Real Estate the Ramsey Way - Should I Keep House-Hacking or Consider Downsizing?

Episode Date: November 18, 2024

Your home should be a blessing, not a burden—but unfortunately, some people learn that the hard way. Get the answers you need with Real Estate The Ramsey Way, and learn what to avoid and how to do real estate the right way.   Next steps: 🏠Have questions about how real estate can help you reach your financial goals? Check out our Real Estate Home Base for free tools and resources to guide your next steps.   🏠And if you’re ready to buy or sell your home, connect with a RamseyTrusted® real estate agent. They’re experts who’ll help you confidently navigate homeownership the way we teach.     Listen to more from Ramsey Network 🎙️ The Ramsey Show   🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership 💸 The Ramsey Show Highlights   Learn more about your ad choices.  https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

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 homeownership with confidence. Oak is with us. Oak is in Charlotte, North Carolina. Hi, Oak, what's up? Hi, can hear me? Absolutely.

How can we help? Two years ago, 2022, I kind of jumped the gun a little too early, getting a house. I saw how fast prices were rising and I got a little scared that they weren't going to stagnate. And I bought a four-bedroom house with the intention of doing house hacking, which has been going pretty well so far. I've no complaints. It's been pretty simple.

So you filled out with roommates? Yes. Okay. But my issue now is I'm having regrets because had I stayed with my parents an extra two years, I could have put down double, maybe 50% on a one-bedroom, two-bedroom house, and worked on aggressively paying that off instead of having a large house that is reliance on tenants. I was wondering, do you think it would be best to continue as I'm doing now, or just cut my losses, sell it and try it.

Why is there a loss? It should have gone up in value in Charlotte, North Carolina. It has, yes. I cut my losses is incorrect. You mean emotionally cut your losses? Yes. Okay, but financially you would sell the house and make money, would you not? I would, yes.

So what's the house worth today? About $5,000,000, $20,000. Okay. What do you make? $100,000 a year. How old are you? 26. Okay.

And what do you owe on it? $370,000. Okay. So you would make $100,000. or more net of the sale. Well, if you sold it, right? Yes. Kind of sounds like 50% down on a one or a two bedroom.

Okay, so what I meant is should I sell now and get a new mortgage on a smaller property or stay here and keep saving up to try and pay cash for my next house? I don't care. Does it matter? Either one will get you there. All right. As long as you're not having trouble with roommates and you're not. not having trouble collecting rent and that kind of stuff.

I'm with you. I would not have signed up for the trip you've taken, but now that you're in that vehicle, I don't know that I'm going to force it to jump ship unless you just hate it. Do you hate it? No, I don't hate it. Okay. It sounds like you're real pissed off it a couple of years ago, Oak.

Less pissed off and more I realized I made it. a rush decision. Okay. And I would say, instead of walking around regretting it, just your 26, man, you're not even in the same ballpark with stupid money decisions that I've made over the years. You've got a long way to go, man. If that's your last one that you made at 26, you win. And so I would say you learn something at 25 or 24 years old. Good on you.

And it's made you 100 grand. I wish I had more of those errors in my life that made me $100,000. Yeah. So stop regretting it, man. It just is a different choice. You know in the future I'm going to make a different decision. And you sound like a smart guy. I just don't want you beating up my friend Oak anymore.

Oak, are you making enough on the rental of the bedrooms to pay the current payment without you putting in any money? No, 300 less than the mortgage. Okay. So you have 300 out of pocket. and so if you sold this and put 100 down on a 250, you'd be out of pocket more to live there, right? But you'd have no roommates. Yes.

No risk and no hassle. Yeah. Yes. All right. What are you making again? You said you make 100? Yep. How quick can you, you don't have any house cost much.

How quick can you save another 100? I'm not sure. I've kind of taken life a little too casually and I realize I kind of have a spending problem a shopping addiction so it depends on how quickly I can get that down. Well, I agree with that. I kind of been using the income from tenants

to supplement my lifestyle kind of. Oh, so instead of paying down the mortgage, you're taking what house payment you don't have and you're just blown it on nonsense? No, not all. It's just saving money, yeah. Not all of it, just kind of offsetting it a little bit. Okay, you're 26.

Did you learn a lesson? Yeah. Okay. Let's be done with that. And again, congratulations. Yeah, I'll just lay down what you want to do and say, I need 100K to go with 100K from the house. That's 200. And how quick can I do that making 100?

It sounds to me like a year and a half to two years if you're very careful. Yeah. And if you have a true addiction, if you are over your head. And they just spending. Yeah, but call somebody. But I think you're to spend it. I think you're having fun as a 25-year-old like most of us did. It's casual.

That's what he said. Like casual. You're just casual. You know, it's time to get, what you need is a goal that lifts you and causes you to be a better version of you. That's right. And so something to aim at. And if this house move is something to aim at, you say, okay, I'm going to do this

for two more years and I'm going to 18 more months and I'm going to save $125,000. And so I need to save extra $125,000. number of dollars a month. And until I've done that, I'm not having any fun. And until I've done that, there's not going to need anything casual about me. I'm going to go after it. And that's, you know, you got to lay yourself into a plan. And then that'll keep you moving in the right direction. All right, guys, if you want to give us a call, you still have time. George and I will chop it up with you. That's what we're going to do with Eric, who's in Milwaukee, Wisconsin. What's going on, Eric? So my wife and I are considering to purchase my dream kind of owning a lakehouse.

And it feels like our income is good enough to do it, but our net worth is maybe not there quite yet. I just wanted to get your guys with thoughts. Yeah. Lay it out for us. Yeah. So our income is about $625,000 per year household income. Woo, love it. And our net worth is about $1.4 million now.

About $750 that is in stock. $2.25 is retirement. $250 is kind of in high-yield savings. and then we own some land where we potentially build this lake house that's worth 175. Well done. So lakehouse is worth 175. Did I hear you say $250 and just like liquid savings? The land is worth $1.75 where we might build this lake house.

And then yeah, $250 and liquid savings, some high-yield savings accounts and kind of different bond. And what about your house? Did I miss this? We rent, so we rent an apartment and that costs about $3,500 per month. Okay. That's all. Well done. That's awesome.

Holy moly. How old are you guys crushing it? We're 34 and 33. What do you do for a living? Because everyone's wondering how you make $625,000 a year. Both in technology jobs. So we're kind of riding that wave, at least until AI takes our jobs. There we go.

That's the spirit. I feel like you guys built AI. If you're making that kind of money in tech, you're behind it. Yeah. Unfortunately, we're just consumers of it all. So the goal is for the Lakehouse to be your primary residence? No, it would be a secondary. So we'd still keep the apartment and then have that as a secondary kind of seasonal.

Use only. So it's like it really wouldn't save us money. And we still might buy a primary home in the next few years, too, although no immediate need there. So this is kind of like a, it's a very expensive. It's an expensive toy. It wouldn't, yeah, exactly. But you guys are, you're debt free. Yep.

With an emergency fund, you have all this money in the bank. And what's it going to cost to build the lakehouse? We think about 400. Okay. So all in, you're talking land plus this lakehouse is 575? Yep. Yeah. something like that.

I think for a couple making $625, that's very reasonable. This is a green light all the way around. How much are you trying to put down? We paid in cash. All in cash. Okay. So is the plan to, tell me more about that plan long term. Is it you're taking from this $250,000?

Tell me what the plan is in your mind. Yeah, we would liquidate most of that $250,000. You know, just keep, you know, six months, you know, emerging cents there. and then, yeah, sell some of the stocks as well. Yeah, these stocks are just like company stocks and a general investing account? Yeah, just ETF and mutual funds primarily. Okay, none of those are retirement.

No, the retirement is separate. We have probably about $2.25 in retirement. Right. And you guys, here's the thing with the net worth side. You have plenty of time to catch up on the wealth building side. I mean, you could save up a million bucks in two years. If you're completely debt-free making $625, it wouldn't take much if you don't increase your lifestyle by a ton

to just save up a million bucks and retire early. So I'm less concerned on the wealth side and the net worth side. You guys have done such a great job managing this money, not inflating your lifestyle, paying cash for things, still being very reasonable for the amazing income you have. So yeah, I like the idea of having a primary home. I don't want you guys renting long term. And so I might get a primary home first paid for, then do the lakehouse, but I don't think the order matters much because you're going to do it all so fast.

Yeah, I agree. I love this. I think you have a great plan. I think you guys have been really smart. and it shows. And so kudos to you. Very good. Thank you for the call.

$625,000. Riding that wave. Debt free, which means it's not all going out to payments every month. That's right. Wow. Killing it. Killing it. We got to go into tech, Jade.

What are we doing here? I know. Well, we need to help these. I'm not that smart. That's why I'm. That's a lie, George.