Should I Invest in Real Estate?

Summary

Podcast Summary: The Ramsey Show Highlights – "Should I Invest in Real Estate?"

Release Date: January 2, 2025

Overview

In the episode titled "Should I Invest in Real Estate?" hosted by the Ramsey Network, listeners are presented with practical advice on real estate investment through a real-life scenario. The discussion revolves around whether the caller, Pierre, is financially prepared to invest in an apartment as an investment property. Experts from the Ramsey Network, including Dave Ramsey, Rachel Cruze, and others, provide insights based on their extensive experience in personal finance and real estate.

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Caller’s Situation and Initial Inquiry

At [00:10], Pierre reaches out seeking advice on purchasing an investment property:

Pierre (B): "Buying an apartment, an investment property for $200,000. And I kind of just want your advice if I'm ready for it. Not ready for it, or maybe I should just put it on the back burner."

He elaborates on his financial status at [00:30]:

Pierre (B): "So currently I have two jobs. My income, I have about three incomes. My salary is about $200,000 more or less. And I also, the house that I currently live in, I make about $3,000 comes in in total. My only debt is my mortgage and my wife's car, which is about $25,000."

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Expert Advice: Debt-Free First

At [00:25], the host introduces the importance of being debt-free before making significant investments:

Expert (C): "Are you out of debt and are you going to pay cash for the apartment?"

Pierre confirms his debts, prompting Expert C to advise caution. At [00:58], C shares the Ramsey Network’s investment philosophy:

Expert (C): "The rule we live by is we pay cash for it or we don't buy it. And we only start buying investment real estate after we're 100% debt-free on home and everything. That's the rule we live by."

He emphasizes the risks associated with Pierre’s current financial state:

Expert (C) [01:48]: "But having done that, you will thoroughly love the real estate business. When you get into it, it sounds like, it sounds like you want to do it. But if you buy this apartment right now, it's probably going to cause you financial problems, not blessings because you're broke, you got a freaking car payment. You don't go buy a $200,000 rental property."

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Recommendations: Pay Off Debts First

At [01:55], Pierre reveals he has $50,000 in the bank. Expert C advises immediate debt clearance:

Expert (C) [01:55]: "Then write a check and pay off your car today."

Pierre acknowledges and agrees to this course of action:

Pierre (B) [01:59]: "Understood? Understood. I could do that."

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Discussion on Using a HELOC for Investment

Pierre contemplates an alternative financing method at [02:04]:

Pierre (B): "I was thinking of saving up to 100k and actually pulling a HELOC on my house. I know you're really against it, but I feel like it would be a lot easier to pull the HELOC out the house."

Expert C responds with strong caution:

Expert (C) [02:32]: "Pierre, are you 24?"

Pierre (B) [02:36]: "I'm actually 32."

Expert (C) [02:38]: "32. Okay, because you sound like I sounded when I was 24. I used to say stuff like that when I was broke and it made me broker. Okay. [...] I don't think it’s going to. [...] I think it's a really, really bad idea. [...] we have to get bonked on the head to catch it."

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Host’s Reinforcement of Expert Advice

At [03:46], the host reinforces the experts' viewpoints, addressing potential reconsideration:

Host (A): "Because I think what's difficult is in the present. All of that sounds good, right? [...] And here's the problem too, Pierre, when you start leveraging yourself like that, statistics show us, and studies are showing us that stress goes up, anxiety goes up, lack of sleep starts to occur. [...] Be as peaceful as possible. Pay off the car work and pay down your mortgage and then say, hey, let's save up and buy. [...] with a lot of peace. So just do it the right way. Everything you're talking about can be done. Just slow it down and do it with cash instead."

He concludes with a memorable quote at [04:50]:

Expert (C) [04:50]: "The best way to get rich quick, get rich slow. This is the Ramsey Show."

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Key Takeaways

1. Debt-Free Principle: Before considering real estate investments, ensure all personal debts are paid off to avoid financial strain.

2. Cash Purchases Preferred: Investing in real estate with cash eliminates the risks associated with leveraging and debt, aligning with the Ramsey Network’s investment philosophy.

3. Caution Against HELOCs: Utilizing a Home Equity Line of Credit (HELOC) for investment purposes introduces significant risk and can jeopardize personal assets like the primary residence.

4. Stress and Well-being: Financial decisions should not compromise mental health and peace of mind. Slow and steady wealth building is advocated over risky, rapid investments.

5. Long-Term Planning: Saving diligently and investing wisely over time leads to sustainable wealth, avoiding the pitfalls of impulsive financial moves.

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Conclusion

In "Should I Invest in Real Estate?" the Ramsey Network experts unanimously advise Pierre to prioritize becoming completely debt-free before embarking on real estate investments. They emphasize the importance of financial stability, caution against leveraging personal assets, and advocate for a measured approach to building wealth. This episode serves as a valuable guide for individuals contemplating real estate investments, highlighting the significance of financial readiness and the potential risks of hastened decisions.

Transcript

[A]

Brought to you by chm, a biblically based alternative to health insurance. Learn [e-mail] budget I'm thinking about maybe.

[B]

Buying an apartment, an investment property for 200,000. And I kind of just want you guys advice if I'm ready for it. Not ready for it, or maybe I should just put on the back burner.

[C]

Okay. Are you out of debt and are you going to pay cash for the apartment?

[B]

So sorry, I should tell you my situation. So currently I have two jobs. My income, I have about three incomes. My salary is about 200,000 more or less. And I also, the house that I currently live in, I make about three, $3,000 comes in in total. My only debt is my mortgage and a my wife's car which is about 25,000.

[C]

Okay. All right. Well, Pierre, I'm, I own a bunch of real estate. I love real estate. Rachel's husband is in the real estate business. He owns a bunch, they own a bunch of real estate. And we both, these families sitting here love real estate. As an investment. The rule we live by is we pay cash for it or we don't buy it. And we only start buying investment real estate after we're 100% debt free home and everything. That's the rule we live by. But having done that, you will thoroughly love the real estate business. When you get into it, it sounds like, it sounds like you want to do it. But if you buy this apartment right now, it's probably going to cause you financial problems, not blessings because you're broke, you got a freaking car payment. You don't go buy a $200,000 rental property.

[B]

So I could paint. So a little more in my situation, I understand it a little more situation. I have 50k in the bank.

[C]

Then write a check and pay off your car today.

[B]

Understood? Understood. I could do that.

[C]

And yeah, you should do that.

[B]

I also hadn't. I also had another question for you also. So I was thinking, I was thinking of saving up to 100k and actually pulling a HELOC on my house. I know you're really against it, but I feel like it would be a lot easier to pull the HELOC out the house. How I have an income comp. Well, I have money coming in from the rental of my primary residence.

[C]

Pierre, are you 24?

[B]

I'm actually 32.

[C]

32. Okay, because you sound like I sounded when I was 24. I used to say stuff ambitious. I used to say stuff like that when I was broke and it made me broker. Okay. Because here's what you're not anticipating. You're not anticipating all the things that are going to go wrong when you own a rental property and the renters that don't pay. And now you got a HELOC on your house and now you have to come home and tell your wife we're losing the house because the apartment deal went sideways and we're getting foreclosed on. You don't want to have that conversation. I'm so stupid. I had that conversation when I was your age and you don't want to have that conversation. You want to do this debt free, but you're going to go ahead and do it. So I hope it works out for you. I don't think it's going to. And you asked me, so I told you the truth because I love you. I don't think you should do this. I think it's a really, really bad idea. But I don't think I can stop you. I think you're going to go learn the lesson the hard way. Some of us are knuckleheads and it's just how it works. We have to get bonked on the head to catch it.

[A]

Pierre might be listening and might be reconsidering.

[C]

He's not.

[A]

Because I think what's difficult is in the present. All of that sounds good, right? Like you, you can line it up a situation and say, oh, if this sits in there and I have that and that carpet, you know, da, da, da da. And it's all working, all these moving pieces. And here's the problem too, Pierre, when you start leveraging yourself like that, statistics show us, and studies are showing us that stress goes up, anxiety goes up, lack of sleep starts to occur. And you're trading your peace of mind for complications of trying to build wealth. And you're doing it in a really fast way, in an ineffective way because it's going to cause other issues in other parts of your life. So be as peaceful as possible. Pay off the car work and pay down your mortgage and then say, hey, let's save up and buy. And in 10 years, you know, five, 10, 15 years, you guys could be wheeling and dealing and it's all your money and with a lot of peace. So just do it the right way. Everything you're talking about can be done. Just slow it down and do it with cash instead.

[C]

The best way to get rich quick, get rich slow. This is the Ramsey Show.

[A]

CHM isn't health insurance. It's a health cost sharing ministry. Check it out for [e-mail] budget.