Debt Free Home Buying...Does the Dave Ramsey Plan actually work?

[Jamel Hamka]

This is not going to be a popular post because I am going to talk about debt free investing. That means never using debt or private lending for real estate. First, let me state that I don’t believe Dave Ramsey is the only way and it’s morally wrong to use debt all the time. But I want this to show in a very practical way that not using debt and actually using his plan works and works especially in the long haul.

Secondly, this plan only works if you subscribe to the entire baby steps. If you don’t know what that is than you need to Google it. That means living on a zero based budget (no credit cards...debit cards and cash), paying off debts, not over buying personal residence (15 year fixed rate mortgage that payment is no more than 25% take home pay), having an emergency fund and aggressively getting out of debt including home. It also means not buying a rental property until you have paid off home and all debt. This plan does not work well if you don’t commit to the entire plan.

With all that said please consider this option by looking at our story. We completed “Baby Step 7” around 7 years ago. That means we paid off our mortgage after several years of going up the steps. We then took all the money we were paying in mortgage and debts and began to save for a rental property. We bought our first home around 6 years ago all cash. We paid to renovate it and put a renter in it. All the cash flow from the rent went into buying another property. We took our money saved with the rent and in around a year we bought our second property with cash and renovated and rented it. We did this over and over again. We did work faster than most because our personal business grew and we were able to put more cash in it personally every year but I would rather own 5 rentals paid to for than 50 with debt. Thankfully we didn’t have just one choice. We have been doing this consistently for 6 years and currently have 36 paid for properties generating just at $50,000 in rent per month