Real Estate Agent · Phoenix, AZ · Member since 2014 · 103 posts · 10 votes
Good afternoon all so I have been taking Dave Ramsey financial classes over the last couple weeks. If anyone hasn't heard of him please look him up, but anyways my question is his beliefs and what he teaches on is about paying off debt, saving then invest as well as not financing anything and just paying cash. I wonder how many of you started out with an actual emergency fund and or paying off all debt before investing?
As well, how possible is it to do cash purchases vs loans..FHA conventional etc? I am starting off with my first property soon just trying to gather as much info
here in that if it were not for debt (on real estate only) I would not be here today. As I talked about on my Bigger Pockets Podcast #82, I literally started with nothing. I had just started a job, had no savings and I mean zero savings and I don't come from rich parents.
The first 11 properties that I bought we all essentially 100% financed, because I did not have any money. I have had 50, that's right FIFTY mortgages, so I know a little bit about debt.
And at one time I had 13 credit cards (no more do I have those) and spent and borrowed on them for real estate. I also borrowed second mortgages, HELOCs, lines of credit and signature loans. But ALL of the borrowed money went to real estate.
I never had a car loan, even though I bought a brand new Corvette, bought a brand new SUV, had several foreign convertibles, had a Porsche, etc.
I never borrowed for a vacation or furniture or anything else except real estate, though there were loans to go to college.
So all the borrowing was for real estate, almost all of the debt was collateralized with real estate, and no debt was for personal items.
I'm not saying that everybody should go down the same path. I did it out of necessity. But one rule that I did follow was that when I did borrow, "I borrowed as much as I could for as long as I could." 800+ deals later, I'm still here and still buying real estate!
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
11y
I think you are trying to justify re investing while trying to pay off debt. It can be done but if you screw up you'll be in (much) worse trouble than you are now. I'm a Dave Ramsey fan but I disagree with him about debt for re. However, I would suggest trying to pay off as much debt as possible except your home before going into debt to buy re.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
11y
IMHO... Dave Ramsey has some good strategies for getting out of consumer debt, so does Suze Orman, but they are both financial advisors that market to the mass public. I've benefitted by heeding the advice of Suze Orman more because I've never had consumer debt and I like her ideas better. However I've also benefitted from the financial advice of others, including Warren Buffet...though I've never had an audience with him or the Pope. Avail yourself to much wider perspectives and glean what you can from what resonates with you.
We do have a sufficient emergency fund. We have also bought residential rental property financed (conventional loans) and all cash. I'm exploring making our next REI purchase with OPM/no money/low money. Find what works for you based on your risk tolerance. Sleep well at night.
Flipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
11y
His strategy is very low risk, but you're not going to make before you retire if you follow his advice. I suppose if you enjoy working a day job and like only having enough money to take 1 vacation a year the his course is perfect.
I think if you want to be above average you are going to have to take risks above what he suggests.
I started by taking a loan against my 401k, I paid 4% interest on the loan but if I make 20% conservatively on that money, isn't it worth it?
Real Estate Agent · Union City, MI · Member since 2014 · 121 posts · 20 votes
11y
@Phillip Gonzales - have you ever listened to or read any of Robert Kiyosaki's books? As with any author - you have to take everything with a grain of salt & pick out the bits that work for you. Robert preaches the idea of good debt vs. bad debt. In the world of real estate - a loan can be considered free money & who doesn't like free money:) Basically if you can gain a property with a lot of equity - cash out the equity & buy more property. Yes, you are taking on debt & you have payments, but are the investments bringing in enough to cash flow every month? It also depends on your risk tolerance & how much debt you want to be stuck with if all your properties are vacant.
Real Estate Investor · De Kalb, TX · Member since 2013 · 21 posts · 16 votes
11y
@David Krulac I hate correcting people, but to say Dave Ramsey is not a real estate guy is ludacris. He has had his real estate license for 40 years and tens of millions of dollars worth of real estate.
That being said no one can argue with your credentials, I have listened to your podcast and greatly enjoyed it. You are right and Ramsey is right. People invest a million different ways on here, and you can't argue with the fact that a lot of people have become wealthy both ways.
I think most people tend to lean more to your side of investing, and share your philosophy with not having debt in there personal life, but using debt in their business and investing. I tend to be of the same opinion.
I love Dave Ramsey and a lot of things he says, and he is a multi-millionaire, so he has enough credentials to back up what he says, but he is not the only multi-millionaire in the world. Not everyone got there debt free, but hard to argue with a man who did it.
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
11y
I have a like HATE relationship with Dave Ramsey. I think he is GREAT for someone who has their "hair on fire" with debt and needs to be "very" strigent to get out NOW!. What I don't like about him is he doesn't teach you to take advantage of the tool of life.
Credit cards are not the devil if you used right. If you use them every month as normal and pay them off they can be amazing for free cash.
Debt is an amazing thing if done correctly. We have 5 house and are growing. We make an great profit and get to leverage someone else's money for our investment. The key is being smart and having back up plans.
I do find that Dave Ramsey does have many strong supporters. But I don't consider him or Suzie Orman or Tony Robbins to be real estate people per se. If I was a personal friend of any of them, I probably would not ask them for real estate advice. And I do understand that debt, in particular consumer debt, credit cards, easy financing, etc. are huge temptations and traps.
I don't recommend having a bunch or credit cards, and I do recommend that the balances be paid off every month, so Dave Ramsey and I are on that similar page. I see credit applications on a daily basis from buyers and tenants, and many are not very good because of credit problems. For some it could mean that they never can buy a house, and for others its a road to bankruptcy.
I have said many times the way that I did it is just the way that I did it and everybody can do their own thing. But if I had to wait until I had cash to buy real estate, starting from where I did with no cash, and no savings, I clearly would not be able to do 800+ deals. But I have also said, for example in the Bigger Pockets Real Estate Rewind book, which I was one of the co-authors, that if I had to do it all over again knowing what I now know I would have bought fewer properties, not more! read that book or my other book and you may come to a different conclusion. Thanks for your input.
Real Estate Investor · Clovis, CA · Member since 2014 · 195 posts · 194 votes
11y
@Justin Glass You are right about Ramsey's real estate. He was a millionaire by age 26 through investing in - you guessed it - REAL ESTATE! I think he filled for bankruptcy before the age of 30 because he was very heavily leveraged and the market turned on him.
I agree with the notion of not borrowing for consumer debt, but leveraging, when it makes sense, for business and real estate purposes. Having said that, 80% of small business start ups fail in the first year, so you have to be careful about borrowing even for business and real estate.
Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes
11y
I have a friend who took the advise and went debt free,including his $400k personal home. Not long after he became aware of the real estate craze and borrowed against "all that equity" and leveraged those finds into multiple RE mortgaged properties. Soon after, the RE bubble hit and his bubble eventually burst too. He lost most of his funds and is still making payments on that once paid for house. Moral of story his story is he no longer believes in"good debt".
Investor · Hampton Roads, VA · Member since 2014 · 1k+ posts · 418 votes
11y
Regardless of how you feel about Dave Ramsey his 7 baby steps are pretty legit if followed by the average American. His stock market advice sucks though. I carry no debt except mortgages, because I consider them good debt and I'm not a Billionaire who doesn't need a credit score. You need some debt to maintain a credit score. Now, once I've bought my target amount of rentals, I'll Dave Ramsey the mortgages and not care.
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
11y
@Phillip Gonzales it is a good way to go, but will take a very long time to build your empire. I am ok with having low interest payments. Mortgage rates are so low these days, even for investors that if I were you, I would get mortgages and purchase more property with the capital that you have.
Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes
11y
I think following Dave's advice for your "personal" finances is a great way to go. However, as a small business owner or real estate investor you need to turn that advice off to be successful. Just my opinion. He creates millionaires for sure....but no one worth 50-100 million will likely say they owe it to Dave Ramsay.
Investor · Louisville, KY · Member since 2011 · 296 posts · 248 votes
11y
I'll give you an example that made the use of good debt or leverage very clear for me. I had 120k in cash and I could have used it to pay off my house and been 100% debt free. Instead, I purchased real estate free and clear and it now throws off enough $$$ to pay my mortgage for me.
Use the same example for a car. Would you rather drop 60k on a car and own it outright or buy a rental and have it pay off the car (and then another, and another).
Leverage multiplies your abilities, just use it prudently.
Todays interest rates are at all time lows. The only way for interest rates to go is up. When I bought my first house the interest rates were 9%. I've paid as high as 15% fixed for 30 yrs. Today O/O rates are like 2.75% and investor mortgages are 4%.
imho NOW is the time to load up on prudent amount of financing, sorry DR!
I'm not much into that whole Good Debt Bad Debt thing. But for ME, I only borrow for real estate, no personal items, vacations, and pay off all cc every month.
I wish the government would listen to Dave Ramsey!
Real Estate Agent · Milwaukee, WI · Member since 2014 · 114 posts · 30 votes
11y
If Dave listened to his own advise he would not be were he is now. He thinks owner financing is different from conventional loans when actually they are both considered debt. I do think being debt free is good but to get there you need debt to leverage investments to allow you be become debt free.
I do listen to his podcasts on a regular basis but I think a lot of his advice is bad. It does make me think about debt and how to manage it even though he does not believe in debt.
Real Estate Agent · Phoenix, AZ · Member since 2014 · 103 posts · 10 votes
11y
I just want to say thank you to everyone who responded. I didn't think I would get such great responses. When I was taking some of the classes I started thinking about how this seems more like for a Conservative approach and not a calculated risk with real estate investing. It has made me think quite a bit about my own personal and business plans and goals. Thank you all very much I love BP
Investor · Boulder, CO · Member since 2014 · 10 posts · 9 votes
11y
From the perspective of a small business person there are only two types of debt: self-liquidating and non-self liquidating. A business or real estate investment that pays off its own debt is self-liquidating. Personal and mortgage debt is non-self liquidating and should be kept to a strict minimum. Whenever you are in a business, your personal finance screw ups can destroy your business. Debt that might be doable in good times can sink you in bad times. It is also very important to me that my business partners are fiscally conservative when it comes to their personal finances. I had to buy out a partner for other reasons than finances, but that was a miserable experience that set me back 2 years. I am just closing on my first investment property, so my advice isn't terribly helpful there, but any business person needs to have a personal emergency/reserve fund as well as funds set aside for business emergencies - do you want your business that is generally healthy to fail because something unexpected came up for 20K and you couldn't meet that demand? Keep your personal life lean and you'll invest with a minimum of risk, both from "Mr Murphy" and by being able to make those bigger downpayments on your properties.
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
11y
@David Krulac you are absolutely right! I don't think people realize how great they have it with these interest rates and the ability to profit and still carry a mortgage! Now is the time to buy with a mortgage. If only Fannie Mae would decrease the down payments and we would really have it made as investors!