The Ramsey Show - App - Does It Make Sense To Pause Retirement To Buy a House? (Hour 1)

Episode Date: December 14, 2021

Debt, Investing, Retirement, Home Buying, Budgeting, Home Selling, Saving As heard on this episode: Sign Up for a FREE trial of Ramsey+ TODAY: https://bit.ly/3rZTUAx Tools to get you started:  Debt Calculator: https://bit.ly/2Q64HME Insurance Coverage Checkup: https://bit.ly/3sXwUn5 Complete Guide to Budgeting: https://bit.ly/3utmVXi Check out more Ramsey Network podcasts: https://bit.ly/3fHhbVE

Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Ramsey Show, where that is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. George Campbell, Ramsey personality, is my co-host today as we take your questions about your life and your money. Merry Christmas, America. We're so glad you're here.

Open phones at 888-825-5225. That's 888-825-5225. Lindsay starts off this hour in Salt Lake City, Utah. Hi, Lindsay. How are you? Hey, Dave. I'm excited to How are you? Hey, Dave. I'm excited to talk to you. You too. How can we help?

Okay. So I'm currently, well, my husband and I are currently in Baby Step 2. We make $100,000 together. We still have $40,000 left to go on our debt snowball. But I have a question about when we get to baby step three, how to invest our 15%. So he has a 403B, I have a 401K with a 3% match, and then I have a Roth IRA and a traditional IRA set up, and then he has a traditional IRA. And I guess I just don't know how to, when we get there, how to divvy it up. Yeah, you've got a lot going on here. And I guess I just don't know how to, when we get there, how to divvy it up.

Yeah, you've got a lot going on here. And let me make sure I get this clear. Baby Step 3 is your three to six months fully funded emergency fund. Oh, yeah. Are you talking about Baby Step 4? Yes. Sorry. Okay. Well, you're dreaming. You're definitely thinking ahead here. So we can talk about what to do when you get there. Are you guys on track to pay this debt off in the coming year?

Yes. So our goal is by this time next year. Way to go. Awesome. That's fantastic. And then what does three to six months of expenses look like for you guys? It would be about $10,000 to $12,000. Okay.

Do you think you might be able to do all of that in the next 12 months? We may need another. So after a year, we'll be debt-free, and then we'll need six months to do our emergency fund. That's awesome. So what we're talking about right now is 18 months from now, when you've got all of this in place, you've got no debt, the fully funded emergency fund, how do we invest this 15% in the best way possible? Yep. Okay.

Well, it's going to be 15% of your total household income. And tell me again what your options are with his work and your work. Yeah. So he has a 403B, which as I understand it is basically a 401K. And then I have a 401K with a 3 three percent match i don't think he has a match and then i have a loss and a traditional ira and then he has a traditional ira because i did what dave said and i rolled over all of our old 401ks into our own IRAs with a processor pro. Well, obviously we're going to do 15% of $100,000 or $15,000 is how we've got to allocate it.

And our formula is pretty simple. It's kind of like rock, paper, scissors, except you can only win one way. And so it's match beats Roth beats traditional. So let's allocate the $15, 000 down that list until we do whatever now does his 401k or it's your your 401k right he's got a 403b correct are either one of those a roth option yes i have a roth option on your 401k okay so um what we'll do is put certainly we're going to do the match so we want to put in the match at this point for three percent up to yours and what do you make a year i make 40 okay and so you make 60 okay and uh let's see here so three is that 1200 bucks yeah 1200 bucks

will be your three percent match off of the $15,000. Okay? So match beats Roth. That's the only match we got, so we're going to do that first. Okay? So off of that, so we've got $13,800 we've still got to go with. Does that sound right? Yep.

Okay. And then we're going to do Roth. Anywhere there's Roth that we want to do it. So his 403B does not have a Roth, so we're not going over there. That's traditional. We're going to use your 401k and we're going to use two roth individual iras and see if we can get to 13.8 and by the way we know we can because two roth iras will get you there more than get you there so we need 13 800 going into something uh, and you can use your 401K.

Does your 401K have really good mutual fund options? So I actually just started, so I'm not really sure. And since we're on the debt snowball, I am not investing anything, so I'm not really sure. Okay. Well, I'm going to guess and say you can do $6,000 into your Roths, two individual Roth IRAs and good growth stock mutual funds with a SmartVestor Pro. Okay? That gets us to $12,000. And so you could put another couple thousand in yours, $1,800, and you'll be to your $15,000.

So we'll probably utilize your 401k through the match plus $2,000 a year. And then we'll do a couple of Roth IRAs maxed out with your SmartVestor Pro and you will have done match beats Roth. We never got to traditional, so we'll do nothing in this 403B, which, by the way, generally speaking, your 401Ks will have probably better options than a lot of 403Bs will for investing in terms of the quality of the mutual funds. Oh, okay, interesting. Cool.

That is very helpful. Thank you so much. And, you know, how old are you? Well, I just turned 31. You're going. Interesting. Cool. That is very helpful. Thank you so much. And you know, how old are you? So I just turned 31. Ah, you're going to be a millionaire. Hope so. No, you really are. That's what the math says. I mean, you start putting $15,000 a year away

in Roth, in mutual funds, you're going to be a millionaire so fast, girl. I'm so proud of you. And their incomes are only going to go up. Yeah, that's if they don't get a raise. Yeah. Man. You'd have to be real bad at your job to never get a raise in your entire career.

So this bodes well. That's awesome. And I do the full 15 in our Roth 401k here, Dave, because we've got some great options. And both of you work here. Yeah. Me and my wife. You can both do it. It's great.

So we're going to be double millionaires. Yeah. That's how that works, right? I'm in. I'm in. I'm in. A two millionaire. A three millionaire.

I like the sound of that. A four millionaire. Double, triple, quadruple. That's awesome. I love that she's asking this stuff now because a lot of people, they're in debt, but to dream about the future and what could be and what you want to be investing and how much that could turn into, I love that because it only motivates the debt snowball. It only motivates you through baby step three, which can be a slog.

Exactly. So here's the reason for our order there. It's math. Okay? Match, you get a 100% rate of return before the mutual fund starts doing anything. Not bad. You made 100%. Now, you do have to pay taxes on that match when you take it out.

But after taxes, you still got a 70% rate of return or an 80% rate of return on your money. Excellent. You can't beat that. Tax-free doesn't beat that. But tax-free beats taxable. So Roth beats traditional. And so in her case, she's got the match, and then she's got tax-free growth on everything else. So their entire account is going

to end up being the vast majority of their account not the entire account because the match isn't but the vast majority of their account will be in that roth and covered under the roth legislation and so it will all be tax-free amazing so if it says two million in that roth portion you get two million that's pretty incredible absolutely like the sound of that. Well done, well done, well done. Hey guys, that's how it works. George Camel, Ramsey Personality, my co-host today. You follow these steps.

We've actually thought about this stuff. We've actually taught it to millions and millions of people. Tens of thousands of baby step millionaires out there. I think we can help you. If you want to be wealthy, I think we can help you. As a matter of fact, that was kind of sarcastic. I know we can help you if you want to be wealthy I think we can help you as a matter of fact that was kind of sarcastic I know we can this is the Ramsey Show Imagine a world where people never have to worry about money ever again. At Ramsey Solutions, our mission is to teach people how to get out of debt and build lasting wealth. And if that means we have to take on the toxic money culture that says you

need debt to get ahead, then we're okay with that. We've seen millions of lives changed and we will continue to create digital products and services to help people transform their lives. If you want to join me and over 1,000 other team members on this crusade, we're currently on the hunt for web developers, UX designers, and SEO and content marketing specialists. To find out about these positions and more here at Ramsey Solutions, visit ramsesolutions.com slash careers. That's ramsesolutions.com slash careers. Together, we will disrupt the toxic money culture in America and change lives. Visit RamseySolutions. co-host. Open phones at 888-825-5225.

The Fine Print Podcast Season 1 is now available for you to listen to. George is the host of that, and it is absolutely incredible. So far, the number one viewer or listenership has been, could Bitcoin be your ticket to wealth? Was that a sarcastic title? But anyway. You got to hook them, Dave. You got to hook them.

You got to hook them. Well, you hooked them because they are definitely listening to that thing. And they're listening to all the episodes. That one's the most popular. I think the Robin Hood, how the Robin Hood app steals from the rich and the poor. That particular episode also was number two, if I remember right. And the true cost of credit card rewards also up there. That one's real popular.

A lot of our financial coaches have reached out and said, hey, I've been sending this to my clients to help them understand what's going on behind the credit card rewards. So I love seeing it used as a tool that can help other people go oh i can listen to this 25 minute episode and understand the truth behind it and the truth is you're not going to get rich the rewards are always built on my favorite and it's the best metaphor and i just i'm just in such awe because i'm really good at metaphors uh and inaccurate metaphors too i'm really good at those are my favorite and mixed metaphors I'm really good at those. Those are my favorite. And mixed metaphors. I'm really good at those, too. But your metaphor on the stupid credit card points being like those Chuck E. Cheese tickets you get, and you end up spending $8 bazillion to get a nickel toy eraser, a little monster eraser for your pen.

The sticky hands was my favorite. Sticky hands. Yeah, that's it. You get sticky hands. And it costs them, what, 12 and a half cents out of China. And you spent $18 to get the tickets to do that. And you feel like you've won. And then you feel like, I got sticky hands for free.

And that's the same stupid thing as the credit card points. Exactly. When I was a kid, there was a thing called Green Stamps. What was that about? It was a Green, there was a thing called green stamps. What was that about? It was a green stamp store. And when you went to the grocery store and when you checked out, the grocery store would give you green stamps. And they would print off a little sheet of them. They'd run off kind of like the tickets at Chuck E. Cheese a little bit, except sometimes they would come more than one wide right and then you go home and you paste them into this book and when you got you know 35 000 green stamps or whatever from having shopped at kroger 35 million times uh you could go get like redeem it get like a grill you know or something i mean you get like

a hundred dollar item or something or a fifty dollar item but you had you by then you had bought you know enough groceries to feed a small village um but you got you got to collect the green it was a gamification yeah 1950s 1960s style well i grew up in the mcdonald's monopoly game era oh yeah i remember going have you seen the documentary on that mcmillions it was incredible yeah it was a huge scam behind it big scam on it we should do one on credit card rewards similar to that. Get gamified. That's what it is. You get gamified.

You get sucked into the gamification, the dopamine hit, and you just keep going back for more. Yeah. Just keep going back for more. Just like the first time I ever played Pac-Man in college. It kept beating my quarters. It sucked me in. Sounds like you weren't very good at Pac-Man. Oh, my gosh.

I might have been beer involved. Brandon is in Fort Collins, Colorado. Hi, Brandon. How are you? Hi, Dave and George. I'm doing well. How about you? Better than we deserve.

What's up, man? Hey, so quick question. My wife and I are debt-free. We're on Baby Steps 436, and we're working to save 20% to put down on our first house. I was listening to one of your YouTube segments from a show a few weeks ago, and you mentioned a baby step 3B. I was hoping to find out what you would do if you were in my shoes in this step. Yeah.

So what are we looking at? How long is this going to take to save up for the 20% down payment? Well, right now um so my wife will stay at home mom with our six month old and we're living on my income which is uh 80k a year base um so at if we take basically no no no what's your income yeah 80k your base base what's base mean you get something above that. Yeah, I get a bonus that it's variable and not guaranteed. I know. How much do you usually get?

On average, another 10%, so 88. Okay, now I've got a real picture. Okay, go ahead. Okay, perfect. So the challenge is that my work has an incredible 401K match, where if I contribute 10% to the Roth 401k, my work will match at 10.5%. So my question kind of is, would the money lost from the company match be worth the house savings if we spend about two to three years to get that down payment? Well, you're making a trade. I mean, that's hard to walk away from because that's some pretty sweet match but but you know so here's what here's what happens brandon the folks do the save for a down payment for a house after baby step three okay that's where we call why we call it Baby Step 3B. Now, so then they do it one of three different ways. They either do no retirement savings.

They do a full 15% in Baby Step 4 while they save for their down payment. Or they do a reduced retirement savings while they save for a down payment. Once they've got their down payment, then they move up to the full 15 percent if you're not putting in a full 15 percent you're doing a modified or zero retirement we laughingly or seriously these days call that baby step 3b so in your case i would be tempted um of course i really want you to get a house and you really want to get a house but i'd be tempted to get that 10 and a half match and then save above that for my retirement because that's such a sweet match.

I certainly would do something towards getting some of that match. Okay, so you recommend not zero? You could do 5%. You could do zero. It's just hard for me to walk away from that match because, you know, that's sweet money. It's a lot of money there. But if you want to do zero, the more you move towards zero,

the more I would gear up and do something radical around your house, sell some stuff, take an extra job, work some extra hours, whatever, to get that down payment gathered up quick, quick, quick, quick, so I'm not missing that match long. Yeah. And here's the thing, Brandon. Are you investing 15% right now, or are you doing 10? We're doing 10% through the company and then another 5% through SmartBuster Pro.

Okay. So if you reduced it by that 5%, so you're getting the full match through your job, I mean, the 5% is not going to move the needle in an incredible way for the down payment. It's $4,000 a year. Yeah. But if that helps you to get a little closer, is there a sense of urgency around getting this house if it takes two years versus two and a half? Not necessarily. We just, we're renting right now and rather not let the money go to the rental market. Yeah, sure. There's not a wrong answer here. It's just a matter of preference. So if you can get back to retirement within three years and do zero, that's okay.

If you want to do a little and take a little bit longer because you're getting some of that match, that's okay. If you want to keep doing the full 15% and it takes you four years to save for your down payment, that's okay. So any of those are – none of those are in the stupid column they're all in the uh your personal preference column okay awesome as long as i stay out of the stupid column that's all i care about thank you so much that's my goal every day don't get i don't want my face in the stupid column it's been there so many times in my life i have done so many things with my face in the stupid column. It's been there so many times in my life. I have done so many things with my face in the stupid column, but there you go. That's a great question. It is.

Because there's a lot of options. Well, and here's the thing. You know, the beauty of these first couple segments here is we're really getting into the nuance, the detail. But what we found is if you will do four or five or six of these things and not do Ramsey-ish and do them right in the right order, do it the right way, that your probability of winning goes way up. The number of people that don't clean out their non-retirement savings, they hold it over there instead of putting it on their debt in Baby Step 2, see, that's Ramsey-ish.

That one costs you big time. The number of people who continue to go out to eat and continue to go on vacations while they're working Baby Step 2, Ramsey-ish, hurts you big time. The number of people who continue to go out to eat and continue to go on vacations while they're working baby step two. Ramsey-ish hurts you big time. Statistically, mathematically, the arithmetic works against you and the emotions of you know you're cheating, you know it's going to take longer. You're sabotaging yourself and you know it.

This is The Ramsey Show. Thank you. In the lobby of Ramsey Solutions on the debt-free stage, Luke and Leah are with us. Hey, guys, how are you? Very good. How are you? Welcome. Where do you guys live? Badaya area. South Georgia.

Down towards Macon. Yeah, cool. Welcome to Nashville.ville thank you good to have you guys and how much debt have you paid off twenty eight thousand three hundred and thirty four dollars good for you how long did that take 14 months wow and your range of income during that time we started about 65 000 and actually during the pandemic we both got raises and um right now we're about 75 cool what do you guys do for a living i'm a service advisor at a car dealership like a major car dealership and i work at kind of like a liquidation retail outlet mattress place so cool very cool so they wanted to keep you around and uh because everybody's leaving their jobs and

stuff not coming back to work and all that, so they gave you races? Yeah, kind of. I was a firefighter during the pandemic and then kind of took a part-time job working, actually for my pastor at his mattress outlets and stuff. Yeah. And started liking that, enjoyed being around people, and just kind of went to doing that full-time. And when you're making commission, you got a chance to up your income so that works too cool so uh what kind of debt was the $28,000 we come in pairs it was two of everything two credit cards two cars a little bit of medical

debt yeah a little bit of medical debt two cell phones no student loans we're really blessed that neither one of our parents gave us student loans but But, yeah, it was just two of everything. Wow. How long have you all been married? Six years. Okay. September was six years. Right.

Cool. Wow. So what happened a little over a year and a half ago? In 2018, I surprised him with a trip to New York. And we were there for the weekend. And I remember him asking me when we were trying to get on the subway should we pay credit card or debit card I said we'll put it on the credit card because if we paid on the debit card we can't pay our bills we go so I got home and I was like we probably shouldn't have done that we probably shouldn't have gone on that trip because we came

back with more of a burden with credit card debt than we did one of those vacations that follows you home yeah exactly we had a great time but we also paid for it you know with credit card debt than we did actually enjoy. One of those vacations that follows you home. Yeah, exactly. We had a great time, but we also paid for it with credit cards. We knew we had to do something because we were getting overdrafted in our bank accounts, and we were like, we just can't live like this. Really, the straw that broke the camel's back really was, I remember one day going to get gas, or we both needed gas. We both had like 70 miles to empty or something like that,

and there was like $17 left in the bank account. And so we were like, like, 70 miles to empty or something like that. And there was, like, $17 left in the bank account. And so, you know, we were like, well. You get five. I'll get five. Exactly. And so that's when I took a part-time job working. Just brought a little bit of money. We really didn't up our incomes that much during our debt-free journey.

The raises actually came more after we got debt-free back in March. But we really just buckled down on the budget, like really didn't spend anything. Like it just all went towards the debt. Okay. How did you get connected to us? We're actually Financial Peace Babies. I actually grew up doing the DVDs at our church.

Our families did it and then got married, and we're listening to you on the radio, but we were debt-free when we got married, but we were like, you know, Dave Ramsey gets people out of debt. We were like, we don't have any debt. So we were kind of like, you know, we'll just listen. Yeah, we don't need it. We'll just listen.

And then, you know, then we both got two jobs after Jude was born. And we were like, oh, we can afford a car payment. So we got her a new car because we had a baby. You know, a baby can't be in a – I was working in the car dealership, so it was normal to get a new car. Sure. You got to get an SUV when you get a baby, right? So we got that.

Better law. Yep, yep. And so that's really what happened. Just kind of started piling stuff on. And you woke up and you were normal. That's right. Bought a house with no down payment, you know, FHA loan. Everything wrong.

Yeah. Wow. Everything. Yeah. But then we sold the house during the real estate boom we're in right now and actually made way more than we thought on it. That's good. Yep.

Debt free, fully funded emergency fund and saving for a down payment on our next house. Cool. Very cool. So you grew up knowing better. You wander off. Then you snap back. Yeah. 14 months later, you're done. Will you snap back yeah 14 months later you're done will you go back never

in 2019 i said okay we something's got to change so we had decided our 2020 new year's resolution was we're going to be out of debt and then whenever march hit we were like yeah we made the right decision with covid you know thankfully we stayed working and employed and that sort of thing but i mean i can't imagine the burden of, you know, close to $30,000 worth of debt plus COVID, you know, just kind of waking up not really knowing what's next and that sort of thing. So, I mean, it just gave us a piece that we really can't explain. If one of you lost a job during the pandemic, you would have been just screwed. I mean, we're pretty equal as far as income goes. So, I mean, that would have been half of our income gone.

Wow. It's interesting what you said earlier. You got back to debt when you realized, oh, we can afford the payments. Yeah, exactly. So there was a mindset shift where you went, debt is fine as long as we can afford it. Exactly. And then you wake up and say, we can't afford this.

We can't get gas. So are we really able to afford this? That's right. Wow. Way to go, able to afford this? Wow. Way to go, guys. Proud of you. What do you tell people the key to getting out of debt is? Everybody on the show always says the budget, and it really was.

But for me, the budget means if you're on this journey, stop swapping your debit card. We gave ourselves $20 a week apiece, and when the $20 was it was gone and so you know like that was like a soda or something so but because i would swap my debit card for a bag of chips and a fountain drink all the time and so you know stop swapping your debit cards and you know just use cash for everything and it's amazing how much money you save yeah that's a big deal yep but getting on the same page agreeing with it the budget is the same pitch same agreeing with it, the budget, the same stuff people always say. We're already a pretty good team,

but then actually sitting down to do a budget every single month or every two weeks, whatever the case may be, that really kind of brought us back and made us, okay, we got to focus. So if your financial peace babies, your parents, were doing this stuff, I guess they're cheering you on. Yeah, they were. Big time. They're like, oh, good, they're cheering you on. Yeah, they were. Big time. They're like, oh, good, they woke up.

About time. Yeah. I like it. Very good. Okay, cool. And you brought your son. We did. Jude.

How old is Jude? He's five. We've got another one on the way, which we also attribute to getting out of debt because several things happened with that that we had to get out of debt before we – it was just one of our personal goals we wanted to do before we brought another one in. There you go. Good why. That's awesome. Good why. Way to go.

Fun stuff. We got a copy of the new book, Baby Steps Millionaires, for you. That is an early release for you guys only. The book actually comes out January the 11th, and it's all about how ordinary people built extraordinary wealth, how you can too and you're obviously going to be baby steps millionaires now not only uh financial peace babies but baby step millionaires there we go that's the good stuff and we'll send you we'll give you a copy of total money makeover so you can give it away at christmas find somebody that needs that wake-up call they got 17 left and two empty gas tanks and these days uh i mean when you filled that gas tank up with five dollars you

actually got a few gallons right now you get a gallon i don't envy y'all's gas prices up here they're a little cheaper down in south georgia not that much but everything's gone way up but uh yeah thankfully we're at war with the gasoline car now in america, oh my gosh! Congratulations, you guys. Very, very, very well done. Luke and Leah and Jude from Macon, Georgia. $28,000 paid off in 14 months, making $65,000 to $75,000 a year. Count it down!

Let's hear a debt-free scream! 3, 2, 1... We're debt-free! Yeah! Yeah! That's how it's done i love it jude felt that one he felt it in his spirit little guy's got some pipes very cool good stuff wow very very well done i was sitting here thinking him talking about swiping that debit card made me think i remember well i mean when i started teaching this stuff they didn't accept credit cards or debit cards in a grocery store or in fast food wow it was like

taboo you had to have cash or check you had to have cash or check we would go in right out a check when i started teaching this 30 years ago and that was normal and there were no pay at the pump pumps you had to walk into the store give them cash and pay and that's that way you had the long walk into the store in the long walk out to realize you just paid five bucks a gallon oh my god i just left a bunch of money in that little store you know and so that that started changing things and then further disgusting once they did start taking them, I'm standing in line at the stinking store to pay for my gasoline with cash, and this guy buys a pack of gum and swipes a card. Now, that's done every day now.

Yeah. That's the first time I've ever seen anybody spend a dollar. Blue your mind. A dollar on a credit card. A dollar! This is The Ramsey Show, boys and girls. I'm glad you're with us. Open phones at 888-825-5225.

George Campbell Ramsey, personality, is my co-host today. On the 22nd of this month, we will do our last live show. The other shows for the remainder of the year will be taped, best ofs, because we go on vacation for Christmas just like you do. And we'll be back at the first of the year, January the 2nd, with live shows. But in the meantime, December the 22nd will be our last day. And we do our famous Ramsey giving show that day, three hours of stories of generosity. Because this is why we get out of debt, so that we can be generous.

We build wealth so that we can be generous. The most fun you'll ever have with money is generosity. And so giving stories. I need you to join us for the giving show and tell your story about some time that you were on the receiving or the giving end of generosity. Go to RamseySolutions.com slash ask. Put giving in the subject line. RamseySolutions.com slash ask. Put giving in the subject line. RamseySolutions.com slash ask. Put giving in the subject line. And you will, you know, if you left $30 or $20 as a tip, that doesn't count.

That's not what I'm talking about. Make me cry. Make the listeners remember the story so they're inspired to generosity. That's the stories I want, whether it's the receiving or the giving end. And if you're on the giving end and you don't think you want to talk about it, well, it wasn't you that gave it anyway. God just used you to give it, so shut up and tell us your story. So go to RamseySolutions.com slash ask, put giving in the subject line.

George, on January the 13th here in Nashville, we are doing a live event. I'm pumped. This is going to be a good one. I'm excited. Not only because I'm a part of it, but also because of the content. You, me, Rachel will be together here in Nashville. We've got about 1,000 tickets. They're almost sold out already.

We announced the launch of the sale yesterday. Tickets are only $15. We're going to bust this thing out. Have about 1,000 folks, and it is all about wealth building in 2022. How do you really build wealth in 2022? Because there's a lot of people out there that are doing it the wrong way, and they're going to get burned. And there's a lot of people out there that want to know what the right way is. And so, you know, if you type into your search bar building wealth, you could get get-rich-quick schemes and scams, or you could get real advice.

If you come to this, you'll get real advice. And we'll warn you about how to identify a get-rich-quick scheme. It's a one-night special event. Discover the money plan that will cause you to be a baby steps millionaire rachel cruz george camel me how to build wealth in 2022 january the 13th here in nashville if you want to come get your tickets right now and make great stocking stuffers only 15 bucks and again they're almost all. So go ahead and get this done now. RamseySolutions.com slash events. RamseySolutions.com slash events.

The Wealth Building event, January the 13th for 2022. Ben's with us in Denver. Hi, Ben. Welcome to the Ramsey Show. Dave and George, thank you for taking my call. Sure. What's up? Hey, when I started our snowball three years ago, the total was $960,000.

Wow. Talk about taking your breath away. Yeah. The biggest piece of that is a commercial mortgage on a property. Our family business is the tenant. Our goal in the next few years is to sell or close the business and sell the real estate. It's not a piece of property I want to own long-term. We currently owe 540 on it. The property isn't listed, but I just received what I think is an above-market offer of $1.5

million, and that's direct from a buyer investor, so there's no broker commissions involved in that. Wow. His motivation is he just sold a property, he's looking for a 1031 exchange and a five-year lease to go with that. And our business can't afford the lease payment. So I have a two-part question. Is going from a mortgage to a lease a reasonable thing to do? I feel it's a strong offer, and it really kind of gives us a set, clean exit strategy for both the business and the real estate.

So when were you sunsetting the business? What's that? Are you sunsetting the business outside of five years? Yeah, yeah. We own our jobs is what we do. It's not a, you know, it's not a good time. You're willing to run it for five more years? Yes, yes.

Were you planning to anyway? No. Well, we don't have a choice because I have that mortgage to pay. Well, you don't have a choice. If you sell the real estate without having to sign a lease, you can just close the business whenever. Right. If somebody just wrote you a check and didn't require a lease back, when would you close the business? Probably in a couple years.

Okay. A couple years. I guess what I'm interested about is I feel like the market is about 1.2 for this property based on some comparables. And so I feel like this is a strong offer. I guess where I'm getting hung up on, I'm leaning towards going towards the lease, but then writing a check, if I just cash out and don't do a 1031 exchange, I've got to write a check to the Fed for $250,000. That kind of hangs me up. But on the flip side of that, I can see the finish line on this debt snowball. And to be debt-free would just be phenomenal. This $950,000 is weighed on me.

How much is the lease a year? He was asking for a six percent cap rate and we negotiated that down to a five percent and that comes out to how much money without me having to remind my calculator uh eight thousand a month i think yeah no uh yeah yeah a month so a hundred thousand a year yeah okay so three years is three hundred thousand and so and you're staying open three years longer than you wanted to, and you only got a $300,000 premium. This is no deal. Okay.

I guess when I say we'd have to stay open just to cover the mortgage, we couldn't. You'd have to stay open to cover the lease. Okay. Or you'd have to write him a check. Okay, let's say that you ran the business two years longer, which is kind of what your plan was. You wrote him a check for $300,000 for the three years that you're not there,

and you closed the business. Now you've got $1.2 for the property. Yep. Okay. So how hard is this building to lease? Well, it has some unique issues in it that I don't want to own it long term. No, I'm asking why he can't lease it to somebody else other than you. It's a big facility, and our business works very well.

You negotiated a what cap rate? 5%. Okay. Our business works well on that. Why don't you give him a little bigger cap rate and make it a three-year deal i got you okay so you can get out of dodge and not it cost you 300 grand i'd give him an extra hundred but i'm not giving him all the because you told me the thing's worth 1.2 he's giving you a premium of 1.5 but it's not a premium if you're stuck to the on the hook for

300 grand that you wouldn't have paid otherwise you're following me yep yep so i i you know i'll do one i'll do 1.5 uh at a higher cap rate with a three-year lease and stay open three years and be comfortable with that then you're not really having to write a check you continue to run the business and it you know you run it on out that gives him time to set up his second tenant without being stuck with this thing. And then you can roll it to a 1031, can you not? I could, or do I just clear the deck and be done with the debt? You don't have to have debt to do a 1031. Okay. You just have to roll your, not your equity, but you have to roll your basis,

your gain is what has to be rolled yep okay so you could do that to a smaller property debt free that does have to be an investment property it can't be your residential real estate i mean it can't be your residence okay it's income producing to income producing is like kind yep so um yeah holler at uh at a tax advisor in your area, a tax attorney, or a title company that does 1031s and find out what the details is of you doing a 1031. That'd be nice. I'm willing to pay the taxes to be out of Dodge. I'm not willing to pay the taxes and be on the lease three years longer than I wanted to be. So there's too many different concessions you're making here. But you do have a bit of a white elephant of a building, it sounds like,

a good thing to get out of. So, yeah, if you can do a three-year with a higher cap rate and a better cap rate to him instead of a five-year, and especially if you could do a 1031 down into a smaller building and figure out what your adjusted basis is and what your actual gain is with your tax person and then get some advice on what that sets you up for and get with a title company that does a 1031.

So a 1031 tax deferred exchange, folks, is a trade. He could sell that property into a 1031, buy another property out of that, and it is treated under tax law as if it is a trade. And that's why we're talking about doing this. That was like an MBA, Dave. Thank you for that. I learned a lot. A lot going on there.

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