Real Estate the Ramsey Way - This Is Why Rental Properties Aren’t Truly “Passive” Investments

Episode Date: July 21, 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. Catherine is in Augusta, Georgia. Hi, Catherine. How are you? Good. How are you?

Better than I deserve. What's up? I was calling in. We currently own two homes. The first was our first home that we bought. And we recently bought a new home for us and turned our previous home into a rental in hopes to keep it for, you know, investment purposes and building equity. And my question is, we've had a really bad first runner experience, and it's kind of turned us off of the investment property. and we're not sure if we should keep the property for long-term purposes

or if it would be best to sell it. Okay. What do you owe on it? I owe 131. What's it worth? It would probably sell no higher than $190 right now. Okay. All right.

So a good way to analyze some of these decisions is to say, I have $60,000 cash sitting in a pile on my kitchen table, and I don't own this house, would I go buy this house today with 60,000 down and take out 130 mortgage? It's not a hypothetical. Today, if you did not own this house and you had $60,000, which is what you're going to have when you sell it, right? Yeah. If you had that stacked in cash on their kitchen table and you said, okay, what are we going to do with our $60,000? One thing is we could go buy a rental property with $60,000 down the $130,000 mortgage.

in the neighborhood where we used to live. Would you do that if you didn't own this? No. Why? Because of the rental experience? Well, partially, but also it needs some work on the home, and it's not in the best area of town. Oh, okay.

All right. So this is good. This is very good. Yeah, there's a couple aspects about it that, you know, I probably wouldn't buy it again. Probably kept you from attracting a high-quality tenant, too. Yes. Now that, yes.

Yeah, because it needs some work and it's in a less than desirable neighborhood. Yes. Yeah, okay. That's a good analysis. I like that. It sounds like you know what you want to do and what you should do. Yeah. So really what we're saying is the bad tenant really isn't making the decision here.

What's really making the decision is that, if we were going to buy rental property, it wouldn't be there. So we ended up with this property by default, not by strategy. By default, I mean, you already owned it, so you just kept it. So you backed into it rather than intentionally entered into it. Does that make sense? Yes. And we do that a lot.

All of us do that. And so what we just walked you through is called a sunk cost analysis, and that you can do that with anything that you own. You can do it with a boat that's sitting in the garage. you know, you know, it's worth $12,000, okay? If I had $12,000 in the middle of the table, would I go buy a boat? Yeah, we love this boat. We go out fishing every weekend, yeah.

Okay, then you keep the boat, right? Or heck no, we didn't use the thing in four summers. Why you take it up the garage with it then? You know, selling, put the $12,000 in your pocket. It's the same kind of thing. You just do a reverse engineer out of where you are and say, would I do this again if I hadn't already done it? And it helps you to clarify, because you were instantly started giving me really

logical good reasons. And so, yeah, you need to sell this house. Okay. Yeah, and I guess on top of that, you know, we don't have a huge margin of, like, extra funds. Right now the renter is essentially squatting. So that's another reason is, you know, we don't even have really extra funds when no one's paying and we have to evict them. Yeah, you need to get an attorney and you need to get really, really aggressive and get them out of there. They're a thief.

Yes. A renter this squatting is a thief. throw them out. Get after it. Thank you. Yeah. And then clean it up and sell it. No more than you would put up with somebody stealing stuff out of your garage, do you let them sit in that house?

Yes. That's a thief. We are doing everything we can to get them out right now. Get a lawyer that's so mean you don't even like them. And turn them loose off their chain and go bite them. Get them. Yeah. Yeah, that's what you do.

That's how you handle that. Real aggressive. And because. Okay. because that's the only language that people that are thieves understand. So you have to deal, because you can't treat them like you'd treat like normal people, because these aren't normal people. These are thieves.

So, yeah, so, yeah, you guys need to sell the house because it's in a bad, it's in a less than desirable neighborhood, and it needs work, and you don't want to do those things. And you're not thrilled with being a landlord, but that's really number three. It's not number one. Yeah. even a new tenant who's decent doesn't solve these other problems. Yes. Okay.

Sell it. That's what I would do. So commentary for those of you, because real estate, everybody likes the idea, not everybody, but a lot of people. Are intrigued by the idea. A lot of people want to be real estate people. I want to be a real estate investor. I want to be a real estate investor. So let me just tell you, 100% of the time that you have a problem with a tenant and you're the landlord, it's your fault.

Not the tenants. because you let them in your house. You didn't screen well enough. You didn't ask enough questions. You didn't, whatever. And so it's your fault. You set this up. And so it's like, well, I mean, they're a little crazy.

I didn't know they were crazy. I know, but you should have smelled crazy. That's what you did smell it. You just were desperate to put somebody in there because you're tired of paying payments. You are HR for this house and you made a bad hire. Exactly. It's the same thing. I tell leaders inside Ramsey, we've got 1100 team members here. And if we have a team member that

go sideways, they go, oh, those people, look at those people, they're misbehavior. Look at you. You're the one hired them. You're the one to let them in my building. Come on, man. You know, which door did crazy use? Put a lock on it, right? We don't let them in anymore. This is not hard, y'all. And so it is hard. It's very hard. So once I established that, and I had the huge benefit of in my 20s, I was buying low income property, bad property. And so I was dealing with really tough tenants. And so I learned real quick to be real tough on the front end before I let them in. And then if anything blinked, I was on it immediately. If there was a little bit of a hiccup, you know, the cops were over there last night. They must be doing drugs. Okay, that's a hiccup. We're going to be in there. Okay.

We're going to clean these people out. We don't run crack houses. Okay. So that kind of stuff. we're going to be right on it, right on it, right on it. So I learned to be real tough on the front end and right on the problem real quick. And so then when you're dealing with a high class tenant, then the same thing works, but you don't have to be as rude about it. That's true. But you still go, okay, I'm going to be tough on the front end so I don't have a problem later. I would rather run you off. You get mad about us being too thorough because I want to get paid and I don't want you tear up my house. It's not hard. You got to protect your investment.

It's a freaking drama. If you don't want to do all that stuff, you don't need to be doing real estate. Just leave it in a mutual fund. You can make money with less hassle factor. Virtually no hassle factor compared. You won't make as much, but yeah, don't deal with this unless you want to deal with it. That's why I laugh when people say, oh, it's passive income. Bull crap.

Anything passive at all about owning real estate. 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. One of the ups and downs of the financial world, George, in the past recent years, has been the housing market. Yep. Man, it's been. It's been.

It's been. I should say ups and downs. It's kind of just been up, I guess. It's just been like a stagnant, scummy pond. of just like make something happen. Let's see some movement here. It's so hard. I know.

So an article from USA Today came out and it says, is it finally a buyer's market? What to know about home prices outlook? Here we go. Prices surge during the pandemic, up roughly 50% over the last five years. And mortgage rates hit rock bottom.

Americans reconsidered where they wanted to live during that time. Well, all these gains have had consequences. Homeowners are sitting on record levels of home equity, but it's increasingly challenging for, buyers, especially the first-time home buyers, to break into the market. But now prices, as they say, are falling back to earth and may continue to do so. So this is not a crash, but we're sort of getting back to reality instead of the inflated prices that we've seen. So the Mortgage Bankers Association expects prices to rise only 1.3% in 2025, and Fannie Mae, economists forecast a 4%

price gain. So it's worth noting many analysts have predicted a similar trend in the past, only to see a sharp imbalance between demand and available supply, keeping prices elevated. So I think that's kind of what's been happening is people are now just, they're like, all right, fine, we're ready to list our house. And so the market does have more supply than it used to. Yes, yeah. But there's not quite demand meeting it, which would cause prices to fall. That's right.

Well, Realtor.com, their data shows that in April, there were 959,251 listings that were active, and that is 30% higher than April of last year. So 30% more houses sitting on the market, which again, for buyers out there, that means you actually can negotiate. Because for a while, I know at least in our area, George, people were bidding to buy a house.

Like they were one of 20 people sitting there being like, we all want this house who's going to take the highest offer. And now there is. And you just got to sit back and watch all these offers roll in. And now you're like, well,

someone maybe want to look at our house in the next week? Yeah, that's right. Anyone want to make an offer? So what's happening is, list the house and then a month in you go, all right, we got to lower the price by $10,000, $20,000 until finally you have a buyer. And so it's, they're saying it's too soon to call this a buyer's market and experts like kept caution that the national housing market is in fact increasingly local, which is a great reminder of, well, this happened in my town. Well, your town might be a real

hot area where this is happening. And some towns may not be experiencing this at all. So it's hard to say cross the board. It's a buyer's market. But realtor. Right.com data. Yeah, they're only rising, again, 1.3%. Where in past years it's been 4.3%. Yeah. Realtor.com data is showing that more sellers are making price cuts, which is a signal that we're heading towards a buyer's market.

There you go. Well, if you are looking to buy or sell a home, make sure to check out one of our Ramsey trusted pros because they can help you when it comes to buying and selling because all that's a really big deal. And there's a lot of clickbait headlines out there and confusing data. And so, again, we're seeing, though, it's interesting. The median home prices went up slightly last month to $430,000.

That's the median price of a home. So right in the middle, smallest to largest in the list. In America, that's right. So if you want to know more about the housing market trends and, too, even get connected with an agent and some other free tools around real estate, go to Ramsey Solutions.com slash markets. and we have tons of information there for you. Because again, buying and selling a home,

it's one of the largest purchases or sales that you make in your life. And so making sure that you do that well with a lot of knowledge.