Can Rich Dad Poor Dad beat up Dave Ramsey?

[Matt Cramer]

To borrow or not to borrow, debt free is the way to be etc etc etc. 

The way I see this is a risk vs reward. 

How do you decide though where the risk is to great or the reward to little? How do you decide to purchase a property with a mortgage? What are your safety nets? Do you have to buy x% discount? Put X amount down? What are you doing to stay safe?

I'm trying to decide how to approach this so any insight would help. I don't want to end up broke down the road because I over leveraged myself. But where is that line? How do you know what that line is? What should you consider in deciding where to draw the line?

Is anyone on here a buy and hold investor using all cash? If so why and what have you found to be the result? Was it always that way or did you start with leverage?

Also was the title catchy enough? I'm learning catchy title get read the rest sink to the bottom. 

[Corey Demuth]

To me this whole 'debt' concept of a mortgage on rental property is utter nonsense. If you are paying 500 for a mortgage, 400 for taxes insurance water etc, and renting it for 2000, you are not in some risky position to suddenly get f-ed. Lost your job? Uhhh who cares, you aren't paying the mortgage - the tenant is! You're still clearing 1100/month. Even after operational expenses you are cash flowing. You will actually be BETTER OFF than if you did not have the income property and lost your job because guess what - then you have 1100/month coming in vs zero.

I don't even care about appreciation I care about cash flow. Oh God, what happens if I buy a house for 300k and it drops to 200k? What am I going to do? How about not even give a damn because the rents don't drop in sync with the sales prices! In fact rents continued to rise strongly through this whole recession! If you are buying and holding then price fluctuations after you buy are largely irrelevant.

Most people don't have hundreds of thousands of dollars lying around to just scoop up a few properties without financing. And even if you do, you're leaving a big chunk of profit on the table. I'll make a simple example based on a property I am considering buying.

List price 100k, 2 family, rents for 1800, expenses 1200/month including ~400 for a 30 yr fixed mortgage in the low 4s. That's 600 profit a month.

Now, to finance, you'd need 25% down. That's 25k. Plus 4k closing costs. (I don't have to escrow and can count IRA funds for the 'reserve' they want to see. If your bank doesn't give you those options, get a better bank.)

So, you'll make 600 x 12 = 7200 profit yearly. That's a 25% return on your money. And that's before we even look at the mortgage interest deduction and depreciation! Please show me a better investment!

But if you bought it with cash, it becomes 1000 profit a month (since you're no longer paying the 400 mortgage payment) so it becomes 12000 profit yearly. That's only a 12% return on your 104k of cash. LESS THAN HALF COMPARED TO USING FINANCING, FOLKS. If you want to make less than half as much profit, be my guest I suppose... And you don't get the mortgage interest deduction...

If you had 100k cash, you could buy 3 of these properties with loans (29k for DP + CC each) and still have 13k left over to stick in your rainy day / sudden repairs fund. Then you would be making 600x3 = 1800 a month profit, which is 21,600/month, from 87k cash invested, which is again 25% return annually, before we even look at the mortgage interest and depreciation factors.

So do you want to make 12% or 25% for doing the exact same amount of work... 

I'm not a financial advisor, use your own best judgment.