Real Estate the Ramsey Way - Do I Have Too Much of My Wealth in Real Estate?

Episode Date: October 6, 2025

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate home ownership with confidence. John is in Arizona. Hey, John, how are you? Hey, John. Sorry, hey, Dr. John and Dave. Oh, you can call me, John.

That's what my mama calls me. That's perfect. What's up? Perfect. Thanks for taking some time. Hey, so we just, our family, we just finished building a home. We moved in last month. During the construction, we were able to cash for a good amount,

and the remaining mortgage is $600,000. We're still working to sell our old home. It's paid for. We should be getting around $500,000 from that sale. We have about $880,000 between investments and retirement and $100,000 in cash that has our emergency fund and some intermarked funds to landscape our new home. The question is with the $500,000 from the sale of the old home.

I'm kind of wrestling with not wanting my network to be so top-heavy with home equity versus investments, which is what it would be if I put it all towards that mortgage. Just want to get your advice. What's your household income? It's right around between $300 and $400,000 depending on the year. Okay, good. Way to go. And what's the new home worth?

Totally. We cash flowed about a million, so it would be about $1.6. Okay. All right. Yeah, you know, your house is a house. high percentage of your net worth. And you're not going to get away from that. You made that decision when you decided to build a $1.6 million house.

Yeah, that doesn't change. Scope creep is what got you. It really isn't the, the net worth situation doesn't change. You can't hide from it now by not paying off the mortgage. It doesn't accomplish what you're trying to accomplish. So what I would do is, you know, I'd get that mortgage paid off as quick as I could. You got 500 to throw it 600 when the other house sells, and then I'm going to take a chunk of my other money and knock out that last 100. Might use some of that emergency fund instead of putting the bushes in for right now.

Let's get the stinking thing paid off, and I'm going to get it paid for. And then I'm going to start moving in that direction. So what we've discovered to answer your overall question, philosophically, so to speak, not really philosophically, but practically. That's your tactical answer that I just gave you. Now, strategically, your answer is this. That's a better way of saying this. As we were working with wealthy people, what we find is the larger their net worth, the smaller, the percentage of their net worth is on personal things, home, cars, vacation homes, toys,

whatever. The smaller your net worth, the higher the percentage is on your home. So, for instance, if your net worth is a half a million dollars and you had 300,000 of the half a million in a paid-for house, that's not disturbing. That would be fairly normal. But that's about your ratios and you're sitting there with about a $4 million net worth, three and a half, right? And you've got half your net worth right now sitting in your house.

So that's starting to be disturbing. It's not anything to panic about, but we're not buying any more personal crap on the net worth column side for a while. You just did it. Your house poor. Not technically house poor. But you see what I'm saying. You need to get the balance back, rebalance your net worth. Because by dumping everything into other investments that are non-personal investments over the next whatever number of years,

to where when we look up in a few years, you've got a $10 million net worth. And of that, the house has doubled, and it's $3 million. Now, that starts to be pretty comfortable. But like I talked to a guy the other day that, you know, we were looking at his numbers, he's got $100 million net worth and a $10 million house. So it's net worth is his house only 10% of his net worth at that. And yours is over 50%. So that's the, but again, that follows with the line of thinking of the higher your net worth,

the smaller the percentage of your net worth is going to be in personal home cars, vacation homes, toys, so on. And so, you know, you take a billionaire and they've got an $8 million jet, and the billionaire has a couple of homes, they still, it doesn't add up to, even 6% of their net worth in personal consumption. And so that, that again validates the concept of the higher the net worth, the smaller the percentage. But yours is, as high as your net worth is, I don't disagree with you, John. It's a little bit unnerving to be there.

But being in debt doesn't change it. Well, and you called it out. This call should have happened before we decided what size house we were going to build. You've already committed it. So cows out of the barn. I want to take that risk off of my. risk profile and pay that sucker off. Yeah, that helps the situation.

It does. Helps the sleep at night factor. Right, that's right. Just get it paid off. And then let's just, okay, we have made our personal consumption pledge for the next six years. That's it. And we're sleeping in it. And in reality, that means we're going to be aggressive.

We're going to put 15% in these mutual funds. Are we going to up a little bit? Yeah, we're going to up it up until. Because everything's paid off. You're a baby step seven. So we're going to start doing investments out here big time and there's not going to be much more person. So if you go to the beach and your friend has a nice condo at the beach. beach, uh-uh, you can't have one.

Right, because you, instead of buying a $700,000 house and a beach condo. Beach condo. You put some sand in the bedroom. I mean, that's what we're doing here. This is, that's where you are now. So you're just a little beach there in the second master suite of the $1.6 million. So, yeah, that's no. No more.

You know, mama wants a Bentley. No, mama ain't getting a Bentley. It's not happening here. We got a one and a half million dollar house. And here's the beautiful thing. You make $300,400,000 a year. clean it up real fast. This is two or three years. It's more of a, it's not a, it's not a, your stupid discussion, or you've done something extremely dumb discussion. It's just like,

I'm with you, John, I'm a little nervous about it. And I would, based on that, start making the moves to not be nervous. First one, pay off the debt. Second one, redistribute most of your investing away from personal issues for the next five, six years. And then you'll get it bounced back again. You'll be okay. Cool. Hey guys, thanks for listening to Real Estate the Ramsey Way. Now, if you're here, you're probably thinking about buying or selling a house. It's exciting, and one of the biggest financial decisions you'll ever make. But you don't want to do it with an inexperienced agent who will rush you into costly mistakes,

like the ones some of our callers find themselves in. You need a pro who knows what the flip they're doing and will keep you on track with your financial goals. That's why we only recommend Ramsey trust. real estate agents. These are vetted, handpicked pros who actually listen to your needs, guide you through the process, and fight to get you the best deal. To find a Ramsey trusted agent near you, go to Ramsey Solutions.com slash trusted agent. That's ramsysolutions.com slash trusted agent. Paul is up in Washington. Paul, how can we help? Hey guys, thanks for taking the call. About five months ago, my wife and I took FPU.

And we've been working on Baby Step 2. So about two years ago, I took out $100,000 helock against our primary residents in order to make down payments on three different rental houses. It was an idea to, you know, for a retirement plan was to try to accumulate a bunch of rental houses. We're seeing problems with that. They've not been cash flowing well. One of them especially, that was for sale right now. Good. When it sells, we're going to pay off.

We have about $17,000 in, like, between a car loan and credit cards. We're going to pay that off. And then we're also going to, I was thinking it would be wise to have a six-month emergency fund for the rental houses to cover their mortgages in case the rental income doesn't. How many rental houses are there? Currently, there's three, but one of them is for sale. on it next week. But none of them are cash flowing positively on a consistent basis, correct? Not consistently, no. Are you, are you, do you have equity in all three? Yes. Okay. We have, okay. Let me address something before the call gets going too further. We're going to tell you what

to do, but I want to go and address something you just kind of said. The emergency fund, the six-month emergency fund is not there to cover the rent, the rental income on these homes. That's not what the emergency fund is for. It's for actual emergencies that affect your life, that are your expenses, your income, your bills. You want to cover your expenses. It's for your personal expenses, not for your rental homes. Okay. So that's a non-starter for us. That's right. Okay. Ken, I'm glad you clarified that because that is so important. What it sounds like is you could benefit from some simplification here. Am I, is that fair? It is fair.

Okay, that's question one. So you said that was fair. Question two would be, like you said, these properties aren't making you any money, right? Right. So my, since they're not making money and since you could benefit from some simplicity, I would recommend selling them since they're all worth more. And you could actually make some cash on these things, get out of these $100,000 of HELOCs, and obviously, you know, clear all your other personal debt.

and kind of start this idea over from scratch and just build it the right way. Because if you do that and you're able to use some of this money, because I mean, we could go through it if you want. If you were to sell all three, what would you end up with after fees and everything? I think of selling all three,

I think we would clear the $100,000 helock and the $17K in debt. I think that is about it. And then you'd be at zero. Okay. We would be at zero debt, except for our primary residents. Tell him what he's won, Jay.

Well, you've won peace. And now you've won the ability to focus in on your security, which is your primary residence. What do you owe on that? Shoot, 100 and, no, what are we on that? I'm sorry, I'm not prepared for that. That's okay. Around 100 and a half, something around there?

160. Okay, 160. And then what's you guys' income without the, I mean, your properties weren't making anything, but what's your income? After, like, take home, I think we're at about 110. Okay.

So with that income and with what you owe on the mortgage, I mean, with a little intensity or with just being intentional, you could clear your own mortgage out if you wanted to very, very quickly. And then now you can start this real estate dream if you even wanted to. Like this might have been your last, I don't know, maybe you're sick of it at this point. But now you could go back in and say, okay, next time we do this, we're going to do it for cash, we're going to move a lot slower. And we're going to make sure that no matter what,

we're not putting ourselves in a risky spot and we're going to be making money on whatever we do. Yeah. Yeah, that's been the gist of how we've been feeling. I just, it was hard to let go of the idea that, you know, down the line, we would have all this rental income. But it's like I'm afraid we won't even make it there. Not now, but to Jade's point, if you clear all this and now you go about it the right way, you still have time. How old are you? 44. And what do you have in retirement? About 30K. Okay, so we got to build that.

Yeah. I am not thinking about houses. Let me tell you why. Just to kind of, if I was in your shoes, this may help your stomach and your heart sell these three homes. Here's why. Okay. The three homes, let's say that you guys were cash flow positive, which you're not on these

things. But let's just say, you know, because we hear this call all the time. And somebody will say, well, we're clearing about $600 a month on these things. or let's go to $1,000. Let's do a round number. Let me get $1,000 a month free and clear. All right. That's $12,000 a year.

Okay? Yeah. That doesn't include expenses, right? Right. Home repairs. $12,000. I would rather be investing in the investment strategy that Ramsey teaches than I would be fiddling around with houses,

especially in your shoes. You're not what I would call completely behind the eight ball. You're a little bit behind at your age with only $30,000. but the baby steps is the play for you. So you get this debt out of the way by selling these houses. And now we attack baby step three, go to three to six months of your expenses. And then we think, all right, now we're all baby step four in the sense of we're now 15% fully funded retirement accounts. And let's see what happens above and beyond that.

But I just think for a lot of people, the rental house income, it just looks at, and smells and sounds way better than it actually is. It's a lot of work. A lot of work for $12,000? It will never be me, Ken. It's too much. I'm not doing it. On the other hand, I look at my little dashed board every month,

and I go, oh, look what the stock market did today. That's true. That's the true passive income. I made money, and I was snoring, you know? There's like, I got a guy in the audience thumbs up to me, and you're a fellow snorer, but we're making money while we snore, bro. Yes, sir. That's the play. Yeah, everybody talks about real estate like it's some form of passive income.

It's so not passive. But I think, I mean, I don't know what your wife says about this. You guys have to go home and talk about it. But I think to solve for the two things that you said, which is, hey, it's fair to say I could benefit from some simplicity. And the truth is these things aren't making me any money anyway. But you are losing, you know, your peace over them. Your blood pressure is going to drop. You're going to sleep better.

The baby steps is the plan for you, Paul. It's not too late. But I would say at 41, this is the time to make this move. And let me just be fair. Let me, because somebody's listening and going, gosh, you know, anytime somebody calls them with real estate, you guys tell them to sell it. That's not necessarily true. I agree.

If he had called in and said, hey, I've got these three properties. They're killing it, you know, banging. I would have maybe suggested selling one possibly to clear some debt. And I would have said, yeah, keep the others. here's the plan to pay them off. Like there is a time where somebody calls in and they've gone and done what they're going to do. That's right. And it's not always about telling them to, you know, fold everything and start from scratch.

That's right. So just putting that out there. Actually, it's a great point. It depends on a person's financial position. I know you're going, well, Ken, okay, my little rant about the $12,000, that's okay if you're no debt. Yes. And your retirement's great. And this is something we're going, we're trying to pay this off as quick as we can.

Yeah, right. And now we're not doing it for the $12,000. thousand dollars a year we're doing this for a house that you know is going to be worth 400 grand and we're going to pay it off in a year now that's real money right that's 400 grand cash that i could unload that's the idea so we're not anti real estate it's just does it fit the baby steps does it fit your financial situation that's the question