Dave Ramsey recommends buying everything with cash!

[Kai Sato-Franks]

Hello,

What have you done what do you prefer? What are the pros and cons of both?

Have you guys bought real estate (multifamily or single family) in cash and rented them until you saved up for your next investment to pay in full?

Versus

Getting a mortgage and paying the interest but being able to buy more real estate instead of waiting and saving for a longer period of time.

I know this is probably a tough question right now due to the virus but I’m just curious about people’s insight on buying in full versus getting a mortgage.

[John S.]

@James Hamling I agree with everything in your post except the tax consideration. You'll still have all the same deductions, except for your interest payment. Yes, you'll be paying taxes on that income, but it's still better to have it as income than not, just like you're better off earning $80k/yr than $50k/yr, even though you're paying taxes on that additional $30k.

[Hai Loc]

@Kai Sato-Franks

A lot of big cities its almost impossible to pay cash for properties.. NYC Boston SF Toronto etc...

High net worth is likely all cash. They are more leaning towards security vs higher return

Investors who are still trying to make a name for themselves want to grow quicker so they prefer higher cash on cash with leverage..

Its obviously not good to over leverage as it is higher risk that can put you under water..

[James Hamling]

Originally posted by @John S.:

@James Hamling I agree with everything in your post except the tax consideration. You'll still have all the same deductions, except for your interest payment. Yes, you'll be paying taxes on that income, but it's still better to have it as income than not, just like you're better off earning $80k/yr than $50k/yr, even though you're paying taxes on that additional $30k.

 Point your missing with tax implication is tax's work in a % basis. Dave Ramsey likes to skate over the fact of things paid off have larger tax implications. Meaning you will get less of the returns from the property you waited 10X longer to get. When your using leveraged funds (for the Ramsey addicts I will add PROPERLY using leveraged funds) your tax exposure is on hundreds per month, vs $1k+. The net result is the tax bracket it moves a person up into. Because using leveraged funds spreads your net profits into equity gains and cash flow plus appreciable gains. Those equitable gains can be tapped via additional finance mechanisms tax free, there in amplifying purchase power vs tax'd capital, or via an exchange. 

Point is using leveraged funds has tax benefits and strategies, the Ramsey method has nothing, just an IRS bill, that's it. 

There is so many ways the Ramsey method is proven bs that it just blows my mind how so many still feed into it. 

Yes, I agree Dave Ramsey is great for helping people stop living off credit cards and financially foolish, and that's where it ends. It dosn't make him a great chef, not a pilot, I wouldn't take medical advise from him and certainly not investing advice. I feel like Cpt Obvious on this point but for some reason, people buy into his ever-expanding list of things he panders for profit. 

Without leveraged finance there would be no facebook, no Microsoft, no i-anything, you would not be just doing it as there would be no Nikes, there would be no grocery stores as all farming would come to an end because all that machinery and seed for planting, you guessed it, financed because farmer Joe dosn't have the $250k cash for seed with another $350k for that tractor, it's financed. Look around your home, 99% of the things you use day in and day out were made possible via financed capital so the companies who make them could build the equipment to make those things. 

Is it more plausible that finance is evil, or people's use of finance is sometimes that which is the evil?  

[Trevor Aydelott]

Honestly @Kai Sato-Franks it's up to you and your life goals. What do you want? For me it's simple, it is more cashflow per month, and every couple months I increase my cash flow. 

So yes you should leverage debt. But there is a benefit of Dave Ramsey and Robert Kiyosaki. Find what you like from both and mold you. 

[Account Closed]

You may not be able to buy in cash but once you do there is nothing wrong in paying it off as fast as possible. In the end the goal is still paid for properties. Unless you are part of the "Refi till ya die" "leverage every penny" "OPM rules" crowd here on BP.

[Zachary Buhler]

@Anthony Gayden just to be clear, Dave Ramsey does not say you have to pay for real estate with cash. It is the one debt he doesn’t get mad at people for having. He doesn’t recommend buying investment properties with debt. I have followed all of Dave Ramsey’s steps and it only took me 2 years to pay off $87,000 making around $80,000 per year. I don’t think the 5-10 years you’re saying is realistic. Most people pay off their consumer debt around 2 years on Dave Ramseys plan.

I currently own two homes and am just 3-4 years away from completely paying them off and owning over $800,000 in real estate. I’m only telling you all of this so that people don’t read your post and think that buying real estate and paying it off quickly is impossible or will take so long to do that it’s not worth it.

[Zachary Buhler]

@Kai Sato-Franks just buy your real estate with cash and enjoy the ride! I’m currently on Dave Ramsey’s plan and I’m about 3-4 years away from paying off my homes! It’s a lot tougher, but overall is worth it! Good luck!

[Luke Carl]

@Kai Sato-Franks Dave Ramsey teaches poor people how to stay poor.

[Dave Connelly]

Originally posted by @Luke Carl:

@Kai Sato-Franks Dave Ramsey teaches poor people how to stay poor.

 Seems redundant.

[Ian Walsh]

I lean towards low leverage by nature but it really comes down to what your plan/destination is in the long run.  Low leverage fits my risk tolerance.

[Stephen Spradley]

His snowball method works great for all debt that’s not real estate.

[Matt J.]

@Kai Sato-Franks

For most people, following this rule strictly, they’d probably never buy a rental property.

Is it safer? Probably.

But if you wait too long, and don’t intelligently utilize leverage, you miss out on appreciation, cash flow, tax benefits over the years that you sit on the sideline.

I’ve heard some people say Dave Ramsey is great for people who take on credit card debt indiscriminately, can’t stick to a budget, etc. But not so great for building big wealth.

[John Warren]

@Kai Sato-Franks Dave Ramsey's advice is not something anyone here on BP is going to follow. To be fair, his advice on not having credit card debt or buying dumb things like a boat all makes sense. Not using leverage though, is some of the worst financial advice of all time. All wealthy people use debt to drive returns. 

[Chris Pasternak]

What's your goal?

IF your goal is to become a millionaire, Dave Ramsey indicates he has done the biggest study of them and they don't talk about how they leveraged "cheap money" to obtain a great ROI. There's also a book called The Everyday Millionaire, a precursor to Dave Ramsey's study of millionaires, same stuff...no credit card debt, paid off house(s), paid off cars, piles of cash in retirement accounts. Not sexy stuff by any means. Are there outliers? Absolutely.

If you prefer slow, steady and proven you might consider Dave Ramsey.

Think about it how much is there to talk about if you've got millions $$$ in your 401k or Roth IRA and paid off houses? On the other hand how fun is it to talk about that latest rehab where you fell from a roof and stand to tell the story? Or how you had some crazy tenant that the only way to get them out was paying them with a gift card to the liquor store? You guys talk about the stories here all the time.

100% of foreclosures happen to people with mortgages.

Again, what's your goal?

[Chinmay J.]

Ramsey is an egghead. I steer clear of anyone who gives one size fits all advice.. 

[David Dachtera]

Originally posted by @Kai Sato-Franks:

Hello,

What have you done what do you prefer? What are the pros and cons of both?

Have you guys bought real estate (multifamily or single family) in cash and rented them until you saved up for your next investment to pay in full?

Versus

Getting a mortgage and paying the interest but being able to buy more real estate instead of waiting and saving for a longer period of time.

I know this is probably a tough question right now due to the virus but I’m just curious about people’s insight on buying in full versus getting a mortgage.

As another poster pointed out, Dave Ramsey focuses on consumers and their use or misuse of credit. Most of us don't have the ability to print US Legal Tender (our own money); so, the judicious use of credit remains our best option.

Be sure to make the distinction between the consumer mindset which is typically a scarcity mindset: 

• "I don't have enough", or 
• "I can't afford it", 
• "How much will it cost?"

- and the entrepreneurial mindset:

• "How much income will it produce?"
• "How can I raise funds for this?"

That is how a business person - and investor - looks at it.

My $0.02 ...

[Shane H.]

@Kai Sato-Franks

Dave Ramsey invests in real estate as a hobby, not as a business. His advice for desperate people on getting out of debt is sound, but not unique to him. His advice to those who are doing well is often reckless. I've heard it referred to as financial malpractice and I agree. I've heard him on multiple occasions tell someone to sell their cash flowing property that was paying for itself and their personal mortgage, to pay off the personal mortgage. "because it just does something to you spiritually." That's insane.

[Dave E.]

@Kai Sato-Franks

I think it’s smart to use a combination of cash and financing. Starting out you will almost always need to start with financing for your first few deals. Maybe you use your own money for the down payment or if you are doing a flip, maybe you can find a private investor to front the money.

Once you get a few deals done, maybe you get lucky and hit a home run. Then you can start looking at paying cash for a deal.

You have to figure out how you are going to make it happen. Not listen to the people who say you can’t. Maybe it’s not possible right now today. But if you do your research and find the right deals it will be possible tomorrow.

[Moises R Cosme]

 @Bill F.

Absolutely correct, leverage juices returns but does the same to losses.  The more debt you have, the less equity you have the more risk of debt when there is no equity.  The equity piece for us the most important part of any investment we make, we pass on a lot of deals that are likely to be profitable because they are not profitable enough to have a 'margin of safety'.  

[Whitney Hutten]

@Kai Sato-Franks I agree with most of the commentary here, that Dave Ramsey's advice is for the general public who has high consumer debt and issues controlling it. I think for someone just starting out who needs to wipe out consumer debt... do it!  Then find a true mentor who will help you grow your wealth.

Also note, his philosophy and teachings are rooted in his own personal trauma.  While he has helped millions become debt-free, which is amazing, I'd seriously challenge how many he's helped become wealthy though (his philosophy doesn't teach how to build generational wealth).  And... he's passing on his own traumatic history with money. We need more financial educators that will teach how money REALLY works and how to use leverage responsibly.

[Zachary Buhler]

@Luke Carl sounds like someone is a little salty towards Dave Ramsey. I don’t understand how getting out of debt and building wealth is somehow making poor people stay poor? His plan had done nothing but wonders for me and my entire family.

[Mark Sewell]

I got real mixed feelings with this guy.  I would say that I subscribe to a modified version of his seven steps.  I think probably the first 3 steps are sound, maybe 4.  That fourth one, save 15% of your income toward retirement, could be modified in any number of ways.  To hell with step 5 - my kids can go join the damn Navy if they want college funds.  Maybe I'll help with books and car insurance (maybe).  And well, Step 6... we've already covered that here, haven't we?

But the concept of reducing your personal financial footprint is big.  It is a lot easy to hit FI when you aren't needing to cover a bunch of stupid consumer debt each month.  I mean, it's just math.

What I do like about Dave is that it forces people (like me) to look critically at their own bad money habits.  Trying to be an investor when you don't have personal finance discipline is like going to a cross fit gym when you drink beer and eat fried garbage every night.  You probably think that is an obvious statement, but if I am totally honest here, I must admit that I didn't get that for a long time.  But I damn sure get it now.

[Zachary Buhler]

@Whitney Hutten you should go and check out the study that Dave Ramsey’s team recently conducted on Obed 10,000 millionaires in the U.S. and I think you’ll find that his advice not only helps people get out of debt, but it’s also one of the best ways to build some serious wealth.

[Zachary Buhler]

@Chinmay J. really? An egghead? The man has hundreds of milllions in his real estate empire using no debt. Unless you have the same amount or more, I don’t think you can call him an egghead because clearly what he’s doing works.

[Mehmet Aypek]

Hello BP Family, I am a newbee here. I am glad that I had a terrible landlord and decided to go buy my own house. It was duplex and it opened my eyes. Then I am here.
I watch Dave Ramsey and like what he says. I believe he talks to people who lives paycheck to paycheck. He talks all about the unsecured debt. When we get a loan on a house, it is secured. But, when I buy a LV handbag for my wife by paying $3K, it does worth only $200 after she put something in it. All real estate debts are secured unless we pay for one over valued. Debt is no debt in real estate business.