Real Estate the Ramsey Way - Should We Buy A Co-Op?

Episode Date: July 14, 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 homeownership with confidence. Rachel is with us in New York City. Hi, Rachel. How are you? Hi, Dave. Hi, Dave. Thank you for taking my call today, big fan of the show. Sure, thank you. How can we help? So my husband and I, we make a decent income. Our take home is just a little over 9. thousand a month and we're currently on baby steps three B while simultaneously doing baby steps four and five we currently have 34,000 saved towards our down payment but the homes around us are around 900,000 to a million dollars even if we look further out 30 minutes or an hour the homes are still in the

700 to 800,000 dollar price range there's the option to purchase a co-op which is much more affordable but our friends and family advised against it due to strict HOA board rules and us not technically owning the property, but the shares of it. Ideally, we would like to spend no more than $3,000 on the mortgage, property taxes and insurance included, but according to the mortgage calculator on the Ramsey website, we would need to save $500,000 towards a down payment in order to make this happen. My question is, should we go the co-op route and then upgrade to home later down the line, or shall we just continue to save money in a high-hield savings account for the next 15, 20 years or so to pay for a home full in cash? Well, to start with 15 or 20 years, you're extrapolating your existing income with no raises, and that's not realistic. Correct.

So that's a wrong set of assumptions to do the formula. So you're exaggerating that. The co-op in New York's, in Manhattan, is not an unusual way to buy a property at all. anywhere else in America, it would be highly unusual. But there it's normal. The thing that you have to be aware of and that your friends and family or whoever's, you know, bringing up is what the HOA bylaws are and what, you know, what's governing this thing. Because where you can get sideways on a co-op is if it's misgoverned.

And then you've got a real mess on your hands. And you don't get the appreciation then because your HOA fees and stuff. go through the roof because of mismanagement, no pun intended. And if the HOA fees get out of control, the value goes away because nobody wants to buy it. And so what you've got to do is get something in a very predictable environment where, okay, I can look at the HOA fees and I can look at the operations statements for the last five years and I see a very steady environment. And you look and say, okay, the use and the resale and so forth in these bylaws is not so

restrictive that I hate living there, okay? Because some of these places get very militaristic, don't they. Right. That's what you don't. I mean, you don't want to lose the joy of being there, just because everybody's, you know, it's HOA completely on steroids and out of control. So if you can get something where the HOA is reasonably operated in terms of the environment and the lifestyle around it, the human beings dealing with it, and that they've been very steady, it's okay if it increases, because costs have increased, but that the increases are reasonable over the last five years. And in other words, you get all these indications in your due diligence that the operations of the HOA are done properly and efficiently.

Then if you do all that, then a co-op is as good as, as a condo is as good as a fee simple. It's technically in a condominium. You're in a very similar situation somewhere else in America. If you bought a condominium, you know, you're buying into a similar thing to a co-op. It's a little different. But you still got the same issues there. And if you buy into, I'm in a single family in a golfing community that's got all these other expenses associated with the community.

So if they mismanage that thing, they can destroy the value of my freestanding single family because they run the dad-gum cost up and it makes it unappealing to live there for resale. And so that you can run. into that with any time you've got an HOA of any kind involved, but just study that and watch that, and I think you're okay to move into the co-op. Co-op's, again, if you've never done deals in New York City or don't know about deals in New York City, the co-op's a very weird transaction. Yeah, I've never heard of it. Well, it's as prevalent as condominiums in other places.

Okay. In other words, it's not unusual at all there. It's very normal. So, and I personally don't have a problem with the way they're struck. Again, I'm going to look at it, though. If I buy a condominium, I've got a bunch of condos. We own probably 15 condos that are rentals. And one of the things before we bought into those, not only we're looking for a deal because they were investment properties, but we're also looking at how the dead gum things managed.

Are they going to, all these HOA fees are going to make me wish I didn't own it? You know, because they take all my rental profits by the time they, with their screwed up sideways management stuff. 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 trusted real estate agents. These are vetted, hand-picked 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 Ramsey Solutions.com slash trusted agent. Brian is in Louisville, Kentucky. What's up, Brian? How's it going?

What up? Doing good. Hey. So a little background, I've been currently debt-free. My wife and I paid off our house, and we've even gone as far as we've bought our retirement home. Nice. That we're going to stay in Wisconsin. That's paid off.

All our cars are paid off. Yeah. And I hustle a lot. I mean, I have a little side hustles. My wife is a nurse. I'm a mechanic, and I kind of buy and sell. cars on the side to basically fund my hobbies and pay for everything I have. But now I'm kind of stepping up to, I'm trying to get into rental property.

And it's a little scary because I'm not dealing with smaller amounts of money now. And I'm trying to figure out if I need to. I mean, currently I have about $200,000 that I can spend. and my wife's mother just recently passed away, and she got a little inheritance of some stocks that currently is worth about $150,000. And I'm trying to figure out if I need to, what we want to do is buy a couple houses because in our area there are travel nurses, and I can rent each room in the house for $800 dollars rather than renting it out

as just the whole house and I can make more. And I'm trying to figure out if I should leverage a little bit of debt and buy multiple houses or should I just buy what? Well, why not if I'm going for many reasons? But hey, it's

your first time even doing this and you're already spreading, you're already making it tougher because you say, hey, of all the bedrooms I have to list them, I have to rent them to four different tenants versus just one family. That already complicates it. I think that's a great idea, by the way, but it already complicates it. And then why not just, it's like a franchise.

Why not start with the one flagship store, make sure it's doing well, make sure it's in business, making money. Then if that one does well, you open another location and you just go at the speed of success and at the speed of cash, which, by the way, has gotten you where you're at today, Brian. And can I tell you why I think you're nervous? I don't think it's the dollar amount. I think you and your wife are very smart and you're a dealmaker. Like, I think you're good at this. I think you're nervous. Here's what I think.

I think you're nervous because you're really good with cars. And you understand it and you know how they work and you know how to fix them and you know what they're worth. And I don't know that you have that skill set here yet. That's why I think you're nervous because you're getting into what you've said, I'm graduating up as though what you've been doing that has bought you two people. paid for homes and has given you and your wife an amazing life wasn't somehow was less than you get what I'm saying yeah you've done an amazing job dude it's awesome I hear that but a lot of times I also have a sometimes I feel I'm really good with money but then I also times I feel like I'm

I make stupid decisions like I have a I have a hobby that literally like not only do I build cars but I restore classics, and I don't even want to say how much it is, but I spend stupid amounts about it. Yeah, but you don't owe anybody anything. You have two paid for houses, and you can. Yeah, there's a certain amount of margin in your world that you could literally set it on fire and it'd be okay. I went fishing this weekend with my son.

Do you know what I spent? I'm not even going to say it on the air because I'm embarrassed, but I just kept telling my son when we were running out of lures, go get another one. Go get another one because we are having so much fun. But I've budgeted for that, and we can do that. So you don't need to justify that, man. I'm glad that you have a passion that you're so good at and you restore all cars. That's amazing.

That's a blessing, yeah. But here's the thing. Well, one question. Couldn't I miss out, though? Like, I mean, houses are always going up. Couldn't I miss out if I buy, if I don't buy? You could. Let's play that out.

You could. But I want you to talk to a whole bunch of leveraged rental home owners who during COVID, out of nowhere, we're told you don't have to pay your bills. or well see see that's why i actually the the reason i'm getting into this is because when i when i move to my current place um i transferred uh i've always worked on high end cars uh i i was i used to work on Lamborghinis and ferrari's and now i'm work on more luxury lines like bmw's and and and i got a nice offer to move down here and the lady that I rented from,

that's what she does. And she actually introduced me to my wife. She works. She's also a nurse. And that's how I met my wife. And she does this. And that's why I was thinking... But let me throw a wrench in. Here's what you're not hearing. You're not hearing.

It has worked up until now. Everything is... It's called the turkey problem. The turkey thinks the farmer is the greatest person of all time because every day that farmer comes out and feeds it and takes care of it until the day before Thanksgiving. And what you're doing is you've seen somebody who, in a season, this thing has worked. What if in 24 months AI gets good enough that it really kind of shuts down the travel nursing market and just localizes it all?

Okay. And suddenly you've got four houses that the mortgage just keeps coming and you're going to have to sell your Wisconsin house to make the payments on them because you can't rent them out. Will that happen? I hope not, but I don't know. I'm just making something up. But if you own a house outright that you've taken this $350,000 and just bought one, and then suddenly you've got four people renting it out from you at $900 a month, then within a few years, you're going to buy another one with cash.

And then another one with cash. And if anything in the market downturns, you're just out that. Yeah, I think what John is saying is so good. And don't get me wrong. Like COVID, that was kind of an outlier. We don't know if something like that's going to happen again, but the fact that risk does exist all the time. That's what they call it leverage. There's another side of the fulcrum.

All the time. And I also do want to say plenty of people, Brian, probably go out and do what you're doing and they're okay. You know, somehow they make it through and people call here all the time. They've got a couple properties and we don't necessarily tell them to sell them. And they find a way to make it through. But I want to capitalize on what you said earlier, which is, am I missing? missing out. And I think that you need to reframe your brain on what that means. You could say, oh, I'm missing out on, on, you know, money I could be earning on rent. Or you could say,

by buying these in cash, I'm missing out on the stress that everybody else has to think about. I'm missing out on the debt that every, because, and those are things you want to miss out on. You want to miss out on debt. You want to miss out on stress. You want to miss out on the anxiety if somebody doesn't pay. Those are things that they're good to miss out on because plenty of people are doing this and they have to carry all of that because they've done it on debt. For you to be able to do this without that, what a wonderful thing to accomplish. I would say that you're more successful if you can carry less properties but carry them in cash and grow them over time than the person who is sitting there with a portfolio of 10 properties that they carry debt on.