Real Estate the Ramsey Way - I’m Begging You Not To Do This

Episode Date: January 27, 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. Caesar is in Mobile, Alabama. Hi, Caesar. Welcome to the Ramsey Show. Hello, Dave. This is Caesar. I wanted to ask you guys if I want to buy an investment property with my uncle who's on disability. I currently already own a home and I got that house for $156,000 at 6.25% APR. My mortgage on that is about $1,200 per month. I have two tenants that live there. So they're paying off my mortgage. I have about $13,000 in my savings account and I have no car payment and I'm giving about 10%

of my payment into a Roth RIA. Okay. And what do you make? I make about four grand. And where do you live? If you rent it out the house, do you live in the house with a roommate? Yeah, I live in the house. It's like a roommate sort of deal.

So it's... How old are you? I live with my girlfriend. I'm 20 years old. Okay. And why do you want to buy an investment property? So I want to buy an investment property because I saw that, you know, being a landlord is really not as hard as I thought it was. I have the credit for it and I believe that, you know, that's what I want to do with my life, just buying homes, either flipping them and renting them out.

You know, I have a home actually that is $300,000. I will, me and my uncle, um, who are splitting everything in the home, um, is about, we're going to split everything, the down payment, like absolutely everything in the home. It's, the house is worth about $300,000. We're getting about seven percent APR. And we would be doing an FHA loan on that. The thing is that my uncle doesn't live in the state. So I would be in charge of maintaining the property and we would go essentially half

He's on the... And you need your uncle involved. Why? So I need my uncle involved because I just got this loan from this VA loan about six months ago, and they're not letting me get another mortgage payment. Okay. Because you're too broke to buy a property. That's why they're not letting you do that.

Okay. So the bank is telling you not to do this, and you're figured out the way to beat that is to use an uncle and do it anyway. Yes. Yes, sir. Okay. Well, Caesar, I've got just a moment with you to try to offset all of the bull crap you've been reading on the Internet about real estate, and I don't know if I'll be able to accomplish the goal of offsetting all of that. I will tell you that when I graduated from college at 22 years old, I bought my first property. By the time I was 26, I had over $4 million worth of real estate with a million dollar net worth doing exactly what you're talking about.

I had co-signers. I had banks that I had talked into loaning me money. I was flipping houses with no money, and you got no money. and I was buying property basically with no money. And so I was leveraged up to my eyeballs. One of the banks got scared and got sold to another bank, and they looked down and said there's a kid in his 20s that owes us over a million dollars,

and they called the notes on the flips that I was doing. There were 90-day notes, and they were called the flip notes. It was a million two. I had 90 days to come up with a million two. I spent the next two-and-a-half years of my life losing everything I owned. getting sued, getting foreclosed on, and finally with a brand new baby, a toddler, and a marriage hanging on by a threat, I was bankrupt. That's my story. Okay?

That guy that did that now owns me several hundred million dollars worth of real estate. I recovered in my 30s, at 40s and 50s. I'm sitting in one building that's worth over 600 million right now, and it's debt-free. Okay. So just to give you an idea that this can be done, but I never borrowed money again, and I never took on another co-signer, because those two things caused me tremendous trouble. And everybody that I knew that did the type of real estate deals that you're doing, all of my friends in that business were broke, too. The only ones that survived were the ones that got out of debt.

and you, sir, are walking straight into a razor. And I'm going to beg you not to buy this house. I want you to own real estate, and I want you to be good at it later. I want you to take your time and pay cash for the next little property you buy. And I think between now and 30 years old, you probably are going to have several properties that you could pay cash for without your uncle and without 7% APR. and just because you can manage three roommates doesn't mean you know how to manage tenants yet.

That's a bit of a leap. They're a little different. And I've managed tenants for 40 years, believe me, I know. And the idea that the tenant is paying for your house is internet crap because you're paying for your house and you've got some tenants. You will find out that the tenant is not paying for your house when one of them doesn't pay. That's when you'll discover that real estate is not passive at all. It's very active. So I love real estate.

I own a bunch of it. I'd love for you to own a bunch of it, but I'd also love for you to avoid a nightmare. And I don't know if there's any chance that I talked you out of it because you were completely in. It almost sounds like you've already done the deal and then call me back to bless it. And I'm not going to. If you did that deal, I wish you didn't because you set yourself up for problems.

You set your uncle up for problems. You set up relationships for problems. You're living on the end. edge and you don't even know it. You don't even feel it. You don't, you don't, you don't, you've not assessed the risk that you're under correctly. You've taken on way more risk than your heart is grasping. A plea, or you're about to. Please don't. Just take your time. Every time I read the book, the tortoise and the hair, the tortoise wins. So be the tortoise. That's about all I got, John.

Yeah. And again, if that doesn't give you pause, then nothing's going to give you a pause. You mentioned this at the very end there. This is a sure-fire way to implode family relationships as well. Yeah, because it's not going to work out. It won't work out, number one. And the uncle's on disability, for God's sakes. And he's in another state.

And so when this doesn't work out. Trying to help his little nephew out. But the uncle's brother, his dad's going to call and say, you need to do this, and grandmother's going to call, and mom's going to call, and now you're not going to be able to go to Thanksgiving. You're not going to be able to go to Christmas. Everyone always enters into these things, only considering the upside, and nobody understands the risk profile. And spend your life studying risk. And that's where you'll, man, the fulcrum always has to equilibrium.

I used to say it wrong. It's got a, there's always another side of the folk. Let me say it that way. Yeah. And nobody takes that into consideration when you get starry-eyed, man. Yeah. Go take a cold shower, son. You got house fever.

Yeah. Slow your butt down. That's what I would tell you. Yeah. You made the mistake of calling asking for my opinion, which I'm 100% of the time I'm going to give you. I'm an expert on my opinion. And I love you.

And so I'm going to tell you the truth. Let's go to Maggie. She's in Tampa, Florida. What's going on, Maggie? Thank you for taking my call. You got it. I'm getting a little, like, anxious. We were my husband's 76, and I'm 69.

And we just bought a house. We wanted to downsize from the one that we had that was bigger. And I'm getting a little anxious because the house is taking a little long to sell. It's been on the market for six months. So you sold one, you moved into another house before you sold the other one? Yes. Oh, Mama. Oh, oh.

And so are you about to be paying two mortgage payments? No, no, no. The other one is paid off. Okay, good. The one that we're selling is paid off. Okay. Okay. So we thought it would sell really fast up with the market, the way it's going.

It's been a little longer on the market. Mm-hmm. How long? And that's six months. What is your real estate agent telling you about your current listing price? Oh, we just lowered it. Because it was a 575, and we just lowered it to 569. Okay.

So I just saw this headline today. Today, we're seeing the Florida housing market begin to contract a little bit because it was exploding. And now we're seeing it contract. In fact, many people feel like it was overpriced, overheated. And so you're in Tampa, which is the Tampa area, which is certainly one of the better markets in Florida. think if you've got a really good real estate agent, and if you don't, I would highly recommend that you go to ramsysolutions.com slash agent and talk to some of the trusted pros there on that site that we know, because in this current market, I think patience is the game.

And listen, six months for a house listed in Tampa, I don't think that's crazy if your pricing is right. If your pricing is right. Yeah, I agree. Tell me, is there anything on fire. though, because of course, everybody wants their house to sell. Was the plan to take the proceeds from this sale and put it on your current house? Or did you buy your new house? Yeah. Tell me more about that. No, I put some down.

So we owe $326,000 because the house was $430. Okay. So we just want to pay the house. We don't want to have that. We don't want to pay the bank any interest. Sure. But you're not. But what Jay's asking you is, are you in a financial squeeze because this thing has not sold you?

No, we're not. All right, then be patient. This is all about making sure your pricing is right and then just hold. Yeah, just hold. I definitely don't want you to put a price that's too low because you're anxious and you just want to move it. I agree with that. You're not everything must go. You're not in that mode.

So just, you know, you got to know when to hold them. Sit tight. I'm going to do a little bit of fork. I'm no real estate pro, but as you know, I pay way too much attention to the headlines. Okay, forecast for us, Ken. I'm paying attention to what the Fed is doing and what they're saying. We are in a presidential election. I would not be surprised, given where we are right now, we're seeing unemployment tick back up over 4.

I think it's 4.1, the latest job report, last month job report, we're starting to see a softening in the labor market. All of this in a presidential election, this is exactly what the Fed set out to do. Jerome Powell is on record is saying, we've got to raise interest rates, and it is going to cause pain in the employment market. and paying in the employment market, okay, and then when we see interest rates high for the home industry, mortgage rates, this creates a cooling of consumer demand. Of course. And consumer confidence, which then in turn, theoretically, drops inflation. So all that to say. Make it lay, put it in more layman's terms, because the cooling is happening because everybody's holding on to their money. That's exactly right. Okay. And so what's happening is people

are also sitting and waiting to see what happens in the next quarter or the fourth quarter as it relates to mortgage rates. I think you're going to see a slight rate cut in the third or fourth quarter, and I think you'll start to see people move back into the housing market. So I would sit tight if I'm in a position where I'm listing, I'm going to list it and stay with it. But I think you're going to see an increase in home sales as we look to the end of the year. All right. I love that because that's been the issue, not enough homes on the market, not enough supply to meet the demand. You heard it first. You heard it here from Ken Coleman. Is he correct?