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Question While Listening to Dave Ramsey

November 26th, 2012 at 08:23 pm

I know his name is a curse word to many, but I like to listen to DR for a variety of reasons. The least of which is that I like to hear the stories of people who have gone from staggering debt to financial security with great effort. What I have learned is that most of them changed their way of living to become debt free, and it is that "change of modus operandi" that I listen for to decide in my head if the person screaming "Debt Free!" is going to remain debt free.

As I've posted before, I put myself into considerable debt over a relatively short period of time due to a variety of reasons. Lost job, contracting business that barely paid the basic bills, retail therapy, and plain ol' stupidity being four of the major causes. Note that my divorce didn't even make the top four.

Well, I sold some stuff including a lake house and a third car, both of which I didn't need, and concentrated on paying off the other loans and such. Right now, I have no debt except my primary mortgage. I'm within a year of paying off the mortgage. I have plans to start purchasing houses to use as rental properties during my retirement for an income stream.

I was listening to Dave Ramsey, and someone with a remote house and payment called to ask about selling the house or keeping it for rental income. Dave asked the caller, "Would you borrow to buy that house?" Now, simplistic questions don't fit every situation, and my situation is different.

I can pay off my mortgage 100% within a year. At that point, I plan to save up $80K as a down payment on a second house, which I plan to purchase when I return to the US. I have no plans to live in my current house again, but it is in a neighborhood that is appreciating at about 6% to 10% per year, plus I can get rental income of about $1000 per month after taxes and insurance. I see no reason to sell such a cash cow. I can reasonably make $150K off of it if I do sell it, though.

My secondary goal, after I save the $80K, is to start saving for a second and third home in the same neighborhood, for eventual retirement rental income. As I'm the spreadsheet king, I have the financials worked out fairly well.

So, after hearing Dave's question, I am questioning myself as to whether I am doing the right thing. I have basically no bills, so everything I make goes into investments such as mutual funds and real estate. I plan to be real estate heavy, because God stopped making land, but lots of folks are still developing mutual funds. I just feel more comfortable with a house in hand versus a number on a piece of paper.

What would you do? Pay off the mortgage and buy property, or sell the house and invest in mutual funds?

Or something altogether different?

Editorial note: I know that many folks reading this are in debt and would love to be having this "problem," but believe me when I say I have not arrived here without a ton of effort and not just a few months where I was glad that the light still came on when I changed the calendar. You're reading about someone who has made it down the road after a very rocky start and quite a few missed turns and flat tires.

4 Responses to “Question While Listening to Dave Ramsey”

  1. Beawealthywarrior Says:

    I'm in somewhat the same situation as you. I currently have a paid for rental property(my old home) and I'm looking to pay my mortgage off in about 3 years. I would love to have additional rental properties but only if I pay cash for them, no more mortgages!

  2. creditcardfree Says:

    I think your plan is sound. You have no other debt. You plan to pay cash for future investments. Go for it!!

  3. Nika Says:

    You do whatever investing you are comfortable with.

    I invest in the market simply because real estate investment in NYC is out of my reach, and I have a small baby and a full time job so no time to be dealing with constant issues that landlords have to face. I've seen how it can be like a second job with some people. If I had a lot more cash and more padding to absorb things like evicting tenants that takes many months, repairing property, renovating, dealing with contractors, suing contractors, coming out for every heating or air conditioning complaint, handling garbage or recycling fines when tenants don't do it properly, etc.. I would get into real estate.

    If I already had a good property with a great tenant in an upward trending neighborhood, I would keep it. Those gems are rare.

  4. Wino Says:

    Nika, I agree with what you said. Most of that can be avoided with careful tenant selection. Also, if you are prompt in the repairs and keep the properties in good shape, you're also going to have tenants who appreciate the place. I have friends who have rented their entire lives. To my knowledge, their landlord never even comes to their place. I could never be that type of landlord. I would insist on quarterly inspections of the premises, including annual inspections for pests and structural checks up in the attic or down in the crawl space.

    I think landlords and tenants should have more than merely a financial arrangement. There should be regular communications beyond the "check's due" type. If something is not working, I want to know immediately so I can get it fixed. I learned long ago that letting things go is more costly than fixing them immediately.

    I'm discussing the plan with my wife. She is not 100% on board, but we have a year or more to decide. I honestly don't know what I'm going to do right now.

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