Ramsey vs Kiyosaki - To borrow, or not to borrow?
Homeowner · Anaheim Hills, CA · Member since 2013 · 6 posts · 8 votes
Ramsey vs Kiyosaki - To borrow, or not to borrow?
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
13yMany of these financials EXPERTS often times talk about if you eat salad and be ultra cheap everyday for 30 years you might be a millionaire!
They do not mention you will be miserable for 30 years, the million will not be worth anything close to what it is today because of inflation, etc.
So you followed some guru who got rich off of you selling seminars and books etc. and you got ahead a little bit. That's not really how to build accelerated wealth.
If you have ever listened to Billionaire Richard Branson he takes risks every single day. The difference is they are CALCULATED risks based on research and knowledge to decrease the chances of a bad outcome.
I am a believer in taking INFORMED risks. If you want to be ultra safe your returns will show that as well. What are banks paying out 1 percent if you are lucky?? The whole thing is a joke. People put money in banks for paltry returns when they can be doing much better on their own.
I believe it really is as simple as living below your means and investing the rest and creating a snowball affect. Then when you are bringing in 100,000,150,000 a year or more etc. you can up your lifestyle of living within a comfortable range. I have had some people personally e-mail me and say they make 6 figures a years and haven't saved a dime. Their job could be gone tomorrow and all they have is debt and a bunch of crap they will sell for 15 cents on the dollar when they get desperate for cash. It's sad that finances and credit and saving and compounding are not taught in schools as kids. You have to look for outside sources to get educated.
99 Replies
Originally posted by @David Krulac:
Forgive me, I wasn't referring to you. By "The David" I meant Ramsey. The David believes there is no responsible use of credit cards, and quotes mythical studies that 'prove' people spend 10% more on cards than if they use cash. For him, there is no middle, no one just using the card as a budgeting tool, paying in full, etc.
- Carroll County, MD · Member since 2015 · 6 posts · 4 votes11y
I realize I'm resurrecting an old thread here, but I felt the need to comment because this topic hits so close to home for me. My wife and I went through Dave Ramsey's course and applied the stuff he teaches to get out from under a pile of "bad" debt (car loans, student loans), and now we only have our mortgage to worry about. We're also now able to save a significant amount of money each paycheck, which gives us breathing room and eventually capital to put toward investments.
Now that we can breathe, I've rediscovered Robert Kiyosaki and the Rich Dad Poor Dad way of thinking. That really appeals to me. I'm not crazy about debt, but its seems the most sensible way to make things happen in real estate.
I have to give Ramsey credit for helping us clean up our act and rein in our over-consumption. However, his investment advice is terrible! His plan only works for those content to work a standard 40 year career and "retire with dignity". I'm sorry, but I am sick of the rat race. I want to achieve financial freedom much sooner, and have more time to spend with my family as my children are growing up. Therefore, I'm not going to forgo reasonable leverage for real estate investments.
TL/DR: Ramsey is good if you've been financially irresponsible and need to wake up so you can have a future and consider investing wisely. If you then want to become financially free and have more options, you have to pursue more advanced strategies, and Ramsey no longer cuts it.
If you are completely true to Dave Ramsey's Philosophy you will pay off your own current mortgage and save up cash to buy a rental. I think you will take many years to do this. SO think about how realalistic this is to make money in real estate.
- Dallas, TX · Member since 2014 · 6 posts · 0 votes11yMore risk more reward. But Avoid excessive leverage. Nobody is qualified to give you the answer more than yourself. But I find some affordable leverage is good for me.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes11y
Save like Dave Ramsey but don't invest like Dave Ramsey
http://time.com/money/2794698/save-like-dave-ramse...
September 2014 Money magazine cover article - Investor · Charlotte, NC · Member since 2014 · 117 posts · 32 votes11y
Originally posted by @Account Closed:
I am a big Dave Ramsey fan, and I have been for years. I am debt free, except for my house and intent to stay that way. Well, at least I intended to stay that way. I recently read Rich Dad, Poor Dad. Robert Kiyosaki's philosophy is completely opposite of Mr. Ramsey's. His intent is to use OPM (other people's money) for real estate investing.
While listening to the BP podcasts, everyone mentions Rich Dad, Poor Dad as a book to get ideas from. (They even make fun of it.) I got the ideas, now here is my dilemma.
If I want to get started with my first buy-and-hold strategy this year, I have to borrow money. If I am completely true to Dave Ramsey's Philosophy, it will take me at least six years to cash-flow a rental (based on my current budget, and a loose prediction of the future condo/TH prices in my area).
Though I understand the risks of borrowing, I am too naive to know the rewards.
I would love to hear how people started with their first home, and if borrowing is the better way to go.
Thanks for reading. -Michael
If you want to take your organization to the next level you will have to abide by Kiyosaki philosophy. You cant enrich yourself if you dont enrich others first. (I believe this was from Dale Carnegie)
- Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes11y
@Account Closed - while you say you don't agree with either, your comments are great on this topic. On several posters who said they are gung ho on paying off 100% of their investments, I say, 'To what end?'. That capital is sunk capital when the house is paid off. The money is not working for you. It is sitting doing nothing. If that means you sleep good at night, then that's good. But sunk money has a big cost. I think the comments on this thread about making sure you are not in over your head with debt are spot on.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes11y
Nice name.
I think that where you are in your RE career determines whether equity in your property is "sunk capital" or dead equity.
1. If you are beginning and are not loaded with cash, they borrowing to the hilt makes sense.
2. If you're in the middle of a RE career, maybe having some free and clear properties and mostly borrowed to the hilt properties makes sense.
3. But if you are a senior investor, I can see being on a glide path to fewer properties and maybe no debt. Owning fewer properties means fewer headaches, and having no debt means that you can own fewer properties and still get maximum returns.
- Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes11y
Originally posted by @David Krulac:
Nice name.
I think that where you are in your RE career determines whether equity in your property is "sunk capital" or dead equity.
1. If you are beginning and are not loaded with cash, they borrowing to the hilt makes sense.
2. If you're in the middle of a RE career, maybe having some free and clear properties and mostly borrowed to the hilt properties makes sense.
3. But if you are a senior investor, I can see being on a glide path to fewer properties and maybe no debt. Owning fewer properties means fewer headaches, and having no debt means that you can own fewer properties and still get maximum returns.
Yes, I agree. Another good point!
- Rental Property Investor · Oldsmar, FL · Member since 2014 · 238 posts · 61 votes11y
I am a big fan of RK and I do think DR is great to keep your personal debt in control. RK is more business focus which is why I focus more on his approach. Love how he makes it simple story approach. I have yet to make it into the buisness quadrant.
- I wasn't on BP when this thread came out a year ago, and I read several pages of posts before I wanted to get to the end to find out what the current discussion was. I started out 7 years ago after reading RDPD. I had a ton of equity in my personal residence and ended up taking a HELOC to put money down on a triplex. The property was forecast to cash flow on 2 years at 100% financing. I have a strong business and could afford to feed the property for a little while. I chose the wrong property manager and had one curveball thrown at me, but we got that fixed and the property was positive in about 3 years. Now, I'm ready to leverage my rental and residence to a level I feel comfortable and it looks like I'll be able to buy 2 more properties this year. I'm sure you've all played Cashflow 101. That game, while pretty basic, helped me practice a bunch of different strategies for RE investing and find the one I liked the most. The best exercise was to run my own numbers and play using those. Believe me, the first thing I did after playing that game was to cut doodads out of my life and pay off any 'bad' debt so I could create cash flow.
- Investor · Gardendale, AL · Member since 2014 · 96 posts · 33 votes11y
My personal take on money management.
The debtor is slave to the lender. Two sides to this coin. How and what are your obligations to the lender.
Are your obligations to debt that gives no return on investment or are your obligations giving a rate of return.
Education is essential to understanding how money works for you I'm relation to debt-management. I ask myself when entering into a debt situation as, "How long can I service this obligation before stress comes into the situation."
Over-leverage and lack of action are the two killers to not gaining ground in wealth-buliding.
I advocate Ramsey in, "Live like no else, so later you live like Noone else." My wife/business partner have eliminated most if not all "Bad" debt to leverage our time to bulid a business while at the same time positioning ourselves to borrow when the rate of return justifies the situation.
During the paydown period we learned along that an solid foundation in financial education is critical to successful growth.
In our opinion you need both to bulid wealth.
Live below your means so later you can grow your means...
Be debt free but able to leverage when an opportunity arises...
Just our two since cents...
- Rental Property Investor · Oldsmar, FL · Member since 2014 · 238 posts · 61 votes11y
The only thing about living like no one else later is I want to live life now! Dave R. Is all about saving your earned income to a better future. I don't want to wait that long. Passive income is the only alternative I have found that can improve your life in the now time.
- Investor · Portland, OR · Member since 2013 · 143 posts · 105 votes11y
I have read and re-read Dave Ramsey and Robert Kiyosaki. The more you get into it you realize they aren't that different in their philosophies. Neither believes in consumer debt or buying flashy things you can't afford. The only real difference is the use of debt as it pertains to investing. Dave tends to have the Ex-Addicts' approach, if I use any part of it, it will drag me back in all the way. Kiyosaki doesn't like debt unless its making you money.
If you have ever heard Dave Ramsey tell his story, you realize that the debt isn't what caused him to loose everything, the type of debt was. He was over-leveraged but was still doing fine, the issue was that the loans he was using could be called at any time and were after an ownership transfer. That triggered the domino effect that ruined him the first time around. If he had been using regular mortgages or commercial loans it probably never would have happened.
Both methods will end up with the user being FAR better off than the majority of the population. I personally use Kiyosaki's approach to investing but plan to use the cash flow and equity to get into a mid sized complex free and clear in my later years. Its much easier to manage one 40 unit complex that you make 200k a year on than 250 units that make you the same.
- Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes11yI think it's human nature to want to veer away from Dave Ranseys plan because it requires sacrifice and is hard. I mean, if you actually have to save up for something to eliminate risk, it's hard because most of us are impatient an want it now. So that is why most people would rather go with Kryisoki's methods.
- Rental Property Investor · Oldsmar, FL · Member since 2014 · 238 posts · 61 votes11y
Originally posted by @Marcus Johnson:
I think it's human nature to want to veer away from Dave Ranseys plan because it requires sacrifice and is hard. I mean, if you actually have to save up for something to eliminate risk, it's hard because most of us are impatient an want it now. So that is why most people would rather go with Kryisoki's methods.
RK speaks of saving in rich D poor D. He speaks of saving passive income earnings to buy more. I use both methods. I save 20% of my net earned income (job) and I only use my rental for needed repairs. I have to admit sometones I dip into the cookie jar but for most part I stay true to my goals.
- Bulawayo, Zimbabwe · Member since 2015 · 1k+ posts · 253 votes11y
Borrowing would give you access to OPM which is good debt and its for an income producing asset
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes11y
Originally posted by @Marcus Johnson:
I think it's human nature to want to veer away from Dave Ranseys plan because it requires sacrifice and is hard. I mean, if you actually have to save up for something to eliminate risk, it's hard because most of us are impatient an want it now. So that is why most people would rather go with Kryisoki's methods.
OK, I feel a little dopey glomming on to a thread that's 3 months old, but it is such a good thread!
The biggest obstacle to using the DR plan is not the impatience part, it is the mortality part. If you figure the average person has 40 good working years, it doesn't take a rocket scientist to figure out that the "risk-free" method of saving all your money and buying cash will be a dubious way of getting you to the finish line with any kind of reasonable passive income, which is what everyone's ultimate goal is since there will come a day when you will not want, or be able to, work.
What leverage does is create a type of "compounding interest" scenario. All investment gurus, that I know of anyway, recommend using the power of compounding interest to make your investment nest-egg grow. Buying 4 good houses with $100k, 25% down, each cash flowing $500 after PITI, is going to get you to that line faster than buying 1 $100k house cash (let's assume all houses gross 1%). If everyone started at age 20, yes it might be possible to work and save your way into a reasonably comfortable retirement, but the reality is that most people have got to figure out some way of making any money they've accumulated through their labor or good fortune make more money. Even Ramsey didn't "save" his way into comfort - he sold products and services. If he was talking for free all these years, he'd have very little in the way of wealth.
Furthermore, finances is also about risk management. One might argue that having 1 paid-for house is safer than 4 mortgaged houses, but that's not really true either. In the 1 house scenario, if the house goes vacant, you now have $0 income. There are certain costs you cannot escape - property taxes, for example, and insurance unless you're crazy - so you will now have $0 income stream to pay for these things. On my previous example, you had $2000 coming in on 4 houses, clear, and $1000 coming in on 1 house, clear. If one of those 4 houses goes vacant, you still have $1500 coming in - no money out of pocket. If 2 houses go vacant, you still have $1000 coming in - no money out of pocket. So you have to be in calamity situation, where everything goes vacant at once, and stays that way, to be on the wrong side of the 1-house guy. And, since all that time you had double the income coming in, you should have been bankrolling a lot of that income so that you have a hefty security net that gets you through that scenario.
Investing in real estate, whether flipping, renting, speculating on appreciation, etc. is all just a business venture. Someone else said it in here somewhere, and it was a great example, that total risk aversion means near-total rejection of opportunity.
Skyline Properties - Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes11y
Well put @JD Martin!
- Investor · Kent, WA · Member since 2015 · 624 posts · 274 votes11y
I'm a fan of both and faced the same dilemma.
An good "in between" book, in my opinion, is LIFEonaire by Steve Cook. The author paid off $4 million in debt and now owns all his properties free and clear. He teaches a debt-free investing course but also says that: if the only thing standing in between you and making tens of thousands of dollars is getting a hard money loan, do it.
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