Flipper/Rehabber · Freeport, MI · Member since 2015 · 43 posts · 42 votes
11y
I have held true to the debt free mentality for several years, and it has worked great for me. I started out buying a 5 lots on an online auction. I only paid $2250 per lot and there were others listed in the development for 30k. After paying cash for the lots i sold them to a builder for 15k per lot. Then i took that cash and bought a house to rehab and sell. I have continued this process very successfully useing all if my own cash.
After selling 3 to 4 rehab houses, i have enough cash in the bank to purchase a rental, rehab it and continue my flipping business. Its a slow growth model but eliminates most of the risk. At the ripe old age of 32 i own over 2M in real estate free and clear and never have to work another day in my life. My rentals have made us financially free and i dont have to flip a house to survive. Which is very helpful in today's market.
Flipper/Rehabber · Freeport, MI · Member since 2015 · 43 posts · 42 votes
11y
I have held true to the debt free mentality for several years, and it has worked great for me. I started out buying a 5 lots on an online auction. I only paid $2250 per lot and there were others listed in the development for 30k. After paying cash for the lots i sold them to a builder for 15k per lot. Then i took that cash and bought a house to rehab and sell. I have continued this process very successfully useing all if my own cash.
After selling 3 to 4 rehab houses, i have enough cash in the bank to purchase a rental, rehab it and continue my flipping business. Its a slow growth model but eliminates most of the risk. At the ripe old age of 32 i own over 2M in real estate free and clear and never have to work another day in my life. My rentals have made us financially free and i dont have to flip a house to survive. Which is very helpful in today's market.
Plano, TX · Member since 2015 · 27 posts · 9 votes
11y
I like the Dave Ramsey model but choose to use leverage because I am older and do not have years to go the slow route. The key to using leverage is to have a large fund for vacancies, repairs and maintenance. Investors get into trouble using loans when they do not have that cushion to pay for that new roof in one home and the HVAC in the other that is sitting vacant. Have good reserves and leverage can work.
Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
11y
Where I am confused, Dave counters Rick Edelman's & George Antone's advice to NOT payoff your mortgage, and get the longest 30 or 40 year one you can. By devoting all your spare income to paying off your mortgage leaves you with a house, and no money to invest. I think Dave's advice might be for lower income people to follow, or am I missing something?
Kalamazoo, MI · Member since 2014 · 224 posts · 129 votes
11y
Dave is just bitter because he was a high roller investor who was highly leveraged in the bust of the early 80s and the banks called in his loans. It's like my grandparents who lived through the depression so they wouldn't even throw away a newspaper. Now he can finance his re investments with his large wealth and income. Good luck getting there by working 9to 5 and saving 15 percent in a mutual fund.
Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
11y
I have a hard time understanding how you can acquire real estate assets, while paying down your mortgage on a "meager" paycheck. Even for the most frugal of us, it is a big challenge. When you combine student loans, the necessity to be mobile (most places don't have a functioning transport system), ... etc .
I have never read Dave Ramsey. I have heard him on the radio a few times, and he sounded more like a "preacher" than someone giving financial advice.
Investor · Eastlake, OH · Member since 2015 · 174 posts · 85 votes
11y
As I understand Dave was a succesful investor that was over leveraged and it bit him. Although Dave does have a service that is helping people, it is still a business. His business markets to the majority of Americans with very little financial savvy for saving, eliminating personal unsecured debt, and building wealth. Likely not real estate investors.
Gary Keller highlights a couple that used the snowball method to build their wealth and were successful. THere are plenty of people on BP that do also, and have been successful. It is not as sexy and it takes time. But if your goal is to build enough wealth to live out your retiremnet on your properties then it is absolutley doable.
Currently my strategy includes this. I will take all income from the properties to improve, build a larger emergency fund, and payoff debt service. I will use my W-2 income to purchase more properties.
I have a hard time understanding how you can acquire real estate assets, while paying down your mortgage on a "meager" paycheck. Even for the most frugal of us, it is a big challenge. When you combine student loans, the necessity to be mobile (most places don't have a functioning transport system), ... etc .
I have never read Dave Ramsey. I have heard him on the radio a few times, and he sounded more like a "preacher" than someone giving financial advice.
Paying off the home mortgage is step 6 (See * below).
I think you can for the most part follow DR philosophy while "taking calculated risks" being an REI. DR purists will disagree, but with a small change to baby steps(*) 2 and 4, a leveraged REI can follow the program. Baby step 2 involves paying off debt. Well, I'd contend you could change the word "house" in DR quoted "List your debts, excluding the house, in order" to "houses" and still follow the fundamentals that DR preaches. Just make sure the true income from "houses" greatly exceeds the expenses (including non-cash and reserved cash "expenses".) Note that "house" (your personal residence... excluding those airBNB folks;) creates no income and is actually an expense.
Real Estate Agent · Saint Paul, MN · Member since 2014 · 95 posts · 82 votes
11y
Dave Ramsey is a fine first taste of financial planning for people who are in debt and have no financial literacy, but anyone who has thought about the relationships between money, time, work, investment etc. would do well to forget the whole thing. Its cookie cutter infotainment, but he is doing good by converting financial infants into financial toddlers.
He is telling people to put their money into paying down their 4% mortgages instead of investing at 20% COC. That's pretty darn conservative.
Investor · Boise, ID · Member since 2014 · 174 posts · 51 votes
11y
I used the snowball method to pay off over 80k in debt in about 1.5 years. Now I maintain no personal debt and use all of my income for down payments on rental properties (good debt). I've bought 3 houses in the last 8 months. My goal is to buy 4 properties a year (good debt).
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
11y
I too like the snowball effect. I am not a big fan of debt, but some debt used wisely is the best way to grow your portfolio. I am very aggressive with my rentals and usually get 5 year straight amortized loans. These cost me cash out of pocket but I have enough income from the free and clear ones to cover them. Don't be afraid of good debt. Make sure and hold money in reserves for unforeseen problems such as evictions, a new A/C unit, a new roof, etc.
Investor · Stockton, CA · Member since 2014 · 167 posts · 49 votes
11y
If Dave was checking this out, he would say two things
a) 20% is very unrealistic over a long long period of time and 10-12% is more realistic
b) if you borrow against your house at 4% and make 10-12%, you are not adding risk. That risk you take, gets you the 6-8% profit and not your investments.
I personally partially disagree with that, but just saying
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
11y
Dave Ramsey's advice is very sound for 90% of the population. I think there is a time to use leverage for assets that produce income like businesses and real estate, when purchased and managed correctly. His message to avoid consumer debt and to "live like no one else so later on you can live like no one else" is good. Better than the guru's giving interviews by a pool, beach or sports car.
Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
11y
They way I look at it is Dave is worth around $55 million. Is anybody on this site worth that much or this thread? If so, I'll listen to you. I think the one guy is 32 and worth $2 million can attest to that.
building massive amounts of wealth in real estate without using loans ? Starting from the bottom ? Crickets....
It can be done. I have a buyer that is now up to 35 doors, mostly SFH, all but 2 are free and clear. I've probably sold him 10 of them. I carried short term paper on 2 of them (5 years) that are now paid off. He's been buying with cash for 20 years, he's not quite 50 years old. So far he's only used short term seller financing. He's no stranger to lending. His primary residence is mortgaged. He had a few business loans. But he's old school on the rentals.
His strategy was/is cash producing businesses and the willingness and ability to save for RE buys. He had an auto paint franchise for many years. He's a general contractor but he and his crew will fix, haul or clean anything. He'll buy and re-sell anything from cars to building supplies. He has a rental storage and parking lot side hustle on one of his vacant lots. He self manages the rentals and monthly gross is $25K+ at this point. He's aware he could buy more with lender funds but he likes being debt free on the rentals. Gives him peace of mind. And put his 4 kids through college.
He started with no cash and no college. What he had and has is drive and a clear vision. And serious family support. Most people I know don't have that kind of clarity at a young age and willingness to hustle. I know I didn't.
Bronx, NY · Member since 2015 · 151 posts · 54 votes
11y
I tend to agree with DR on the debt snowball, emergency fund, and some other items. I will admit as noted by some of the member's here he definitely is a preacher and that is what he does.
As some one who has a difficult time in acquiring a full house payment I think that in order to be successful in RE then you have to be some sort of leverage and with rates being so low how could you not. I am paying off my debt and am certain that I want to pay off my CC but to think that I should pay down the 2 and 4% student loans is a bit hard to accept. Also thinking that I should pay off my debt and not invest in my 401k is impossible to me to accept, I kindly disagree with waiting till baby step 4 for this. I mean I get 6% for putting 8% in which is not a bad return. My company also has a gracious stock plan that I purchase $9 worth and they give me $1 I can't say no to a guaranteed 11% return.
I did do the mistake of convincing my better half that debt is bad but now I have to switch her mind to that of knowing and properly applying good leverage.
Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
11y
I happened to be able to hear Dave Ramsey for a while a few days ago, when a caller asked about investing in real estate vs stocks. Dave told him that he is 70% in real estate, and that those who like real estate should invest in it. he also pointed out that the market for single family houses is very broad, while that for duplexes, triplexes, and quadplexes is quite limited. He stated that he owns single family houses and larger apartment buildings. It was wonderful to hear him not just pushing stocks and ELPs.
We're debt free. I'm almost 59 and Rima is 53, and we have a $3.3M net worth.
We paid off the house we live in 2007, and the only two rental mortgages we had in 2010.
And that is worth a podcast that I would listen to very carefully!
Actually, he's not that uncommon. But to meet B&H investors like that you do have to get away from the coastal markets. :)
A podcast would bring up the inevitable ROI and COC return argument that always comes up here. His untapped $4M in equity would freak out the leverage lovers. He's the first to admit that it's an emotional issue. I think it's because he's lived through two major RE market crashes in his adult life and has seen friends and some family members get wiped out. He's a cash guy and likes things that are tangible. He's not the only investor I know who prefers F&C properties over leverage, even when they know how to do the math.
Pendleton, SC · Member since 2015 · 3 posts · 0 votes
11y
I thought the orginal post was about successfull investors who use DR not about Cash vs. leverage. I am new to this site is there a rule that you can't use all cash you have to use leverage or you can't be a part of BG. Every thread that starts this way goes this way.
Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
11y
Trying to fit everyone into one square box makes little sense. When I started posting on BP, I forgot that not everyone is in my personal situation (income, experience, etc..) and therefore the advice I gave based on my personal experience may NOT work for a lot of people.
Someone who is struggling to live paycheck to paycheck with a losing battle with credit card debt needs to listen to Dave Ramsey before even approaching REI (real estate investing).
However someone who has financial means to live below their salary to save enough to buy a rental property should use leverage. They have already proven that they can manage their own finances and therefore can manage the financial responsibility of owning/managing a rental property. That's when you stop listening to Dave Ramsey and only listen to podcasts like Biggerpockets!
So the real question is how much leverage? That's a much more interesting and complicated question to answer. I think it's largely based on the individual's income, experience, and market situation. At the very dead last consideration is risk tolerance.
Things to consider when considering how much leverage?:
#1 Higher personal income (or cash reserve)= higher savings (if you live/spend below your means) ==> higher leverage.
If someone makes 50K/yr and only can save $250/month for REI is totally different than someone who makes 500K/yr and saves $2500/month for REI investing.(obvious right?)
More nuanced is this one - someone who makes 500K and saves ONLY $250/month for REI should NOT be leveraging as much as someone who makes 250K and saves $2500/month for REI. (Read Richest man in Babylon)
#2 Market: During the recession of 2008-2013, buy-buy-buy with as much leverage as possible. Market right now which is kinda frothy and overpriced....markedly reduce risky or highly leveraged purchases. When you are buying homes at an incredible discount (e.g. 50% or less than FMV), why would you worry about overleveraging if you are positive cash flowing! During that market, you need to maximize leverage as long as you are POSITIVE cash flowing!(which means you are buying the right properties)
Unfortunately that market has past, you can no longer buy homes at a HUGE discount because prices have grown so much. So slow down the amount of leveraging during peak markets when you cannot find discounted homes to buy.
#3 Experience: Newbies should start slow and learn the ropes before buying $5 million dollar multi-unit with tons of leverage. Experienced investor with a proven track record can leverage more because not only do their know what they are doing, they already have a porfolio full of homes(with equity) that can act as a reserve. If you only have like one rental property and you want to do a deal with very high leverage, you are putting yourself at risk. Start slow and prudent until you have a cushion for hard landing.
#4 Risk tolerance : this one is a poor judge. Risk tolerance has to be weighed based criteria #1-3 above first. Having high risk tolerance with #1 low income or cash reserve #2 hot market (like now) #3 being a newbie ....is a terrible thing. I would not focus on someone's "risk tolerance" but rather assess those three criteria above.