The Ramsey Show - App - Should I Get a $1 Million Apartment? (Hour 2)

Episode Date: July 16, 2019

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Music Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the Dave Ramsey Show, where dad is Don, 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. You jump in, we'll talk about your life and your money. It's a free call at 888-825-5225. That's 888-825-5225. Walter is with us in Yuma, Arizona. Hey, Walter. Welcome to the Dave Ramsey Show. Good afternoon, sir. Thank you for taking my call. Sure. What's up? So my wife and I are

doing very well. We're on baby step two. We've cleared out all of our credit card debt and we're about to turn the corner this next year and clear out all the student loans and the car payment. So we're on track to do what we want to do. But I like to think two and three years down the line. The situation that we're in right now is that we're renting an apartment and we have both track to do what we want to do. But I like to think two and three years down the line. The situation that we're in right now is that we're renting an apartment. We have both in firm agreements that we do not want to buy a home out when we are in a position of debt rather than be in a position of power. The question that I have is that it's a two-part question. One is being in the military, the concept that you guys have in your book that we've read is that the income is your best building tool. The allowance for housing that we would get if we were to live off base would actually afford us the opportunity to be able to get a home,

but we don't know how to do that if it's either through the VA loan or through the FHA loan. After writing all this out. here's the thing neither both of those are the most expensive loans the va is the most expensive conforming loan unless you're a disabled veteran the fees and the uh gotcha things that they built into it make it an unattractive loan which is sad because it's supposed to be a benefit for you guys that have served, and thank you for your service. Number two, FHA is more expensive. The most inexpensive is a Fannie Mae, an FNMA loan, a conventional mortgage,

and that's what you'd be looking for at the time you're ready to do this. And, of course, you've heard me. It sounds like, say, to have a 15-year fixed rate where the payment is no more than a fourth of your take-home pay. The other thing I would warn you about being in the military is this. As you are already aware, they move you a lot. And if you're not going to be in an area long enough for the house to go up in value, you could get stuck with a house. There's kind of two types of areas that military bases and installations are around. There's the small town that is a military town,

and so constantly there's a stream of houses that are being put on the market and sold because they're constantly moving military people in and out of there. That usually hurts the market when you get ready to sell because there's a huge supply of other people trying to sell, and consequently the prices don't go up quite as much so the other type of base or installation they put you in is in a metro area or an area that for whatever reason has a very hot economy and so you know you're in the navy and you're in san diego well that economy that market's booming independent of the military and so if you get ready to sell there you can sell that house and it will have gone up in value so what you want to do when you get ready to make there, you can sell that house, and it will have gone up in value. So what you want to do when you get ready to make the decision whether to purchase in a given area is you ask the real estate agent in the area, go to one of our ELPs, and you're looking for two statistics from the multiple listing service, and they can pull it straight out of their computer. Statistic number one is what's the average appreciation rate in your area, okay?

How much do houses go up in percentage average in the area that you'd be looking in, the neighborhood, the general area, and the town, okay? The second thing you're looking for is DMA, days on the market, D-O-M, days on the market. And what that means is how long does it take a house to sell. So if you're in an area that goes up 8% a year and the average days on the market is 27 days and you're going to live there three years well the thing's going to go up 25 percent in that three years and you're going to be able to sell it quickly when you leave you'll make money on that you see what i'm saying yes but if those two statistics sound like this sound like

one percent appreciation and average days on the market is 270, which is nine months, you're going to lose your butt when you leave after three years. By the time you pay expenses and can't get the thing sold, that's not a market. That's a market that's slower. It's not as dynamic. It's not doing well. And you just don't buy there. You rent if you're stationed there.

Okay? So if we're able to satisfy those two statistics, then you can make an argument for, yes, living off base. Absolutely. And just making that investment from the government to ourselves. Absolutely. Absolutely. The off-base housing allowance is a part of the equation but more than anything else you'll make money even if they didn't give you that by owning the real estate

and uh you know the quality of life and so forth off base and everything for your family it's different and so um you know but you do not want to go into and i'm not going to mention names because then people get mad at me but you know the types of areas i'm talking about that the military serve in i serve you guys in the military we come to your areas all the time and do stuff and so our people do and so i go into the area where there's really the entire economy in the particular or the virtual virtually the entire economy in the particular little town is military and you're not getting out of there alive with a house. You're going to get yourself skinned. Don't buy in that market.

You know what I'm saying? Sure. Okay. Well, this is very informative. I thank you for your time. And thank you for your service. We're here to help you guys, man. We appreciate you.

Open phones at 888-825-5225. Thank you for joining us. Rachel is with us in Chattanooga. Hi, Rachel. Welcome to the Dave Ramsey Show. Hi. Thanks for taking my call. Sure.

What's up? My husband and I are inheriting $10,000, and we're discussing what to do with it and was looking for your input. Okay. Well, we teach folks to follow a plan we have called the baby steps that tells you what to do with any money you get because that's the shortest way to wealth

and the shortest way to financial stability. Have you ever heard me talk about those? Yes. We're currently in baby step number two right now. Then you would use the $10,000 there. Okay. What were you going to do with it? Blow it? No, well, we are currently renting.

My husband owns his own business, and we take out $4,000 for me and my husband and our three kids. And $1,000 of it goes to rent. And we were looking at possibly even downsizing and going into an RV that would be paid off with that. And then using that extra every month. I think you work your way on out of debt. How much debt have you got? Okay, $500,000. $500,000?

Yeah, he's a doctor. Why is he only taking $4,000? You've got other issues going on here. Yeah, you need to look at Doc's income. This is the Dave Ramsey Show. Are high health care costs getting you down? Are you confused trying to navigate your options? Do you wish you could find an affordable, biblical solution to your health care costs?

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chministries.org. All right. Thanks for joining us, America. This is the Dave Ramsey Show. Tim is with us in Buffalo, New York. Hi, Tim. Welcome to the Dave Ramsey Show. Hi, Dave. It's nice to talk to you. You too. I am 65, retired, and we're doing just fine. I haven't even bothered to take Social Security.

My wife has a pension plus her Social Security. We still have some self-employment that comes to about $37,000 a year on top of that. I got into insurance, buying insurance, when I was quite young back in the 70s. And I have four policies between my wife and me and um they're worth they have a cash value of 127k taxable um we would taxable is about 87 and the cost basis is about 40 so i i'm just sitting on it i don't need the money i would like to kind of get my hands on it if perchance I do need the money what would you do with it?

I mean I went through your ELP one of your ELPs in our area and he said geez this is not normal this doesn't usually perform this way I wouldn't touch it but that was a few years ago. Okay.

And how much other nest egg do you guys have? We're worth about $1.366 million. So she's fine if you die without these policies, and you're fine if she dies without these policies right yeah so i'm cashing them in i'm canceling them and i gotta tell you i don't think your numbers are right i have um i've been doing this i've been doing this 30 years and i've never seen a policy where the basis is 40 000 what that's your basis your basis in a whole life policy is the total premium is paid in right that's all you paid into this yeah and that's i got that straight

from their mouth to date from the company and that's why your elp says this tim is not normal it is not normal it It is not normal. It's not normal, but I'm cashing them out anyway. Because I think if you had invested the same amount of money from the 70s to now, you'd have a whole heck of a lot more than $120,000. Oh, yeah, but I did have insurance, too, in case I dropped dead. Well, you'd have had insurance if you'd bought term insurance for 5% of the cost of this and done your investing elsewhere,

you'd have a million dollars more probably. But anyway, that's behind us now. The point is you're 60-something, and if you live to 80-something, what's the best place to invest this $120,000 over the next 20 years anywhere besides a whole life policy is the answer. And so I would cash it out and put it in good mutual funds if I were in your shoes. Hey, thanks for the call. AJ is in Lansing, Michigan. Hi, AJ. Welcomeave ramsey show hey nice to talk to you you too what's up so i'm mostly going to graduate medical school i'm a fourth year right now i've had a full

scholarship and i've had a stipend so i've saved about 40 grand no student debt no car loans i've been living with my parents, and I'm going to start residency pretty soon, making about 50 grand. And I'm going to be moving in with my girlfriend, who's also going to be making about 50 grand. So together, we're going to have about 100 total annual income. I'm wondering, would it be a smart idea to start out with a starter home around $150,000? Or would it be a smarter idea to go to kind of a final home, assuming that I'm going to be making a lot more money in the future, and take on a bigger mortgage now with the easier ability to pay it

after I become independent and make it around $250,000? I would either rent until you buy that other house, or I would buy something that you can afford today and sell it when you buy the next house. Okay, so buying and selling and moving into a bigger one would be the better option? Yeah, I'm not going to overbuy what your income is today. You're 100% debt-free. 100%? I own my own car, live with my parents, no student loans,

free full-time scholarships and other things. And I would beg you not to buy a house with someone you're not married to. You're going to get yourself in a real mess. with the scholarships and other companies. And I would beg you not to buy a house with someone you're not married to. Mm-hmm. You're going to get yourself in a real mess. Mm-hmm. So we're actually planning on getting married. You're planning on getting married when? As soon as I get into residency.

Kind of trying to do it all together and one big space. Okay. Well, I would not buy a home unless you buy it in your name only with your income only, which you're going to be in residency before you do that anyway from what you're describing. So, you know, do not put her name. Do not have a roommate on your mortgage. Do not have a roommate on the ownership of your home. Really, really bad mess.

Don't do that. Please don't do that. So wait until you get married before you buy is what it sounds like because it sounds like it's all coming down the pike pretty quick. Hey, thanks for the call. Well, our question of the day comes from blinds.com. A 100% satisfaction guarantee means even if you mismeasure or you pick the wrong color, they will remake your window blinds for free.

You get free samples, free shipping, and with the new promos they run every month, you'll save even more. Use the promo code RAMSEY to get the best deal. Today's question is from Amy in Tennessee. Dave, we got $10,000 in savings that my husband's been saving for years prior to getting married. In anticipation of using it towards a down payment on a house what logic would you use to make him realize we should be using 9 000 of that towards credit card debt well it's illogical to have credit card debt while you have money in savings you're making 1% on your money, and you're paying out 22% or whatever. That's not logical.

The thing is, you can't just have this simple, thin argument between the savings and the credit card debt. You have to have an overarching decision that the two of us are going to change our lives. We're cutting up the credit card debt. We're cutting up the credit cards. We're getting on to change our lives. We're cutting up the credit card debt. We're cutting up the credit cards. We're getting on a budget. We're going to pay off the credit card debt. We're going to clean up our financial mess and stupidity. We're going to save an emergency fund, and then we're going to save a down payment.

That's the only way it makes sense because he wants to buy a house with this money, and we're going to reuse this money to get out of debt, which is going to cause you to be able to buy a house faster if you're buying a house properly and wisely. But you need to get above this problem instead of going, we need to use your savings pay off credit card debt so I can run the credit cards back up. That's what he hears.

And that's a really dumb idea. I would not do that. But you need to cut the credit cards up. You need to be on a written plan. You need to be the two of you just completely dial be on a written plan you need to be uh the two of you just completely dialed in and then you're ready to go that you know if you're working an overall plan then it makes sense to do this otherwise it doesn't so good question thanks for joining us hey folks in sacramento listen up we're bringing our fall SMART Conference event to Sacramento, November the 16th.

The first time the entire SMART Conference has been in Sacramento. This is the day-long event that touches every area of your life. It's the best minds, the best writers, the best-selling authors on any subject out there having to do with your life. Teen and millennial expert Anthony O'Neill will be with us. Marriage and relationship expert Dr. Les Parrott will be with us. Dr. Meg Meeker, the country's leading authority on parenting, teens, and children's health. So we've got parenting, we've got marriage, we've got inspiring leadership expert John O'Leary is going to be with us. Teen and millennial expert, again talking about kids, Anthony O'Neill, Ramsey personality is going to be with us.

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They'll help you. A 888-22-PIECE. 888-227-3223. This is The Dave Ramsey Show. Thank you. Thanks for being with us, America. We're glad you're here. Boyd's in Dallas. Welcome to the Dave Ramsey Show, Boyd. Hi, how you doing, Dave? Better than I deserve.

What's up? I'm in a little bit of a situation, hoping that you were able to help me. So my girlfriend and I paid off all our credit card debt. We live together. We have two children together. However, I am in a collection agency for a car rental that was in an accident with my mother, and it's $15,000. And she still has student loans, $7,000 in student loans and a $5,000 college tuition that still needs to be paid. Now, we paid off a lot of credit card debt.

The thing that I'm confused about is which way to attack this. We have about $7,000 in savings. That's including the $1,000 emergency fund, which I do want to separate that. I just don't know what's the best account to put that in. And also, I just want to pay off as much debt as I can. But we're driving a 2002 Chevy Tahoe right now that eats up gas. And I was looking at maybe get a more reliable car. I'm not sure if I should use the money in the savings to do the reliable car no

no you need to you need to quit buying stuff and you get on a tight budget and you start working your way through these debts uh which you've been kind of doing um the problem the the problem i have in helping you are advising you is um you're trying to live life as if you're married when you're not and that leaves you in a legal predicament because if you pay off her stuff with your money or she pays off your stuff with her money um there's no recourse there's no way you can there's no home mom right now i know but it's still her debt because you're not married right and still your debt because you're not married. Right. And still your debt because you're not married. She's not got any problems with the $15,000 rental car company.

You do. You've not got any problems with her student loan. She does. The only problem you've got is you're trying to live this marriage thing out and not be married. So it's going to be very difficult to work this through. But let's take a stab at it and let's see how we can get some things going um okay number one on how long ago was the fifteen thousand dollar wreck with the rental car company april of last year and why did your car insurance not cover it um well my mother had crashed a lease car that we have, and she crashed the car that she was on the policy for.

But then when we rented the rental car, I rented the car for her. And the gentleman at the office told me as long as she's on my insurance that she's allowed to drive the rental car. And once she got into her second accident within a month, She was supposed to sign the papers, and I didn't find that out until after she crashed the car. So, I mean, if he said she said thing, I tried calling lawyers and getting lawyers involved. No, I mean, you didn't have insurance. You rented a car for your mother, and she wrecked it twice after she had wrecked a car that you had gotten her before once.

This woman can't drive oh you're absolutely right good lord okay so i'm guessing she's broke yeah yeah i mean my stepfather's gonna try to pay it off but i don't i don't know what happens if we don't pay it oh they're gonna sue going to sue your butt. There's no we. It's you. Your name is on this. Her name's not on it. Correct, and that's what's stressful about it.

They're not coming after her. You're right. They're going to come after you. And so, yeah, you're going to get sued for $15,000 if you don't settle this. I would offer them $6,000 as settlement in full. Tell them you're broke. I don't have any money. I offered them $7,000, and they said they couldn't do $7,000, and that they could only take off $2,000, which would come off to $13,000.

So I don't know if that's just like become tougher and stick with my number. You don't have a choice. You don't have $13,000. Yeah. You don't have a choice so um what i would negotiate with them then is to begin to pay them payments yeah and that's what that's pretty much where that that's going yeah just say i'll start paying you 200 bucks a month until i get this paid off i don't have any money and so i can't pay you okay and then you use the other money you

have to start cleaning up. I assume the money that's in the savings account was put there partially by your girlfriend. Yeah. Okay, so that could be used partially to pay off some of her debts because your only debt's this $15,000 debacle, right? Yeah, that's the only thing I have under me. I mean, we paid off the credit card. We were real happy about that, and we said, oh, we're out of debt, but we're not really out of debt. No, you're not out of debt.

You have student loan debt. You have $15,000 debt to the rent-a-car company. Correct. So you're not out of debt. So, yeah, what do you make a year? It's tough to tell. I started a new job six months. It's performance pay.

I do HVAC, so it's A-V-H-C in Texas. What are you making? My busy season is now. I made so far, year-to-date, $42,000. Great. So you're on a, in six months, you're on an $80,000, $90,000 a year pace. Yeah, I'm hoping that continues. I mean, I love what I do.

I'm really good at it. Yeah, you're working hard, too. Yeah. Okay, so I would get the EveryDollarBudget app. It's free online. And sit down. I have it, and I started using it. And I haven't used it to the best of its ability because what I really wanted to do was pretend that I only make $1,500 every pay period.

No. I wanted to pretend that I only make $ hundred dollars um every pay period no i wanted to pretend that i only make three thousand dollars a month no you need to pretend you make what you make and put it on paper and tell every one of those dollars what to do but you're what you're saying is the same thing and that is the household needs to be on beans and rice rice and beans coupons we don't go out to eat we're not not going on vacation. We don't do anything. We have a mess. We have student loan debt.

We have this crisis where this credit, this rental car company is getting ready to sue us. We've got to get them paid off. And the good news is making 90, you can clean up 15,000 pretty quick. You know, like five, six months. You know, you can pay it off. And then you can pay off her stuff if you want to pay off her stuff and not be married to her not what i recommend but you know you can work a sideways thing on this and maybe you get a little money out of your mother maybe i wouldn't bet on it

oh don't do that stuff marcus is with us in new york hi mar Marcus. Welcome to the Dave Ramsey Show. Thank you for taking my call. I appreciate it. Sure. What's up? Hey, so your advice matches up perfectly with what my dad has been saying since I was young. You talked about it's important to eventually buy property and pay off your house. Currently, I live in Manhattan and trying to figure out if it makes sense to go from renting to buying an apartment. So currently, I live with two other roommates and pay $1,800. And I'm looking at apartments and you can get them for just shy of $1 million.

And the numbers just don't really make sense to me to take a mortgage that's about $4,000 a month versus renting. Do you agree with that? Well, it depends on the percentage of your income that it is. I would not have a payment that is more than a fourth of your take-home pay. The bad news is it's a million-dollar apartment in Manhattan. The good news is it's going million dollar apartment in manhattan the good news is it's going to go up in value okay you got good appreciation in manhattan it's a great real estate market uh it's just a very uber expensive real estate market what do you make a year

uh 190 yeah i would buy something okay because you're going to see the appreciation your your monthly cost is higher but you but it may go up. It should go up more than $4,000 a month in value. Yeah. What are your thoughts on, so I could do like a one-bedroom, I start checking them out, or about a million versus do a similar living situation I'm currently in, and work for like a three-bedroom, and then rent out the other bedrooms. Well, your rental, you know, you've got rent control and everything else,

so you're going to have to analyze whether or not you can actually get enough rental to justify the extra expense. And, of course, it depends on which area of Manhattan you're buying in as to what you're paying to. So, you know, whether you're in Soho or whether you're Upper East Side, where are you? And that's going to change. You know, there's neighborhoods, just like there is in any other city, that are cheaper than other neighborhoods. And so that's what you've got to look at and decide which area you actually want to own in. But I'm not buying something for renters, probably, in New York City.

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Black Friday in July, sale ends soon. Go to the online store at DaveRamsey.com or call the Ramsey Concierge Team at 888-22-PIECE, 888-227-3223. Kobe is with us in Baton Rouge. Hi, Kobe. Welcome to the Dave Ramsey Show. Thank you, Dave. How are you?

Better than I deserve. What's up? Hey, great to be talking with you. Pleasure. Thanks for taking my call. Sure. How can I help? So I got a little sticky situation.

I started listening to you a little bit too late. I made an emotional decision and bought a house instead of renting until I was better able to, you know, financially afford it. Gotcha. And I'm kind of in the process of doing it. It's a little bit of a sticky situation because I'm in the process of getting a house, but I did put a down payment for upgrades, but I did not close yet. I'm currently making a net about $62,000 a year.

The payments are going to be between $1,400 and $1,500 a month. So it's just that, about a fourth of my income, maybe just a little bit above. But I'm trying to figure out, do I just stick this out and make these payments, or should I attempt looking at renting, selling the house or just kind of how to get out of this situation or if I should just, you know, go ahead and make it work. And I'm also in, I have 74,000 in debt. On what? Primarily student loans. 58,000 student loans, 8,000 credit card, 6,000 in car note, and about 2,000 in collections. Okay. So it sounds like you bought a new house and they're finishing it up and you haven't closed on it yet.

Yes. Okay. When's the closing scheduled? In about one month from now. Okay. All right. Well, I mean, you signed a contract that says you're going to buy the house, which means you gave your word, right?

Yes. And I don't think they have an out in the contract, do they? Do they have a clause that says you can just not close if you don't want to close? Not that I'm aware of, but from what I've heard, I'm not. I mean, like you said, it's almost just my word, I guess, but I don't think they can kind of come after me if I don't close. But if I do just, you know, let this go, then I've already put in $5,000 for basically upgrades. And so I would just lose that. I did sign something saying that I do not get any of that back.

Yeah, and you don't get any earnest money back. If you put down earnest money as well, they'll keep that. All because you broke a contract is what it amounts to um yeah you know this this is a not the proper time for you to be buying a house but you've already given your word i'm not i don't tell people to break contracts um i mean you know if it was if the payment was double this or something i'd probably go in and tell you go in and sit down and have a meeting with them and you know beg for some mercy to be let go uh to be released but in this case it's a fourth of your take-home pay it's just the improper you just i wouldn't have told you to buy a house while you had seventy thousand dollars in debt and two thousand of it in collections so i'm not

sure how you're getting this mortgage if you got stuff in collections how are you getting approved but if you don't get approved for the mortgage by the way you're you're how you're getting this mortgage, if you've got stuff in collections, how are you getting approved? But if you don't get approved for the mortgage, by the way, you're not bound, because I'm sure the contract says it's contingent upon you getting financing. So hopefully, you know, I mean, there's a possibility still the mortgage will get turned down, but I'm guessing before they let you get this far in that they got you approved somehow. So, yeah, go ahead and close and then just start your plan and just work with earnest to get the mess cleaned up. But I wouldn't – it's not what I would have told you to do,

but I'm also not going to be in the business of telling people to break their word or break contracts on things. Chris is with us in Tulsa, Oklahoma. Hi, Chris. Welcome to the Dave Ramsey Show. Hi, Mr. Ramsey. Thank you for taking my call. Sure. How can I help?

So, I just started a new job and my company, Master My 401k, is 20% of anything that I put in. Great. So, I'm wondering how much I should put in. Are you in baby step four, putting 15% of your income away? Yes, sir. Then put 15% in there.

Okay. Put the full 15% in the put the full 15 because you're going to get 20 you're going to make 20 on your money before your investments do anything okay awesome i thought that i just wanted to get clarity absolutely and you know the four types of mutual funds we teach and you know to do a roth 401k do they have a roth available yes sir good do the roth and put a fourth in growth a fourth in growth, a fourth in growth income, a fourth in aggressive growth, and a fourth in international. And that will get you in a really, really good place. So, hey, man, congratulations.

You're kicking it. Well done. Mackenzie is in Portland, Oregon. Hi, Mackenzie. Welcome to the Dave Ramsey Show. Hi, Dave. Thanks for taking my call. Sure.

How can I help? So I have a little question about what my husband and I should do as far as life insurance. We are 25 and 27. We have one and four-year-old kids. Currently, we have no life insurance, and we're looking into the term life insurance policies. Our income right now is $40,000 a year. Is how much? $40,000.

Your income or his? I'm the only one working right now. He's staying home with our kids. Okay, so you make $40,000 a year. So you would need $400,000 to $500,000 on you. Right. In about 10 years, we're expecting our income to be three times what it is right now. And I would worry about insurance at that level in 10 years.

But for today, you would replace your income on you, and I'd put about $250,000 on him. Right. What we're wondering is if we should do a 10-year policy now no and then in 10 years do a different policy no you need to do because we don't know we don't know what's going to happen to your insurability and so i would do a 15 to a 20 year level policy of 500 on you and 250 on him it doesn't cost anything at your age unless you've got smoke or you're overweight or something. Are you healthy? Yes.

Okay. I mean, have you priced it at Zander Insurance? It doesn't cost anything. Okay. It's really inexpensive. I get $500 on you, $250 on him, 15- or 20-year level term. Get little kids, I'll probably do a 20-year level term. And then what's going to happen is you're going to buy more insurance later as your

incomes go up that you want to replace. But for today, that's all you need to do today. Hey, good question. Thank you for joining us. If you have a net worth of a million dollars, we need to hear your story. Next week, we're going to be doing a millionaire theme hour, an everyday millionaire theme hour, and we want to talk to real millionaires and i don't care where you got your money if you inherited it if you stole it if you hit the lottery

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Not someone who just graduated from college and their liberal professor told them how things work. These are real people who've really built wealth, and how do you do it? And we're here to help you. So check it out. Email DaveOnAir at DaveRamsey.com if you're a net worth millionaire. This is the Dave Ramamsey.com if you're a net worth millionaire. This is The Dave Ramsey Show. Hey, guys. This is Blake Thompson, senior executive producer of The Dave Ramsey Show.

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