Real Estate the Ramsey Way - What's The Best Way To Invest In Real Estate Today?

Episode Date: October 14, 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. Christina joins us in Phoenix, Arizona. Christina, welcome to The Ramsey Show. Thank you. Thanks for taking my call. Absolutely. Okay, so my question is, my husband and I are looking by our first home, and we see a lot of these awesome. and foreclosure homes. And we were wondering if you recommend buying them as well as it looks like option. You might have to have 100% cash, which we do not.

But just wondering kind of information on auction and foreclosure and if you guys recommend one or the other or kind of the details of it. Yeah, I mean, they can definitely be great options. And usually for people, if you're doing investment real estate, this is a great option to go down because you just get the best deal on the front end. right? You kind of get built in equity automatically. But there are some parameters. I'm not an expert on this. I wish my husband was here because he does this a lot and knows

the ends and now. It's probably more than I do. But I do know you want to look in and make sure you have title insurance. Like you want to make sure there's, you know, that the deeds are clean, titles are clean. Like there's definitely some hoops to jump through to make sure that it's a good deal for you. And like you said, sometimes the, you know, the person that bids and wins does have a lot of the cash up front. I know that is, that's an advantage there. But yeah, what do you think, George? Is it required?

Like, it doesn't, it's not always required? I haven't heard that it's always required. I think you can get it on a conventional, you know, 15-year fixed. What I would look into is doing your due diligence to see exactly what happened here and what the condition of it is. You need to be extra cautious to make sure that you're not buying sort of a lemon, where you're going, oh, we thought it was going to be 20 grand to do the improvements. It's going to be 100.

Yeah, because for some people, as they're getting the auction, they'll just say sight unseen or, like, no inspection required, right, just to get their, you know, they're up on it, if you will. And I wouldn't want that for you when it comes to your primary home. Yeah, yeah, yeah, yeah. I'm like, if you had a ton of money and you're like, yeah, if it's bad and we could fix everything with cash, that's one thing. But I wouldn't recommend that unless you just have a ton of cash. And the process can be slower. So here's my advice. I would choose your home based on the home that's right for you that you can afford.

And if it happened to be a foreclosure, that's okay. But I wouldn't just seek out auction foreclosures because you're in a tight place financially. I want you to move from a place of strength. Yeah. Okay. That's great advice. Yeah. Absolutely.

Thanks, Christina. Yeah. Thank you so much for the call. And yeah, but those that are looking to invest in real estate for a lot of, and I know for Dave even, a lot of what he bought early on and even with my husband once in helping him and stuff. I mean, it was a lot of going to the courthouse steps. and doing real estate auctions just to get a good deal on the front end because if you have the margin financially to be able, whether it is to go fix it and all of it, it is a great deal.

But to your point, especially your primary home, you don't want a lot of hiccups. And there's a cleaner way, faster way to do it, to buy a home. But with a foreclosure, if you can get it at, you know, 80% of the appraised value minus the cost of repairs, we generally see that as a good, quote, deal. And you do, you know, Dave said you make your money on the deal. That's right. That's when you get it. Yeah, for sure. Not with all your fancy renovations that you go to resell.

And so as you even do renovations, if you are investing to resell, you want to think about what's actually going to increase the value when you go to resell. And a lot of times it's cosmetic stuff. It doesn't, it's not the super expensive behind the scene stuff. They just want a nice looking backslash. Yep, that's all they want. So don't go all out. But Christina, make sure to check out our real estate ELPs there in the Phoenix area. We have some great ones out there.

And they can really help walk with you through that process because then having an expert with you. through it is tremendous. So make sure to check out one of our real estate Yelps. It's a good call. Ramsey Solutions.com is the place to go. Jordan is in Columbia, Missouri. Hi, Jordan. How are you?

I'm good, Dave. How are you? Better than I deserve. What's up? Yeah, so my burning question is that I'm getting married here shortly. I've got a good chunk of cash saved up. We're looking at getting into the real estate market, but we'd like to know before we start having kids

what the lowest risk method is for what we have in front of us. You're talking about your home or a rental property? Rental building spec and sell. It's a toss-up in the air. I'd really like to know kind of what the best... But you own a home that you live in. We're actually currently building a house that we're about to start living in. Oh, okay.

Good. Okay. And is it paid for? We're going to have about a $40,000 note the rest we paid in cash. Good. Okay. First thing I'm going to do is pay that off. Okay. Okay. Now then when I've done that, then what type of real estate? Now, there's real estate investing, which is a buy and keep it idea, and then there's real estate speculation, which is why they call them spec homes. If you're building a spec home, it's a speculation that you can sell it. It's a short-term play. It's not a long-term play. It is speculation. Flipping houses. is speculation. And both are high risk because obviously if you pay cash for them, it's not as much risk. But if you pay cash for a house, fix it up and flip it. If it doesn't flip, at least you're sitting there with a paid-for house, right? You'll figure it out. You could rent it or do something

else. But you need to separate the mentality of what is the lowest risk. The lowest risk is a buy-and-hold strategy because real estate goes up over time. When you have to sell that spec house or your money, sitting there burning taxes, property taxes, it's burning insurance, even if you don't have a note on it, is sitting there burning money until you sell it, whether it's a flip or an actual build of a spec house. But that's speculating is short term, investing is long term. Now, when you go to investing, probably the entry point would be a good home, single family home in a solid neighborhood, Not super expensive, but also not trashy. Okay.

That's the lowest risk. Okay. Okay. Can I ask you this as well? Sure. So where we live, there is a lot of inflating house prices, if you must. So there's not a whole lot in the market below the $250,000 range, probably within a 15 to 30 mile radius.

And so with that, I actually worked for a building. And so one of the initiatives that they've talked about, but I'd really like to do, is maybe build a, you know, a cheap speculation home to sell to a lower income family simply because I have the high confidence of it would sell quickly just because there's nothing really in the market for it. What's your thoughts? That's just, you know, it's just a side hustle. That's not an investment. Okay. It's just your side hustle is you're building houses that you flip. Okay.

Gotcha. And that's not bad. if you're paying cash for it. And if you've analyzed and said, okay, what are all the downsides? So what happens, and you've got to be able to answer this question and not throw up, what happens if his house doesn't sell for a year after you finish it? Spend a lot of money. Okay.

I'm just saying you got to be ready for that because I don't know. I don't know what's going to happen. I mean, I think you probably do know the market. You're probably right. In most markets in America, if you build something less than the median, house price in the area, you have a very marketable property because entry-level properties are just non-existent. They're very hard to find.

And so any, just about whatever the median price is, and you said in your area, it sounds like it's $2.250 then there. So if you build something in that $150 range that's a nice little home, man, it'll probably go fast. Yeah. Yeah. Yeah. I walk through one that's about, let me think how far.

It's probably 80 miles or something like that. that outside of Nashville. So it's out in the country. Okay. Down there, one of my lakehouse, there's a guy building a house on the corner up there, and I walked it one day, and he was in there, and I walked it with him. I was like, wow, this is a nice little, it's a 1750 foot, little three-bedroom, okay, three-bedroom, a bath and a half, two-car garage, and not super fancy, but it was, it was well-built, nice little brick out, a little brick and siding house, right? And it was 188 grand. It was unbelievable. I thought, wow.

Wow, this is like all these people are here. You're a cab by it? Well, yeah, you can't. But, I mean, it's out there. It's out in the country. You know, it's not. And where you are, you're probably in a similar feel. You know, in the Columbia.

Columbia is not a huge town. And, you know, there's a whole bunch of Columbia-esque-sized towns around you. But you've got to get all the way to St. Louis or Kansas City or even Jeff City before you get to a major town, right? Right. And so you got a lot of rule rings around you. you will, that could fall like that little house I'm talking about. But that was a sweet little house. And not a bad, I mean, I'm thinking a young couple coming in there or somebody wanting to downsize.

It's brand new, everything, of course, dishwashers and all that stuff. And it's like, God, man, I could live there easy when we first got married and called that a palace, you know. But again, it was, it's freaking hour and a half or more to Nashville. So, and in this area, that's considered a crazy commute. So, but my point is that if you get below that median house price, and that house sold, I mean,

before he broke ground on it, probably. I mean, he sold that thing so fast. But that, that's a, it's a, that's a great place in the marketplace.

So I think what you're talking about makes sense, is my point, but I'm not an expert on your particular market. But the, but that's a, that's a good place to be. If you told me you wanted to build million-dollar houses in a $250 market as spec, I'd tell you don't do it because you're going to get end up with a million dollars sitting there. But that's not what you're talking about.

Do you have a temperature for him, whether it be renovate something or build something brand new? He's in the home building business. He's got the edge. He's going to build. He's going to do it. I think you're right. I would tell most people not to do it, but he's in the business. I agree.

And to your point, at that price range, I would imagine they're going to have a lot of people trying to get in that house. if he builds it at the right price. Oh, yeah. Yeah. I mean, there'll be a line around the block, I suspect. So that's, again, the point is this, it's not really starter housing, but it's, you know, anything below the median price point. Yeah.

The median meaning middle, okay, the middle of your market. The median house price nationally right now, I think is about, it's bumping up close to 400. And so forever, what's the saying? It says 394. Oh, there we go. Almost like I knew what I was talking about. Yeah. Okay.

That's impressive. Yeah. Okay. So let's call it 400. Yeah. Oh, that was the listing price. The median sold price was 288 in Columbia. Oh, no, that's Columbia.

Columbia, Missouri. Oh, I was talking about national. Oh, sorry, I was pulling up his area. Nationally would be over 400. Okay. I'm probably wrong. Sorry, I went to Columbia. That's okay.

Good place to go.