Your Take On The Dave Ramsey Investing Strategy

[Jonathan Boek]

Hi everyone,

I'm curious at to your take on the idea of buying investment properties in cash or through a high down payment manual underwritten mortgage as recommended by Dave Ramsey. I'm personally of the opinion that it's generally best, at least for buy and hold properties, to have more equity in the deal, but as someone who lives in California, buying local properties with 30-100% down is fairly difficult for the investor just starting out. Unfortunately, the options are somewhat limited when you lack a credit score (never held a credit balance, always payed in cash for everything). I've of course researched other options such as private lending, owner financing, FHA house hack, etc..., but thought it might be interesting to see what routes other investors have taken when faced with this situation. Thanks in advance for all the help.

All the best,

-JB

[Zack Ellard]

https://www.spreaker.com/episode/5766347

Check out what Keith Whinehold says about equity. It's definitely worth the listen and completely changed how I look at equity.

[Matthew Pinkston]

I personally don't think there's a good one-size-fits-all answer for that (I think few here would claim there is). But in my opinion, it depends on where you're at in relation to your goals. 

If you're in growth mode, leverage is one of the best tools out there to expand. The buying power of your capital is much higher when leveraged with debt. If you find good deals, the income should be able to easily cover the debt service and expenses making the relative risk of owning that debt minimal. 

However, if you've reached your goals and want to coast, then paying down debt makes sense. Once the debts are paid, the cashflow can obviously increase significantly. But all that equity is just sitting around doing nothing for you (you can't exactly have an equity and cheese sandwich for lunch or anything). But that's ok, because you've planned for that.

There's plenty of strategies in-between as well. Pay down fast, and re-leverage with a HELOC or something to go into the next property, balance it out with a 15yr mortgage, etc.

I guess the most important thing is to figure out where you want to be, when you want to be there, and the debt strategy to use will become a bit clearer.

- I should add that if you're having a hard time with getting loans in the first place, it's ok to just focus on improving your credit before jumping into anything as well. It shouldn't take long and learning how that works is valuable too.

[Chris Mason]

DR thinks that "manual underwriting!" is a magic word that solves all problems. He thinks that because he thinks he is Gandolf with magic spells and the like.

I'm really not interested in his pitch to sell books, I deal in reality, and I don't get paid to sell books... I get paid to close real estate transactions.

Here's reality:

If I tell you that we need a 60 day close of escrow, what % of your deals will be instantly killed? 80%? 98%?

Ya, thought so.

Give me like 3 months, and I can turn most "no established credit" scenarios in to a ~700 FICO score. Not rocket science.