Real Estate the Ramsey Way - This Is Why You Shouldn’t Wait for Rates To Go Down

Episode Date: September 9, 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. Josh is in Tampa. Hey, Josh, how are you? Hey, I'm doing well, Dave. How are you? Better than I deserve. What's up? Hey, so kind of a weird situation, needs to get some advice from you guys.

So here's the gist of it. My wife and I are currently in the process of looking to buy our first home. We are debt-free and have always been a big, big fan, big believer of just doing things debt-free. And we are actually in the position to pay the house entirely with cash without house poor. Awesome. Yeah. So we are super nervous, excited. it's as most people can know it's a huge purchase.

But we're getting some pushback from friends and family, mainly because one of the main arguments is that that can be put into investment more in the market instead of just buying a house the normal way and doing a mortgage. So what they're saying is if you had a paid-for house, what these people are saying is if you had a paid-for house, you should go borrow on it and put the money in mutual funds. Yeah. Okay.

Well, let me help you with this. We did the largest study of millionaires ever done in North America. Detailed airtight research. The conclusions we came to in that study have been so thoroughly vetted and the research methodology was so tight that if you don't agree with the conclusions of that study, you're what's known as wrong. Because this is data, it's facts. Okay?

We studied 10,167 millionaires. The vast majority of the people that had a one to a $5 million net worth were like 85, 88% of them were composed of a healthily funded 401k plan that ends up with, you know, 7,800,000 bucks in it, and a paid off home of 7 or 800,000 or 800,000 bucks. So that's a million, 5, million, 6 net worth. the number of millionaires that we interviewed out of the 10,167, that used your broke family and friends idea, they're broke people, by the way. I know this because of their theory they're using makes them broke, okay? The number of millionaires that we interviewed that said we became a millionaire by taking our paid-for house and borrowing on it and putting the money in mutual funds.

the number of millionaires that said that out of 10,000 was precisely zero. None of them became millionaires doing what your, I'll be nice, ill-informed, ignorant friends and family are saying. That was nice. That was like a Hallmark card. Yeah, that was not. It was just so sweet because I wanted to call them all kinds of names. But I'll just call their ideas stupid and inaccurate. And they're trying to influence you.

So these people don't get a vote. whoever they are, just go ahead and write their name down in the column of don't get a vote on money because they don't know what they're doing. They don't. There's no one. We couldn't find a one out of 10,000, Josh, that did what your people are telling you to do. That's how dumb the idea is. It wasn't like it was only 70% of them and 30% did your friend's plan.

No, no. None of them. Not one. That's how dumb the ideas. It's like the number of them that became millionaires with their airline miles was precisely zero. The number of them that thought that leasing a car was a great idea. There was actually a couple of those. There was more of those than your idea, which is also a stupid idea, by the way. But there's probably 15 or 20 out of 10. thousand that thought leasing a car was a good idea. But most of, this is the kind of stuff we discovered. So the, what the suggestion is so asinine that it's preposterous. Does that help you at all? Yeah. No, it does. We're just, we've literally looked at or heard your show for a while, and it's one of those things of we always have gotten excited when people say, hey, we've gotten out of debt, we've never been there. We've paid off our mortgage. We've never been there. So as we're walking through this, we just want to make sure that we're making wise decisions and that. Okay, here's the thing. Go pay cash for your house and if you hate it, then you can get a mortgage.

Sounds good. Try that one. I mean, you know, but I've never had anybody goes, you know, I really hate being debt free. People get pissed at me about a lot of stuff, but none of them are pissed at me about paying off their house. None of them. I mean, it's just, you know. I get. I like that you gave him the option to get the mortgage. after he paid the house off. That's great. That's kind of a, hey, give it a shot. Scratch and sniff. You know, if, you know, if you lose 30 pounds and you hate it, you can get fat again. It's not hard. It is true. Getting fat's easier than losing the weight.

Isn't that true? It's so true. I mean, it's not, if you hate it, you know, if you cut up all your credit cards and you get out of debt and you hate it, just wait about 10 seconds. and there'll be 14 credit cards in your mailbox. You don't have to worry. They'll send them right back to you. It's not like you broke up with them and they're mad. They'll come back for more and they'll up your everything. Oh, God.

Yeah, I mean, try it. Try something different, folks. And listen, you've got to, listen, if broke people are making fun of your financial plan, it's always a good sign. If fat people are making fun of your health and fitness plan, that's a good sign. It's a good sign.

If people that have been married six times don't like the way that you treat your husband or your wife because you're nice to them. And, you know, it's a good sign. Yeah. If their kids are hoodlums and they're making fun of how strict you are, you might be doing something right. It's a good sign. It's a good sign. You mean you don't allow your children? That's right.

I don't. Nor my grandchildren, nor my dog. So, Dave, for the new people who are slightly cynical, where does the third? theory come from from the people that you just dismantled it. But I think it'd be fun for you to explain. Well, if you borrow the money, you borrow the money at prevailing interest rates 6%, okay? That's right. And you put it in a good mutual fund at 11%. People think you're making a 5% spread. Well, you're not. You're not. You're not. Because you've got to pay taxes on your gains. And so if you make 11% on your money, you know, you've got to pay taxes on that 11%. And so

your spread is reduced by the taxes on 11%, which in a 30% tax bracket, would be about three points. So your five is now two. Okay? And so you're doing all this crap for 2% spread net of taxes. It's very tax inefficient to start with. And if you did all that and you net it of taxes, then you have not adjusted for risk

because 100% of the foreclosures occur on a home of the mortgage. And you've not mathematically adjusted for risk. When you adjust for taxes and risk, you don't even make money in this theory. But the naive formula is, oh, I'm making 11 or 12. and I've only paid six. I'm making the spread. No, you're not.

You're just naive. You just don't know how this crap works. That's all it is. This is pretty interesting. One of our marketing guys pulled this up. Did a little statistical analysis, Ken. If in 1973, interest rates for homes were 8.04%.

Okay. 1973. If you said in 1973, I'm going to wait for interest rates to come down before I buy, it would have been 20 years that you waited until 1993 when they dropped to 7.3. That's a word to the wise, for those of you saying, I'm not going to buy a house right now because of interest rates. You bought, you marry the house, you date the rate, by the house, and when the rates go down, if your little theory that rates are going to go down is right, which I don't think it is, probably, but if they did go down, then refinance. But, you know, about the only thing we can't be sure of is interest rates.

We can be pretty, based on history anyway. The thing we can be sure of is that house prices are going to go up. that's history that'll help you wow so let me hit you with this Dave real time this is three hour old article 30 year average mortgage this is 30 year 6.28 let me see if they got 15 year 5.32 right now okay so that's pretty good I'd move on that wouldn't you well the thing is even if it goes down right we're just refinance that's exactly right just refinance but if you if you're saying I'm going to wait for go down to buy a house, you might be saying, based on that example, I'm going to wait 20 years. And guess what the house prices are going to do during that 20 years? Hello.