Real Estate the Ramsey Way - Should We Buy A House With A Rent-To-Own Agreement?

Episode Date: October 28, 2024

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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. Chelsea's with us in Baltimore. Hi, Chelsea. How are you? Hey, I'm good. How are you?

Better than I deserve. How can I help? Yeah, so my question is, should me and my husband do rent-to-own on my in-law? house while they live there. No. While they live there? Yes. Why would you rent someone else's house while they live there?

Well, we would be in the top half of the house and they would be in the bottom half of the house. Oh. It'd basically be like, you know, we each have our own separate. Yeah. No. Don't do that. What is the benefit here? Are they cutting you a crazy deal?

Basically, it's a family property, and, you know, me and my husband would like to purchase it from them at some point. What does family property mean? The property was given to them by his grandfather, and it was meant to be for us or for him. So will it go to you guys? Will it be inherited by your husband? So they are also in a little bit of a sticky situation with some other debt and stuff too, so I don't know if that would end up coming to us or not. They're in a sticky situation with what? With some other debt.

Oh, other debt. Okay. Yeah. All right. So is this property an unusual property? And is it like a bunch of acreage or? I mean, it's a house they built, and it's, I mean, it's 17 acres. And like I said, it's in the area, the family all is in.

Okay, here's your problem. All right. You guys are trying to do 73 different things at one time, and it's not going to work. And here's what's happening, all right? The parents-in-law have been irresponsible, gotten themselves in debt, and they need the income that you would be giving them to rent. And so you're doing it to do them a favor. You're also trying to honor grandfather's idea that your husband would end up with the property,

and yet you've still got to turn around and buy the property instead of just end up with it. That wasn't grandfather's idea. He left it to his son. He didn't make him buy it. Now, his son is trying to not do that with his own son. Am I missing something? No. Yeah.

So we're trying to honor grandfather. We're trying to help your parents. You're trying to help the in-laws who have been irresponsible by paying them rent. And you're going to be in a miserable living situation, all to try to keep everybody happy but you and your husband. No. Don't go do this. I mean, it is really important to us, too, and if we can help kind of help them out now,

I guess their goal is that they can sell the house to a reduced price. Yeah. So what is the property worth? We've a lot of, the numbers have been thrown out is like around $500,000. Okay. Let's just pretend it's worth $500,000 for a minute. What do you and your husband make? I think he's going to be making about $90,000 this year.

and then I'll probably be making about 45. Okay. So you have $135,000 household income. You can afford a half a million dollar house. Just buy the house. So we actually just talked to a lender, and they said it could be a growth for about $400,000. Okay.

How much money do you guys have saved? That's the other thing. So we don't have, because we just got married like a year ago. So we all have... How old are you, too? He's 21 and I'm 22. the weak cannot help the weak only the strong can help the strong you are too weak to help them you are not in a good you're not in a good enough financial listen you do whatever you want to do

you called and asked my opinion my opinion is i would run from this like my hair was on fire because these people are irresponsible they're going to end up with judgment liens on this house and they're going to be unable to give you the house or transfer it to you because they're not going to pay their bills and they're going to get their butts sued because they're going to continue in their pattern of irresponsibility. And you sweet little 21-year-olds are trying to help these grown adults who are doing a piss poor job of running their lives and they're going to screw over their own kids accidentally in the process. Please run from this. Please. So here's an alternative. You guys go rent somewhere on your own while building your own financial foundation.

Go have a life. And if one day you inherit this thing, that's great. Or later on if you want to help them fine. But you're not multimillionaires and you're 21 years old. You've been married 10 seconds and you're not in a position to go help these grownups who have been irresponsible. You're not strong enough. Quit doing this. And you're going to end up in the basement of people paying them rent. They're going to screw you over accidentally because they don't know what the crap they're doing. They can't find their butt with both hands. And they're going to cause you guys to drag, be drug down with them. Please don't do this. Please. They don't mean. to, but they're screw-ups.

And they're doing this to their own kids. It aggravates the crud out of me. People don't screw over your own kids with your irresponsibility. Don't do it. And please don't do this. They're going to end up with this property clouded on the title with something because of the way they're acting, and then you're not going to be able to get the property that you signed up that you thought you were getting in a rent-to-own crappy deal.

Please, just go rent you something and let these grown-ups muddle through their mess. and maybe the property will come out the other side of it. Maybe it won't. You're not in a position to buy it. If you call me up and you were 32 and you had $3,000 or $40,000 or $50,000 bucks laying around and you wanted to put a down payment and go buy the house, we can talk about that. But you're not in that position.

You're not in a strong enough position to be of help to them. And you're going to go do it anyway, even though I'm going to tell you a thousand times not to do it. I can tell. There's no stopping you. you'll be a caller on the show again. Natalie's in Los Angeles. Hi, Natalie. How are you?

Hi, thank you for taking my call today. Sure, what's up? My question is, my husband and I have been saving for a house for almost six years. Our plan we thought would be three to five years, but then COVID happened and everything is inflation, and we still aren't in a position where we can afford a house. and so my question is we have money saved and I'm not sure what we should do with it because it's just sitting in the bank. How much do you have saved? We have about 90,000 and my goal is by the end of the summer we'll have 100.

That's awesome. So can you just drop it in a high-yield savings account, like one of those online ones? I mean, the rates are pretty decent right now. So how long would you suggest? I guess you just... The high-yield savings accounts don't have a time on them. Uh-uh. You can just drop it in there and kind of set it, just forget about it.

And when you're ready to use that money, you can pull it out. There's no stipulation on pulling the money out. Oh, okay. I'm a little curious. What's your household income? So we have, like, a very unique situation. We live in L.A. County. My husband is a school teacher.

We live just on his income, but we don't pay any housing expenses. We manage a property, so I'm a property manager. What's his household? What's your household income? Yeah, so it's 57 a month after taxes and health insurance. Okay, so you're making $80,000 a year, and you've saved about $20,000 a year for five years, right? Mm-hmm. Okay. Yeah.

How much house are you trying to get when the time comes? I mean, at this point, it's like I'm not very picky, like whatever we can get. Well, that's – you've got to be a little bit more specific than that. We're talking about prices and money. So what do you think you're going to spend? I'm not quite sure. we've kind of said maybe we'll leave the state, but we just haven't made that decision yet. You live in one of the most expensive real estate counties in the world.

Yeah. And you make, you know, $75,000, $80,000 a year. And so that's what you've got to consider. I mean, L.A., San Jose, San Francisco, right? New York City, London, Tokyo. these are super expensive markets. San Diego not far behind, right? And so, you know, not telling you to move, but, you know, you may reach a point that

what you get paid, you can't afford to live there. I mean, you can't, here's an example, okay? You can't make $50,000 a year and live in Manhattan and own your home, own your real estate, okay? It's not mathematically possible. So there are some things that you say, I can't afford. to live there and have the house and have a house and have the dream that I want to do. And you're probably pretty close on this one.

Listen, my sister-in-law was a teacher living in Los Angeles and they decided that they moved to, first they moved to North Carolina and then they moved to North Florida because that's how they were going to afford the house. But I do think that if you take some time and you guys do some research, look at different areas, look at different cities and states and really create a clear picture for what you want because I think that you could easily, I don't feel like there's a clear target. So you're not really aiming at anything clear. It's just homeownership. But if you make a clearer target, I think that you'll be more excited about saving that money and you'll be more intentional about

actually getting to the goal. Well, that's exactly true. That's very true. And you can start to make a decision about career path and, you know, where do we want, what part of, I mean, maybe, I don't know if a teacher that works in L.A. County has to technically live in L.A. County. That's true. How much of a commute can we stand, in other words, because L.A. is not unlike most other cities that the further you get out of town in most directions, the cheaper the real estate. It's not unusual. It's basic ring theory of urban growth. And so, you know, drop a pebble in the center.

And as you go, every ring you go out, other than you hit a lake or you hit a mountain where the prices go up, other than you hit a particular neighborhood that is, known for its prestige. But other than those things, as you go out the rings, generally speaking, for most of you listening, the further out in the country you get, the cheaper the property. I mean, it's a pretty simple concept. And I think most of us walking around know that. So you've got to decide that. And then the other thing you decide is, do we want to live or can we make, make the money we make in L.A. County. And if we can't, then you'll be one of those California refugees who ends up in another state. Thank you.