Is Dave Ramsey correct? Anyone still around after 10 years?
Member since 2020 · 22 posts · 82 votes
Is Dave Ramsey correct? Anyone still around after 10 years?
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Joseph CacciapagliaBusiness Member
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votesThat's a completely untrue statement. I know plenty of investors that have been in this business several decades, and the vast majority use debt. I've been investing since 2005 and always use a mortgage. The ability to obtain very attractive financing is one of the main benefits of real estate investing. If you are leveraged to the hilt and have no cash reserves, that's another story.
177 Replies
- 6yCharles McKinneyPro MemberMember since 2018 · 3 posts · 2 votes
Wade, It all depends on your (the investor's) situation.
I've personally been a real estate investor for 19 years, and my family has owned apartments since the 1980s (which I manage for my extended family). When I started personally investing, I used conventional mortgages (didn't know about hard money). I paid off those loans because I wasn’t going to expand my portfolio and have always been conservative about using debt. Fast forward to today, and I am thinking about taking cash out of my properties to fund new investments.
I bring up my personal situation to underscore it all depends on your goals, risk appetite, equity capital, and investing horizon. If someone is concerned about depending on renters to make mortgage payments, funding investments with equity makes sense. On the other hand, if someone believes in growing through prudent use of leverage, debt can double or triple their buying power.
If you are stable and have mortgage debt, looking for ways to lower your debt service cost is always prudent. Additionally, paying down the principal makes sense. Compounding interest is expensive, whatever the interest rate.
If someone is new to real estate investing, mortgage debt is often necessary to seed their portfolio. Especially in these situations, becoming knowledgeable and sophisticated as a borrower is table stakes.
@Gary L Wallman
Nope. Specifically addressed it when I said it's more secure to invest all cash than leverage to the gills. But moderate leverage is pretty secure itself. Anyone who bankrupted in 2008 was mis managing their real estate. During a time when people were losing their homes and becoming renters you lost your rentals? Something is amiss. But there are more secure options than real estate. Where do we draw the line here? Personal preference is always an option. But there is no argument to be made that returns are higher in cash deals. (unless you only look at the one property and pretend the other 4/5 is staying in the bank.)
Again I would love to be shown numbers that say otherwise. Currently my investments are all paid for. So I am in no way advocating a crazy leverage position. But 20% down is hardly a crazy position. And your returns are outrageously higher. For some reason you don't want to admit that it's just personal preference to use no leverage. There's nothing wrong with that. But you insist there are not higher returns to be had through leverage. The numbers just don't support that notion. 🤷🏼♂️
- Rental Property Investor · Colorado Springs, CO · Member since 2015 · 50 posts · 19 votes6y
I needed him to get my sh*t together. Now that I have trained myself to not buy stupid stuff I am growing my REI portfolio like crazy. Next month I will finish paying off my car I bought back in October for $19k. That will be my last consumer debt payment. That is a total of $65k in less than a year. In that time I have added $1.1million in real estate. I no longer pay for liabilities unless I have the cash for it. I only take on debt if it is an asset and cashflows.
- Burleson, TX · Member since 2009 · 37 posts · 33 votes6y
@Nicholas Preston
I'm not sure if you can rollover your 401k to a different one while keeping your job. I suggest you ask them. If so, that would be quite the coup for you.
And regarding the subject at hand, You can buy and leverage property in a solo 401k or IRA or for cash Dave Ramsey style.
I myself am completely deleveraged personally, even my wife and I personal house and use leverage when acquiring assets (i.e. real estate).
- Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes6y
Originally posted by @Steve Vaughan:
Originally posted by @Mike Dymski:
There is a 3rd school of thought...modest/prudent leverage. Most investors are not max debt or no debt...they fall somewhere in between.
Totally agree, Mike.
Every opportunity is case by case. Too many repairs? Cash. Odd property? Cash?
Tired landlord that likes the monthly and paid it off years ago? Seller financing.
15 yr, 30 yr, sub2? Depends on rate and seller debt level.
Wrap, lease option, private money? It's the flexibility and ability to pivot that makes RE so attractive.
If you want to do cash only, pay retail and not add value, buy mutual funds or something. Taking away leverage and the ability to buy under market value removes 2 main reasons to buy an illiquid and problematic asset class.
What you and @Mike Dymski are saying is right on the mark, yet 90% of investors don't have a clue about what you mean. It's the difference between investing in crude oil and olive oil, totally different ways of looking at things. Bank vs owner involved financing, pros and cons to both but ya gotta know the difference.
- Real Estate Consultant · new york, NY · Member since 2019 · 34 posts · 28 votes6y
@Wade Kulesa I follow a lot of personal finance and investing material and Dave Ramsey is waaayyy better at the personal finance advice part. His investing advice is flawed. He is against passively managed index funds, but his asset allocation has a lower return than the S&P 500 when using backtesting to evaluate his claims. Real Estate often works way better with some leverage.
- Investor · Latham, NY · Member since 2014 · 217 posts · 65 votes6y
@Wade Kulesa
Can you imagine how long it would take to buy quality rentals without using leverage? He's great for getting out of debt but real estate is not his forte.
- Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes6y
I keep a file of good quotes, anecdotes, phrases, etc. Mostly from famous people. I just added a new one.
"Debt is like a chain saw. No need to fear it, but you don't use it unless you need to. It can be helpful or harmful, depending on how it is used." @Sylvia B. - Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes6y
@Wade Kulesa
I am pretty sure Dave Ramsey himself uses debt to buy investment property. It only makes sense. I have been investing with leverage (ie getting kind) since 1992 and still thriving in real estate. I am sure Dave Ramsey is referring to being responsible and putting a decent amount down into the property and not over leveraging yourself.
- Specialist · Owings Mills, MD · Member since 2017 · 485 posts · 415 votes6y
Cash is King
(Example of
. Purchased a 50,000 Condo
. Rents for 1,200 per month
. 5,000 in renovations (mainly paint and minor fixes
. Expenses (Condo Fees $175/month
. 0% vacancy 3 plus years). 23% Annual ROI aprox (12,600/65,000)
. No external Maintenance
. Low rent means no vacancy/Low turnover
Sure I could leverage properties to have a massive portfolio and would take 4-5 properties to equal the RIO of 1 Cash property, but who needs or wants the headaches of that ?
CASH will always be KING - 6yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I think there is good debt and bad debt. Mortgages are 'good' debt. Housing is the largest part of your expenses and once your mortgage is paid off, you have a lot more money to live off of. I have mortgages on 3 of my properties, the other two are paid for. I plan to pay off those mortgages before I retire (well my tenants will do most of that for me) and then use that cash flow to help support my retirement. Bad debt includes credit card debt which should be avoided.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes6y
Originally posted by @Wade Kulesa:
I've been on the Dave Ramsey bandwagon for the last several years. His advice definitely worked to get us out of debt and allow us to save a pile of cash. But as I look to get more into real estate investing, there's basically 2 schools of thought; use debt and finance everything or pay cash. While I feel I'd be fairly comfortable financing (assuming the numbers work), one thing from Ramsey is still ringing in my head. He says there are no real estate investors that borrow money to do so that are still around 10 years after they begin their journey. My plan is to do this for at least the next 10 years, so the main question is this: is dave ramsey correct? How many investors on here would disagree with his assumption and if so, why? Open to all views. Thanks in advance for your input.
I have a mentor who's been doing it for 40+ years. In fact, he's positioning himself to retire.
So, that specific Ramsey statement, I'd have to say, is incorrect.
- Investor · Potomac Maryland · Member since 2020 · 83 posts · 46 votes6y
My simple response to this question is above quote
"Debt is like a chain saw. No need to fear it, but you don't use it unless you need to. It can be helpful or harmful, depending on how it is used." @Sylvia B.
But Dave Ramsey is right, cash is king. Use debt if you need to but pray, you don't need to use debt for long. My father had access to tons of loans back in the early 70s/80s . Due to the popularity and success of his business at that time, he could literally walk into any bank and get any funding he needed.I remember only 1 loan which was paid right off( everyone who cared new about his loan and he literally stopped sleeping....hahaha). He did not use debt because debt increases his blood pressure and reduces his sleep, so he stayed away from debt. If he had used debt and brought more properties than the several he bought with cash, maybe I would not need to work today. However, unlike my father, I know how to control blood pressure due to my medical training and I could sleep in a war zone (just my biology) . So I will continue to cautiously use debt and hope that my children and generations to come will not need to work a day of their lives. I have been buying since 2008 with debt and no issues. However I bought a lot of foreclosures over the years where the previous buyer paid too much in the 2005-2007 years. Basically don't overleverage yourself and do not overpay. Daves advice is sort of one size fits all when reality is more nuanced.
- Chapel Hill, NC · Member since 2015 · 74 posts · 29 votes6y
Originally posted by @Wade Kulesa:
How many investors on here would disagree with his assumption and if so, why? Open to all views. Thanks in advance for your input.
Disagree vehemently with this position. Debt is a tool, like all others, and can be used responsibly to substantially increase returns.
15+ years of REI here, all MFH, long term buy & hold. We maintain ~65% leverage across our portfolio over time (was ~80% when we were getting started), with enough cash kept on hand to significantly decrease that if needed, or weather an extended storm. Some general thoughts:
- Debt is a tool, use it responsibily/safey
- Be safe, and smart, when it comes to underwriting. We know our markets very well and still underwrite deals more conservatively than we see in reality in several markets
- Know your product and markets. We invest almost exclusively in Class C properties outside secondary cities. Over time, it's proven to be a fairly safe and very resilient asset class. At that price point, tenants are grateful to have a landlord who actually takes care of the place proactively, refreshes elements of the property before they're decrepit, etc. In the past several months we've kept up with our standard collections for the most part as I would imagine the bulk of our tenants have been classified as "essential workers" - think grocery stores, med tech, janitorial, etc. We have several that are on payment plans for rent or we have temporarily reduced rent for. All a matter of paying forward some of the money we've made over time.
- Rental Property Investor · CT · Member since 2017 · 24 posts · 17 votes6y
@Wade Kulesa
I don't listen to any of his advice after baby step 3🤣
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes6y
Originally posted by @Adrian N.:
I needed him to get my sh*t together. Now that I have trained myself to not buy stupid stuff I am growing my REI portfolio like crazy. Next month I will finish paying off my car I bought back in October for $19k. That will be my last consumer debt payment. That is a total of $65k in less than a year. In that time I have added $1.1million in real estate. I no longer pay for liabilities unless I have the cash for it. I only take on debt if it is an asset and cashflows.
There it is! The Kiyosaki Method which is the CORRECT and FULL picture of debt, both good and bad. The Ramsey-Method just labels all debt bad, removes any use of leveraged capital.
Good on you Adrian!
- Member since 2020 · 16 posts · 3 votes6y
@Wade Kulesa hello I am reading your comment I have the impression you know a lot about Dave Ransby I am new to investing in real estate and I’ve been told that he has a good strategy of on having a budget while investing still doing a part-time job and still able to manage your money responsibly. I’ve been told by some did he need to has a video or a book that Can help with this. do you know any if so will you mind to suggesting something some I would be much appreciated thank you so much.
- Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes6y
Originally posted by @Shane H.:
@Gary L Wallman
Nope. Specifically addressed it when I said it's more secure to invest all cash than leverage to the gills. But moderate leverage is pretty secure itself. Anyone who bankrupted in 2008 was mis managing their real estate. During a time when people were losing their homes and becoming renters you lost your rentals? Something is amiss. But there are more secure options than real estate. Where do we draw the line here? Personal preference is always an option. But there is no argument to be made that returns are higher in cash deals. (unless you only look at the one property and pretend the other 4/5 is staying in the bank.)
Again I would love to be shown numbers that say otherwise. Currently my investments are all paid for. So I am in no way advocating a crazy leverage position. But 20% down is hardly a crazy position. And your returns are outrageously higher. For some reason you don't want to admit that it's just personal preference to use no leverage. There's nothing wrong with that. But you insist there are not higher returns to be had through leverage. The numbers just don't support that notion. 🤷🏼♂️
Shane,
I think we agree more than you think. As I said in an earlier post, if I were a younger guy I definitely would use moderate leverage. My son has 6 rentals with 2 mortgages and I think that is a good mix. Maybe even start to go 1 leverage to 1 cash now that he has a solid base.
My all cash response was to an earlier poster who said real estate wasn't "worth it" without leverage. I was disagreeing with him.
Gary
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes6y
Would not bank your whole real estate investing on someone who makes money selling information and books to others.
There is smart debt and bad debt. Smart debt can make you more than the cost of the debt. Bad debt are items that typically depreciate heavily in actual value you could later resale for but sometimes it doesn't matter.
I have a massage chair that cost as much as a car. I have zero interest payments. The chair likely will be worth only 30% of what I bought it for new in 10 years due to wear and tear and technology advances BUT the USE I get out of that chair over 10 years is amazing. During that 10 years it helped my body feel better and more relaxed which then helps with higher production levels and dealing with stress. It's the same reason I get a massage once a week. It helps to keep physically and mentally at top performance so the benefit I get far outweighs the cost.
If someone makes 40k,50k a year then hard to build in those types of items. If you make 400k,600k, 1 million a year then can regenerate capital much faster to invest in life and in properties. It's easier to take on debt but harder to generate cash and wealth. That is why taking on smart debt makes sense in the beginning because if you saddle yourself with high debt and mediocre properties than can crush momentum for over a decade building wealth.
Now Ramsey could have been mentioning those that bought (AT the top of the cycle) and went heavy into leveraged debt got crushed and that might be true. It's not more a function of taking on debt it was the TERMS of the debt and the TIMING of the cycle that could lead to a bad outcome.
If someone makes a high enough income they can usually OUT EARN problems over time and recover.
Example Doctor makes 1 million a year. Their investment of 100k goes south and they lose 50k. That would hurt but not end of the world. Conversely someone saves up 50k over 5 years and makes 65k a year from the job and wants to eventually quit the rat race. If their investment goes bad that could really impact them for decades so it's all situational the impact mistakes can make on various levels using the wrong type of debt or the wrong timing for the debt.
The old phrase (live within your means) can ring true. Nothing wrong with having nice things if the income is there. Someone making 1 million and year living a 100k lifestyle is much different than a big part of the population making 80k but living a 70k lifestyle hoping to make more money. One little blip happens and they are toast financially.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes6y
Originally posted by @Randy Rodenhouse:
@Wade Kulesa
I am pretty sure Dave Ramsey himself uses debt to buy investment property. It only makes sense. I have been investing with leverage (ie getting kind) since 1992 and still thriving in real estate. I am sure Dave Ramsey is referring to being responsible and putting a decent amount down into the property and not over leveraging yourself.
Dave Ramsey claims he paid cash for his office building and now over 1000 single family homes he rents out. I tend to believe he is telling the truth because if word got out that Dave Ramsey was leveraged, it would destroy his business. At the end of the day he makes his money selling financial advice. The radio show, books, training course, etc. is how he got the money to buy those properties.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes6y
Originally posted by @Marc Rose:
@Wade Kulesa
So far, I count 6 people out of 78 replies who say they have personally done this in this thread. So less than 10% of those responding thus far. Lots of stories and theories - but 6 out of 78. That’s interesting to me
Interesting point, but let's keep it in perspective. Less than 10% of people who respond to BP threads actually have experience doing what they suggest. Everyone is an expert in the world today.
Personally, I have multiple loans that were taken out for real estate over ten years ago. I guess you could say I survived having debt, but I never considered another option. To be fair, I also know many investors who got out of real estate in under ten years. I wouldn't say the loans destroyed them, but more the business itself. There is a low survival rate in this business. Keep in mind those who fail or get out are not on BP telling their story. There is survivor bias big time here. Everyone here is either an investor or wants to be an investor (or they want to make money off investors).
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