Carpet Capital Shyster
Lil-Rokslider
- Joined
- Aug 1, 2020
- Messages
- 146
Yup, some of y’all must not remember the 08 recession. That’s when all the folks getting rich off of borrowing other people’s money or otherwise performing some financial tricks to boost their net worth got absolutely bombed back to the Stone Age. Warren Buffett said something along the lines of “when the tide goes out, you see who has been swimming naked” or something along those lines. As a country, we were very fortunate to have so far dodged that type of disaster again with the recent shut downs but I did see some insane figure that 12 million folks are behind $5k or more on their rent and mortgages right now because of the corona situation. You can bet the landlords who hold the notes on these properties are sleeping fitfully; especially the ones who used a good bit of leverage as a tool to increase their balance sheet. When my wife lost half of her income during the shutdowns, I was mighty glad, we had kind of followed Dave Ramsey and had a big emergency fund and no debt except for the house. I doubt I’d have been able to sleep at night during the spring if I had a bunch of leverage hanging out there."That's what I take from Dave's discussions, that debt's all good until it's not, then it's really bad."
I'm old enough to remember a few big economic disasters...folks who are highly leveraged always seem to splatter when that happens and it happens periodically.
I've got a client with almost $3M in real estate that he's 95% leveraged on...14 units of Class C residential properties that aren't cash flowing for squat. He was a big believer in the whole "get rich off other people's money" thing a'la what Dave tells you is a bad idea and is regularly taught by a whole bunch of folks on late night TV.
2/3rds of the tenants haven't made rent since March and he can't evict anyone for months yet to come. He figures by the time the dust settles, someone will buy his properties from the bank for a deep discount and he'll be bankrupt. He described it as drowning in slow motion and he's been going under since June.
Leverage is a two edged sword that people forget will cut you both ways.
I’m a Dave Ramsey fan, among others (eg Bogleheads, MMM, and White Coat Invester) , but I admit I don’t follow all of his advice. I luckily found him on the radio on one of my 3 hour drives from school in Athens to my hometown. At the time, I was weighing law school options and his diatribes against student debt really affected my thinking. I ended up going to the cheapest decent/good school I was accepted to instead of an out of state school that I had my heart set on. I never regret it for a second. I was able to avoid many of the high loans my peers did and I quickly paid the smaller loans off within 5 years of graduating.
His show made me more debt averse early in life and it kept me from making some huge mistakes like taking an inordinate amount of lavish vacations and buying new cars like my peers did. My wife and I took his class before our second child to make sure we were on the same page and thankfully, we were. It was a good refresher/ reinforcement. Financial problems between couples can absolutely tear a family apart and I see it a lot in my profession.
I admittedly don’t follow his formula completely and he’d probably yell at me on the air for some of the things I’ve done (ie financed a new used truck to get a better price and then paying it off within a year or so) but his formula does provide a great basic framework for the general population. There’d be a hell of a lot less financial misery and uncertainty in this country if the vast majority of people understood and subscribed to the common sense principles he espouses. Lordy, if folks just casually followed his investing advice a fellow making $50k at 25 years old would likely have around $1.4 million at age 60 for retirement.
TLDR: Dave Ramsey made my life better and I am glad I listened to him when the wolf came knocking at my door this spring.