveraged and unleveraged investment.

    Everybody has their own tactics, not saying yours are wrong. Depends on your risk tolerance.

     Ummmm... no they don't. Your tenant pays you, and you either keep that money in your pocket, or give some of it to the bank. 

    If your mortgage is not paid, who is held responsible, you or your tenant? Whose credit is improved by making regular payments? Whose credit is damaged by a foreclosure? When you have a vacancy do your former tenants send you money so they don't miss a mortgage payment, or do you have to come up with the money yourself? If you have a W-2 job and a mortgage on your personal residence, do you tell yourself that your boss pays your house payment?

    Leverage is a tool, quite useful at times, but also dangerous, as are most tools. As you say, everyone has their own tactics, but please don't make one of yours perpetrating the lie that your tenants pay your mortgage.

  • Atlanta, GA 路 Member since 2020 路 24 posts 路 5 votes
    6y

    @Jay Hinrichs

    I agree with you. I don鈥檛 know much about Ramsey but I seriously question how people progress in life without using debt to your advantage. I鈥檝e heard it happening but personally I couldn鈥檛 do it

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