The Ramsey Show - App - Common Sense Real Estate Advice (Hour 1)

Episode Date: August 23, 2018

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Music Music Music Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. This is your show. It's all about you. It's a free call at 888-825-5225. As we reveal to you this mysterious thing called common sense.

It's what we're here for. It's so rare that having common sense today is like having a superpower. So we're glad you're with us. We want to increase your superpowers today. 888-825-5225. James is with us in Los Angeles. Hi, James. How are you? I'm doing good, Dave.

Thanks for taking my call. Sure. What's up? I'm just trying to connect with you, and I'm curious what you would say about our situation. I've heard you talk about it a lot, but I wanted to know if it would make sense to sell my house to pay off the rest of my debt, which is all student loans. Whoa. How much is all student loans. Whoa. How much is your student loan debt? My wife and I combined amongst the three degrees is $91,000.

Okay. And with three degrees, I hope you have a really nice income. What's your household income? Right now, unfortunately, it's combined at $50,000. About two years ago, I left my $100,000 job to start my own business. So I know it wasn't the smartest thing to do, but at the time, it was more of a passion thing and kind of just feeling at my limit. And my business is doing great. It is debt-free and growing, but the income there, I don't know exactly when I can say I'm going to substantially start taking home enough

to put into this $91,000 the way I would need to to have it done in somewhere under three years. Do you like your home? We do. We like it, but our plan is to sell it. And right now I... Your plan is to sell it. Your plan is to sell it. Why? To upgrade more to, like, our, you know, what would be more a little bit sizable for a family. I mean, we would be willing to live in this house if that's what it meant. Living here is pretty expensive. I mean, it's hard to find any houses under $400,000 or $500,000.

Sure. For my house, right now I owe $304,000 on it. And so the hard part is that our mortgage and everything is well over the 25%, being that I left the career that I had initially when buying it. Does your wife work outside the home? Yeah, she works, and she's our staple. So she works full-time at the company. Where does she work? Oh, she works and she's our staple. So she works full-time at the company. Where does she work?

Oh, she works for you? Pretty much. She's the one who makes me be able to grow my business. And then a side note, part of leaving was to take an opportunity to train competitively. I don't know if you've ever heard about the CrossFit Games, but it's a limited thing in life. I'm getting to that point at 29 years old where I only have a few years left to try to enjoy this part and see if I can make it. And so that's part of, like, our situation, which is why we want to attack the debt. And I do regret not taking care of it when I had the income because I've learned how much flexibility can buy you opportunity.

And I didn't take care of the debt the way we should have. Wow. And selling your house, you have $90,000 in equity. Yeah. Okay, so in order to grow your business and be a CrossFit champion, you're going to be a renter. Yeah. Is that what we're saying?

Is that the conclusion yeah and it's one of those things where it's either now or never i mean i can't do this the business i could put on hold but training and and being competitive i think you put enough income on hold for a while buddy um i mean you you got a family to take care of here and you got 90 000 worth of crappy decisions you made before today. So we don't need to be taking on any more hobbies. And another extra, my mother-in-law is gifting us with $35,000 next month, and that we're just asking to go right into my wife's portal and pay all her student loans off.

So that would take the $91,000 down to in the 50s, 55. And I'm curious to see if we should try to fight through that and keep the house. And that's kind of been my thought. I think you fight through it and keep the house, and let's do what it takes to grow your business. and you've got a you know balance your physical fitness hobby with the needs of your family and you know what's primary if you had to list things down what's the most important thing what's the second most important thing was the third most important thing that in your life down the list, CrossFit should not be the top.

I agree. It should be your wife, you know, your walk with God. Those kinds of things should be at the top. Taking care of your family should be at the top. And I'm not saying you shouldn't do the CrossFit thing. I mean, I've got friends that do Ironman, and I've trained for half marathons and full marathons. I know the time that that takes, and that's a lot less than what you're committing because you're very serious at your level.

So, you know, you've just got to work this through and think it out. You know, when you're 40 years old, when you're 50 years old, what are you going to be glad you did? And what are you going to be glad you didn't do? But it sounds to me like with that gift coming, that's a nice piece of information late in the conversation, that I'm probably going to try to continue to grow your business. And it may be that you need to run your business without your wife, and she needs to go into the marketplace and make some money rather than working for you for free.

You're both working for, you didn't just reduce one income, you reduced two incomes by opening this business. So, you know, that might be a way we can get your household income up, is she goes and gets a job, and you run the business without her. And because you've got enough degrees floating around there for sure. So, yeah, I'm going to try to get my income up, keep the house, and then use the house later on as the way we move up to a better house that you want to do later on after you get some of these other goals behind you. Hey, thanks for the call. Melinda is with us in Syracuse, New York. Hi, Melinda.

How are you? Hi, Dave. How are you? Hi, Dave. How are you? Better than I deserve. What's up? Me and my husband have been in a lot of tension this summer, and we will be able to knock out 20,000 this summer just for the two months. And we're getting to the point where after this month, we'll be done with Step 2,

and then I'll be moving to Step 3. And I don't know, when I get past Step 3, I don't know how to prepare for my, I have a little Down syndrome baby, and I don't know if I do a 529. I know I will for my older son, but then for my baby, I don't know how to prepare for him. Probably not. Probably not going to spend time in higher education. And the way you prepare for him is you look at how high-functioning he is, and you'll know that as he gets older, and you'll see some of the things that are going on.

But, you know, in other words, if he's high-functioning, obviously at some point as an adult he can have, you know, he can be on his own. If he's not functioning at a high level, then you're probably caring for this child the rest of his life or your life, right? Right? Right. I think so.

Yeah. He's only, not even two, so. Yeah, so we don't know yet. But I'm saying right now, what I would do is just, let's get you out of debt. Let's build wealth. The way we take care of this baby is we get you in place. But, no, we would not do a 529 for a baby with those particular challenges. Hey, God bless you.

It's a wonderful blessing, actually. These are the happiest people on the planet. You're going to have a great time. This is the Dave Ramsey Show. Did you know that if you combine the data breaches that have occurred in the past 12 months, almost every American has had their personal info compromised or hacked. Over 50% of our listeners and viewers tell us that they or someone in their family has been a victim. And 70% of those folks have had it happen more than once.

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Go to Zander.com or call 800-356-4282. We are all at risk, and it doesn't make sense to wait. Numbers don't lie. That's Zander.com or 800-356-4282. Thanks for joining us, America. Craig is in Fort Worth, Texas. Hey, Craig, welcome to the Dave Ramsey Show. Hey, Dave, how's it going? Better than I deserve.

What's up? Well, my question is, I have a house that's currently paid off. It's tenant-occupied. I'm sorry, it's not paid off. It's got about $69,000 left on the note, tenant-occupied. It's got some positive cash flow, a couple hundred dollars a month. I currently live in a small apartment, and I'm looking to buy another house, but I also have about $90,000 of just liquid cash. And so the issue I run into is if I'm trying to buy something that's centrally located in a hot area,

they want you to have a lot more cash that you're putting down. Otherwise, they won't take your offer seriously. And so my question is, is it always best to just go ahead and pay down the first house, or is it better to pursue this other alternative? Well, let's start with the overarching principle that the data tells us the shortest way to building wealth is not leveraged real estate. It is being debt-free. Okay.

That's our overarching principle. Now, if we start with that, what steps would we take in your situation to get us there? And then you've kind of got to look at it a different way. So the house that has $70,000 owed on it, what is it worth? What's it worth? It's worth about $215,000, $220,000. Great. So you've got some great equity there.

And you're in an apartment. So how did you end up not living in the house and living in an apartment? It goes back several years. It's a three-bed, two-bath kind of cookie-cutter neighborhood. It's a fine house built in 2005. Have you ever lived in it? Yeah, I lived in it for five years. Okay.

I had a girlfriend for a while. I had a dog, but, you know, all that moved away, so I didn't need that big of a house anymore. Okay, so you just kept it, it rented and became a landlord by default. It wasn't your initial plan. Okay. Yeah, and it's worked out well so far. Yeah, that sounds like it.

You made some money on it. So then the question is, what gets you where you want to be in three years, five years, something like that? How old are you? I'm 35. Okay, so when you're 38 or you're 40 where do we want to be well we want both these paid for that's where i want to be yeah i want my home so the house you're talking about buying the next one are you going to live in it yeah that'll be occupied by myself and my girlfriend new girlfriend okay um yeah it's about

two and a half years okay well newer than not the original girlfriend from the original house okay right don't buy houses for girlfriends let's start with that okay uh but anyway the uh okay so what's your what's your income uh right now it's about 60 000,000. Okay. All right. So the way I answer questions is what would I do if I woke up in your shoes knowing what I know after having done this all these years and having done a lot of stupid stuff, by the way, learned some stuff the hard way. I would do something that you probably aren't going to do.

But what I would do is I would sell the rental house and I would put my $90,000 with it and I would pay cash for the home that i'm going to move into and then i would take the fact that i don't have a house payment anymore and i would pile up cash as fast as i can and i would buy rentals as i got enough money piled up in cash to do that i actually know i would do that because that's what i did. And today I own in excess of $100 million worth of real estate paid for. But I started it exactly that way. That's how I started it. And so, you know, the first, we got our house paid off, and then we saved up.

I throw money in mutual funds, and then once it got built up to a certain level, I'd buy me a little rental, and then I'd buy another little rental, and then I'd get a book deal and get a royalty check, and I'd buy another little rental, that kind of stuff. And I was not living off my royalties. So as your income goes up and you don't have any payments, you can do that. But that's going to feel like a huge step back to you, because you haven't been thinking that way but maybe 10 or 15 seconds now. Yeah, I never considered that at all. Yeah, 10 or 15 seconds now. So, you know.

I never considered that at all. Yeah, that's what I mean. And so it's something to think about. That's one way you could do it. The other thing I would do is just what you said, throw the 90 down at the house and then let's turn and your first goal is get your home paid off and your second goal is pay off your rental.

Before you do any other real estate deals, those two have to be cleared. Well, that would be that. So if I had $90,000, I mean, it's only $69,000 left on the note, so I could pay off the first house. You can do that now if you want, but that's going to put less down on your main home, and then you're going to pay down on it as aggressively as you can, and at least you have the rental paid for. You could do it that way, too.

That would be okay. You might end up with PMI, though, which I don't really want to do. I want you to put down 20% on the other one. So let's work a little math on that and see how that works out. Because if you put down 20%, you can avoid the private mortgage insurance. It's about $75 a month per $100,000 borrowed. I mean, it's the equivalent of almost a full interest rate point. So penalty if you don't put that down.

So something to think about there, but you could do it either way. The way I'm describing is a little more radical, but truthfully, it'll get you further along in five years, ten years, than doing it the other way. But either way is not going to be under the heading of you're stupid or something like that. It's just how conservative can you be? how quickly can we get completely clear of debt so we've got complete control of our income crystal's with us in louisville kentucky hi crystal welcome to the dave ramsey show hi how are you dave better than i deserve what's up hi um i'm 40 i'm single no kids no debt um I would love if you have time to ask you if I'm being unreasonable about my living situation. But my main question is how much should I save on top of my state-funded pension? How much is your state-funded pension?

Do you put any money in that or it's mandatory withdrawal out of your check? I think it's, I'm pretty sure it's mandatory withdrawal out of your check i think it's i'm pretty sure it's mandatory i have my stub in front of me and i see that i pay 189 a month to the pension and then of course it shows me what the state you know what percentage of your income that you pay in um i think that, I don't know what person it is. I make $45,000. I'm sorry? I make $45,000 a year. And how often do you get paid? I get paid twice a month.

Twice a month, okay. And that was $198 coming out each month. Okay, well that would be $4,536. It sounds like you're putting in 10%. Okay. Well, that would be $4,536. It sounds like you're putting in 10%. Okay. My question was, I also put into a 401k and a Roth and a 457. Good. Right this second, because I'm in a situation I am with no debt or anything, no house payment right this second,

currently I have $619 a month going to all those things, including the pension. Mm-hmm. Okay. And I'm thinking about all this because I'm trying to build a house. Okay. If you're going to buy a home and you're going to save towards a home, you need to be back down to 15% of your income going into retirement. Okay. And you're putting more than that in, it sounds like.

20% counting the pension. I didn't know if I should include that pension amount. Well, yeah, you don't have control over it, so maybe you would discount it some, but you're putting in 20% of your income towards retirement, and can you save for the house in addition to that? I have $14,000 saved. I know. Can you save for the house in addition to that? Oh, I'd have to ponder that. Okay. I'd have to ponder that, really. Because you're basically, I assume you have an emergency fund, right?

I have the $1,000, and I just sold my house, and so I had that $14,000 that I mentioned. Okay. We need to set the $14,000 aside not as a house fund but as an emergency fund. Okay. And you need to have a down payment in addition to your emergency fund, in addition to being debt-free when you repurchase. Can I ask you if I'm being unreasonable about how I want to live? I'm trying to build.

I wanted to build small. And I just want to get, I've been on some mission trips, and it just really inspired me to just want to give more than I take. And it's just been a hard process to decide what to build. My family just thinks I need to build bigger and something that's good for resale value. Well, you need to build something that's reasonable for resale that other people might want someday. Otherwise, the money you're spending is only for occupancy, and you lose out on the investment part of homeownership,

which is a great part of you building a good solid base, a sustainable base, so that you can give more. And so if you'll get yourself out of debt and own reasonable things that are going up in value, you put yourself in a position to be even more generous, which is what you're trying to do. It's a great art. Hey, thanks for the call. Okay, I need you to listen to this, because one normal routine that everyone does can cause total chaos in your life. Folks, I'm talking about the simple act of using Wi-Fi.

When you're on Wi-Fi anywhere in public or at home, you're at risk of hackers easily seeing every site you visit and search you're doing online. It doesn't matter if you're doing it on your cell phone or your laptop. I'm not telling you this to scare you. I don't operate in fear. But I want you to be aware and take action. You need to download Hotspot Shield. Hotspot Shield helps keep your connection on your own Wi-Fi and any public Wi-Fi secure.

600 million people worldwide have downloaded Anchor Free's Hotspot Shield. Download it now. My listeners can save even more by going to hotspotshield.com slash Dave. That's hotspotshield.com slash Dave. You can be secure in seconds. Download Hotspot Shield today. Michael and Darlene are in the lobby of Ramsey Solutions. Hey, guys, how are you?

Hey, good. Oh, we're great. How are you? Welcome, welcome. Good to have you. So, where do you guys live? Yonkers, New York. Bit of a haul to Nashville. Yeah. Well, welcome to the South. Good to have you guys.

And all the way down here to do a debt-free scream. I see it on your shirts here. Absolutely. Hashtag debt-free, so game on, right? How to have you guys. And all the way down here to do a debt-free scream. I see it on your shirts here. Hashtag debt-free. So game on, right? How much have you guys paid off? $40,000 in 12 months. Good for you. And your range of income during that 12 months?

We started at about 80 and it went up to 110. Cool. What do you guys do for a living? I am a purchasing manager for a small business in White Plains. And I'm a private investigator. Oh, very good. Okay. So what kind of debt was this $40,000? Mainly student loans and about $2,000 in credit cards.

Okay. Very good. Very good. So how long have you guys been married? About three years now. Okay. How old are you? I'll be 28 next week. Yeah, we're both 27. Yeah. Okay. All right. Good. So a year ago, something changed. I mean, you're going along, you're

married, and everything's going good, and boom, we're going to get out of debt. What happened? Well, yeah, we'd been married for about two years at the time, and we had a decent amount of money saved up, but we weren't quite sure what to do with it. So we turned to some close friend of ours. Shout out to the Palmers, Dwayne and Shannon. They've been absolutely tremendous in our journey, our financial journey,

along with Pastor Ray and Living Word Christian Church. They've just been fantastic, and we love them to death. But yeah, so we turned to the Palmers, and they said, hey, they just finished FPU. So they said, put the money towards the debt. So we took the money we had, and we paid off our credit cards in like $2,000. Like, hey, we're debt-free, right? And they're like, wait, don't you have student loans? We're like, oh, we thought.

Wah, wah, wah. thank you debbie downer yeah so they were like that's part of it and we were like oh because we thought just like everybody else that student loans stay with you forever right but um yeah so in the meantime we also needed a second car so um yeah we we took the money that we had and we bought a new car we paid cash for a car but we didn't have a full concept of your program. So we kind of spent everything that we had. And we didn't have any emergency fund or we had nothing left. And that kind of left us very vulnerable. And we were pretty scared.

So we were like, why don't we get the full information? And that was kind of the turning point. So we bought the book. I read the full book in a couple of days. The total money makeover? Yes, the total money makeover. All right, good. Darlene was a bit reluctant to read it right away at first.

But yeah, once we got into it, yeah, it's just, we got really intense. We made a chart and we listed all of our debts smallest largest and yeah that focus intensity really so a little bit of fear from not having any money yeah you just spending it all on the car was like your that was like the ah the wake-up call right yes absolutely yeah and that that gets you moving that was the electric prod that moved you out then so darling what what got you to read the book how did you come around on all that? Well, I always liked the idea of obviously saving and putting money towards the debt, but it was very hard for me because I love to shop for the kids. I like to go and get toys whenever I would like. But when we started to put money towards our debt, since the majority

of the debt was my student loans, I liked to see how my monthly payments were like decreasing decrease every month so i was like all right if i fully commit to this we'll be done in no time so that's when i was just like all right i'm all you can look at the numbers to see a year like it's do it you know boom on game on there we go all right cool good for you guys well i'm proud of you congratulations how's it feel? Amazing. Oh, it's amazing. Yeah. A relief.

So now that you've kind of gone through this sort of doing it and then going all in and knocking it all out in 12 months, what do you tell people the key to getting out of debt is? Well, your principles and the concept is so simple, you know, easy to understand. But people's lifestyles, they don't really follow it because society tells you how you should spend your money. And there's so much that will take your money. So just really understanding that what's important and really focusing on taking care of what is really important. That's getting on the budget as well. Budget, yeah. Budget is a huge thing.

Yeah, that really helps us. So as you got down into it and you were having a hard month or a bad time in the middle of the 12 months, what was it kept you going? Just knowing that it's only hard for now. You know, it's only temporary. The pain is temporary. Yeah, the pain is temporary. Within a couple of months, we're going to be debt-free and everything is going to. So just knowing that that end goal was near was just the greatest thing.

Yeah. That'll do it. It's hope. Yes. Yeah, you can see the light at the end of the tunnel, and it's not an oncoming train. We can do this. Yeah. That's very good.

Yeah, we were able to finance our daughter's fifth birthday. Yeah. To a big elaborate birthday, we were able to finance a new car. I need a new car for work. Buy a big elaborate birthday, we were able to finance a new car. I need a new car for work. And we're able to be a lot more generous and free with our money now that we don't have any payments. Yeah. You're in great shape. Congratulations.

So do you have people cheering you on or people saying you're crazy? A little bit of both. Yeah, a little bit of both. When we first started, it was a lot of people that was like, because we did the chart. And they're like, oh, what is the chart going to do? You know, it was just like so negative. Some family members, they were like, okay, you made a chart. What's that going to do?

But the people who understood your principles, they knew what we were doing. Who was your best cheerleader? The Palmers. Yeah, at the church, the people who gave us the information, they were extremely instrumental. They supported us, continue to support us throughout the whole process. Yeah, absolutely. Yeah. Good.

Very cool. Good for you guys. And you brought the kiddos with you. What are their names and ages? This is Sonny. He just turned two yesterday. Ah, perfect. And Mackenzie is five.

Okay. Very good. Very cool. Good. So they made the trip all the way from Yonkers with you. Yes. I'll remember this day. Well, at least Mackenzie might. Okay. very good. Very cool. Good. So they made the trip all the way from Yonkers with you. Yes. I'll never remember this day. Well, at least McKenzie might.

Okay, good deal. All right, Michael, Darlene, McKenzie, and Sonny, $40,000 paid off in 12 months, making $80,000 to $110,000. Count it down. Let's hear a debt-free scream. Three, two, one. We're debt-free scream. Three, two, one. We're debt-free! There we go.

This is how it's done right here. Man, nice job, you guys. Very, very well done. Very well done. Our question of the day comes from Blinds.com. They have a 100% satisfaction guarantee that means even if you mismeasure, if you pick the wrong color, they will remake the window blinds for free. They have site-wide savings happening right now

and an additional 5% off at Blinds.com if you use the promo code Ramsey. Blinds.com slash Ramsey. Christopher in California says, Where should we save our money for a house if we plan on paying cash or a large down payment? Well, the suggestion that we use, with very rare exceptions, is that you're going to buy that home in under five years. Probably more like three years. You're saving very aggressively to get that large down payment or maybe even paying cash. And anytime you're under five years, I do not use mutual funds.

I don't recommend mutual funds because they go down in value. Now, I personally might use a mutual fund, but I can accept the hit if it goes down. And so, but I don't want you to put in a hundred thousand dollars or fifty thousand dollars and the market moved down five percent and you you know you lose two three thousand bucks two or three thousand bucks is too hard to come by um and that that's really what you're putting at risk when you do that in a mutual fund uh and so the money the extra money that you would make during that short period of time using a mutual fund maybe is not worth the risk that uh that you would lose even more so it's not like you're gonna lose half

your money i don't see that i mean you might just lose a little bit but it's just too hard to come by and and if you make money you're not gonna make that much you might make a little bit so i'm just gonna use a money market account i just park short-term savings and money market account which means you're making nothing i mean they pay nothing right they pay what one percent or something and so you're not going to make any money on that and that's the purpose of this is not to make money because it's a short term the purpose is a safe place to park it and to watch it grow as you add to it so you can buy that house you gotta have that little chart going just like they said right that's how it works so a good question thank you for following us this is the dave ramsey show All it takes is one emergency trip to the dentist to blow your budget quickly.

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No waiting, just instant membership and instant savings. Folks, One Dental is a smart decision for you and your family. Start saving today at OneDental.com. That's OneDental.com. That's OneDental.com. Sam's with us in Pittsburgh. Welcome to the Dave Ramsey Show, Sam. Hi, Dave. How are you doing? Better than I deserve. What's up? Hey, so I have a question concerning a 401k and Roth IRA.

My employer offers a 401k, and they match dollar to dollar up to 6% of what I contribute. Great. And I can max out at 75% through this 401k if I want to. And I spoke to one of your smart investors the other day, and they advised me to continue to invest in my 401k. Good. But I've heard you talk about Roth IRAs and mutual funds, and I kind of wanted to get your take on whether I should just keep investing

as much as possible in my 401k. Do you have good mutual funds with good track records in your 401k? What was that? Do you have good mutual funds with good track records in your 401k? Have they done very well? Yeah. As far as I know, what I'm looking at, they're pretty decent. Does the 401k offer a Roth 401k option?

And that's actually another question I had. Now, according to my 401k, I'm having a Roth contribution option. So I would assume that's the 401k Roth. Good. Okay. You've got a 401k Roth. And then what they match with is not Roth. It's traditional.

It has to be by law. Okay. So you're doing a Roth 401K. You should do that up to 6%, get that 6% match that is non-Roth. That gives you the best rate of return all the way around. And then if you've got good mutual funds and you can go ahead and just finish out and get to your 15% of your income that you are putting in, not counting the 6 match, but you're putting in 15% of your income and you want to use just the 401K to do that, and it's a pure Roth, and you've got good

mutual funds, there's nothing wrong with that. Okay. Here's your rule of thumb. Match gives you the best mathematical rate of return. Tax-free, which is Roth anything, Roth IRA, Roth 401k, whatever, gives you the second best rate of return over time. And then the last thing is a traditional, okay? And so that's the order by which you go through until you get up to 15% of your income when you're in baby step four.

We want to be putting 15% of our income away for retirement in baby step four. Charles is in Los Angeles. Hi, Charles. Welcome to the Dave Ramsey Show. Hey there, sir. How are you? Better than I deserve. What's up in your world?

Very great. Hey, so I just have a quick question. So I work in sales, and I have an LLC, and I have to pay taxes when tax season comes by. So every paycheck I calculate, and I save a portion of the check to make sure I'm able to pay my taxes when it's time. So I have $3,000 saved to pay taxes, and I owe $7,000 on a car, which is my only debt.

So should I put those $3,000? No. Or is the car saved? No, that's your tax money. Don't mess with tax money. Never mess with tax money because you're going to end up on it. You don't want to be behind the eight ball with the IRS. They are not people you want to end your life.

Exactly. I don't want to, you know, pay the $3,000 and then I owe it to the IRS. No, no, no, no, no. Tax money. Once you put money in that tax account, emotionally, I would pretend like I don't own it anymore. Yeah, that's what I do. So I just take it out of a percentage and just save it for my taxes. And you're supposed to be, if you've been doing this more than one year,

you should be doing quarterly estimates on your taxes and paying in quarterly. Are you doing that? No. Actually, what I do, every time I get paid, I go to the website and I calculate how much taxes I should be taking out, and I save it. Yeah, but you're only paying your taxes once a year? Once a year, yeah. Okay.

Have you been doing this more than one year? Yeah. Okay, you need to get to a tax professional, somebody to help you file taxes, because you're supposed to file a piece of paper called a quarterly estimate on your taxes once every three months, and you're supposed to pay that portion of your taxes once every three months. Okay, so once a year, do I do it every three months? Yeah, you're supposed to, or you're going to get penalized. The first year, they let you do it without worrying about it.

The second year, if you don't do your quarterly estimates on your taxes when you're self-employed and you are self-employed, then you get penalized. So jump online at DaveRamsey.com and click on ELP for taxes. It's an endorsed local provider. It's someone we endorse for taxes in your area there, and they can help you do that quarterly estimate. And their charge for their professional services will not be anything big it's not a lot of money because it's one piece of paper i mean it's what your net profit is it's basically what you're doing already but you just need to file the paperwork and um i you know since you've never done it before i really would get somebody that knows what they're doing to help you do it and make sure you're doing it properly so you don't

get penalized but no i would not use income tax money that is set aside for that to do anything except pay income taxes. You do not want the IRS in your life. Believe me. Tony is in Idaho. Hi, Tony. How are you? Good.

How are you? Better than I deserve. What's up? Perfect. I have a property that I own outright that I purchased through a pension trust account that I started with my company. And I have the opportunity to sell it and cash out and roll that into account, which would be close to kind of hitting that million dollar mark. But my quandary is I own that property outright. It makes an income of about $2,000 a month, and I own it. It's real.

When I put that money into 401K, I mean, I've seen my investments go up and down. But I know an 8% return over 10 years is going to make a lot more than that property. So just top level what your gut tells me to do. So what's the property worth? We're going through the process of getting it assessed for development, and it's going to be worth probably around $400,000. Okay. So $24,000.

I paid $125,000 for it and put about $20,000 in improvements to make it livable. Yeah, but it's the value that we're looking at, okay? And so basically you're making about a 6% cash-on-cash gross before taxes. Correct. Okay, and before vacancy and whatever else. So you're making about 6% on your money plus the value of the property is going up. So, and are you depreciating the capital improvements or is it raw ground? Yeah, I haven't made any in a while.

My yearly output between taxes and improvements is maybe $3,500 a year, $4,000 max. Your yearly output? Yeah, like for taxes, improvements that I put into the property. Okay, now what I'm asking is are you depreciating? Is there a structure on it that you're depreciating on your taxes? Well, no, because the property is usually worth more every year. No, that doesn't keep you from being able to depreciate it. You're allowed to write off.

I mean, you have a tax person helping you? Yep, yep, I do. Okay, you're probably depreciating this and don't even realize it. So I don't mean it's going down in value. I mean, you're allowed to write off a portion of the value of the improvements once a year as a part of your taxes, and that saves you on taxes as well. Well, it's inside that pension plan, so I doubt it. Maybe you're not writing it off.

You may have left your basis alone since you're in that. But either way, it doesn't matter. it um you maybe you're not writing it off he may left your basis alone since you're in that but either way doesn't matter um okay so my point is it's going up in value that gives you a rate of return and you got a six percent cash on cash rate of return give or take right so you're probably making say 12 on your money give or take yeah, yeah. That's pretty close. Yeah. And if you like the property and you think it's going to continue to do that, especially if you could get those rents up a little bit, they're a little low, if you get the rents up a little bit and it's going to continue to go up in value, I don't see any reason not to hold it.

I might hold it for the very same reasons I bought it in the first place. Right. But if you think it's peaked out and if you think it's time to tap out and you know take that money leave it in that pension fund you could roll it and buy some other real estate inside the pension fund if you wanted to you just can't do anything with the money yourself it all has to stay inside that exactly yeah that's my quandary well that did only quandary is you can get it out later, but you're going to pay taxes on it as you do that. So, hey, good question.

Thank you for joining us. Good job, by the way, too. Congratulations. Nice hit. That puts this hour of the Dave Ramsey Show in the books. Our thanks to James Childs, our producer. Kelly Daniels, our associate producer. I am Dave Ramsey, your host.

And we'll be back. Hey guys, this is Blake Thompson, Chief Production Officer for The Dave Ramsey Show. Here's a tip. To keep from missing Dave's classic facial expressions to some of those calls, make sure you watch him live. Just visit DaveRamsey.com slash show each day from 2 to 5 p.m. Eastern. Enjoy.