Unpopular Opinion: I don't like Dave Ramsey

[Carpet Capital Shyster]

"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.

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.

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.

 

[Muleys32]

Here's my take on it:

Follow his plan starting at a young age and 98% of folks will retire multimillionaires, with little to no risk along the way. A high majority of American's who don't, end up being 50-60 years old with nothing in the bank. But they get 2% cash back on their credit card!

 

[MattB]

Here's my take on it:

Follow his plan starting at a young age and 98% of folks will retire multimillionaires, with little to no risk along the way. A high majority of American's who don't, end up being 50-60 years old with nothing in the bank. But they get 2% cash back on their credit card!

While I generally agree with that, one negative I see with some Ramsey followers is that they are so focused on the program they don't live their lives along the way. Retiring as a multi-millionaire is all good, but if you do so and haven't chased your passions along the way I do question what you did it all for?

 

[Will_m]

Sure, but on the flip side, at least somewhat adhering to his principles has created a tremendous amount of freedom for me. By being debt free, it’s enabled me to save up and take my family on some tremendous vacations without sweating how in the heck I was gonna pay for it. Being debt free allows me to practice in an area of my profession that I find very satisfying and that also allows for a ton of vacation leave, but doesn’t compensate me as well, financially as other areas. While a lot of my friends are miserably toiling away in firms chasing the billable hour, I almost never get the Sunday blues and I sure enjoy all the long weekends I get to enjoy in the Appalachian mountains and the lengthy vacations out west. I’d never be able to do any of that if I was working on a hamseter wheel to service a bunch of debt and other financial obligations.

What magical area of law do you practice in??????

 

[MattB]

Sure, but on the flip side, at least somewhat adhering to his principles has created a tremendous amount of freedom for me. By being debt free, it’s enabled me to save up and take my family on some tremendous vacations without sweating how in the heck I was gonna pay for it. Being debt free allows me to practice in an area of my profession that I find very satisfying and that also allows for a ton of vacation leave, but doesn’t compensate me as well, financially as other areas. While a lot of my friends are miserably toiling away in firms chasing the billable hour, I almost never get the Sunday blues and I sure enjoy all the long weekends I get to enjoy in the Appalachian mountains and the lengthy vacations out west. I’d never be able to do any of that if I was working on a hamseter wheel to service a bunch of debt and other financial obligations.

Good for you, there are many paths to happiness and financial independence. I on the other hand embraced debt to buy rental properties in the early 2010's. Now most of my family's vacations are paid for by our tenants (as well as our mortgage payments, insurance, property taxes, and management fees).

 

[Muleys32]

While I generally agree with that, one negative I see with some Ramsey followers is that they are so focused on the program they don't live their lives along the way. Retiring as a multi-millionaire is all good, but if you do so and haven't chased your passions along the way I do question what you did it all for?

That is a true point. The plan that makes a person too tight to enjoy their lives is a bad plan. In theory one has to live very frugally for a short period of time. After that it really opened up way more freedom for me and my family to intentionally spend money on what we enjoy, as well as being able to afford to freely give where we so choose.

Another perk for me being in sales, I don’t need the next sale to pay my bills. This allows me to better serve my clients and in a roundabout way makes me have more clients. They can feel it when someone NEEDS their business even if it’s not right for them.

 

[Carpet Capital Shyster]

Good for you, there are many paths to happiness and financial independence. I on the other hand embraced debt to buy rental properties in the early 2010's. Now most of my family's vacations are paid for by our tenants (as well as our mortgage payments, insurance, property taxes, and management fees).

That is an absolutely great point and one reason I don’t fully adhere to Dave Ramsey. Life’s too short to make your family miserable by being a total skinflint and this was really hammered home to me when my mother got sick last year (she’s fine now). It was definitely easier to loosen up after the first 5-6 years since I felt we had been set in a proper savings trajectory. I found the basics of his formula to enhance my life and I’ll quit adhering to them when they cease to enhance it. His investment advice isn’t the best for those who have a good handle on their finances, and I certainly don’t look at someone who is achieving financial success a different way as doing anything wrong. There’s more than one way to skin a cat, for sure. If anything, I like to observe them to see what they’re doing differently and maybe incorporate it myself.

 

[MattB]

That is an absolutely great point and one reason I don’t fully adhere to Dave Ramsey. Life’s too short to make your family miserable by being a total skinflint and this was really hammered home to me when my mother got sick last year (she’s fine now). It was definitely easier to loosen up after the first 5-6 years since I felt we had been set in a proper savings trajectory. I found the basics of his formula to enhance my life and I’ll quit adhering to them when they cease to enhance it. His investment advice isn’t the best for those who have a good handle on their finances, and I certainly don’t look at someone who is achieving financial success a different way as doing anything wrong. There’s more than one way to skin a cat, for sure. If anything, I like to observe them to see what they’re doing differently and maybe incorporate it myself.

I think smart people can leverage the experience and successes of others. To that end, I identified early on the real estate was the best way the average person to build wealth. Not only does it generally take leverage to so that, but as an extension of that you get the benefit of leverage if successful.

My biggest regret from 2010-2013 is I didn't go bigger.

 

[Carpet Capital Shyster]

I think smart people can leverage the experience and successes of others. To that end, I identified early on the real estate was the best way the average person to build wealth. Not only does it generally take leverage to so that, but as an extension of that you get the benefit of leverage if successful.

My biggest regret from 2010-2013 is I didn't go bigger.

For sure. I didn’t have two nickels to run together in 2010 or else I would have jumped into one or two rental properties myself. One of my big points of contention with Ramsey is he seems to believe strongly in investing in real estate yet he only wants you to pay for that upfront in cash? 1) How the heck is that even practical and 2) don’t you lose one of the key benefits of real estate investing which is having a tenant pay your mortgage for you?

 

[hodgeman]

2) don’t you lose one of the key benefits of real estate investing which is having a tenant pay your mortgage for you?

I think Dave's beef with that approach is that you're on the hook for the mortgage, not your tenant. I do have one rental and it pays pretty well and isn't bad to manage. But one thing is for sure, if the tenant doesn't pay...it won't sink me cause it's paid for!

 

[Hamp1127]

The other thread got me thinking and I'm just wondering if anyone else feels the same. I'm just stirring the pot a bit, but I love talking finances.

Anyone else here despise Dave Ramsey's advice for people with a handle on their finances? I can't imagine I'm the only guy, I'm sure it's an unpopular opinion but here are my main reasons.
1.) His early advice is good for people struggling, but he's snake oily to me when he talks about using only his endorsed local providers including financial planners (which have no fiduciary responsibility to their clients) or real estate agents. You think his trusted "partners" actually do anything other than pay his company for that certification? They end up getting paid more when they pick high commission funds (less money for you)
2.) He advises against ETF's even though they generally beat his mutual funds when you include fees all f-ing day.
3.) The way he treats people with different opinions of his is ridiculous. They're an idiot or a moron if they don't think his advice is gold.
4.) His opinion that essentially all debt is bad other than your personal home. I have a ton of mortgages on investment property that pay me every single month, couldn't purchase them without debt.
5.) You likely won't get 12% returns in the stock market, especially with his mutual fund ideas when you count fees.
6.) Credit cards are not evil, personal control is. I could take my family to Hawaii every year on credit card rewards just from my business on things I need to spend money on.

People who he's great for.
1.) People struggling with their finances.

He'd tear apart my portfolio, but my net worth would be about 30% of what it currently is if I would've went his route 4 years ago instead of buying my first rental. I'm a much bigger fan of the choose FI, biggerpockets, bogleheads, or mr money moustache train of thought.

Just like any other advice in life, take what works for you. A little from here and a little from there and a little of your own usually works best. I agree with you about how he treats people who disagree. He usually resorts to name calling and yet all of his principals are bible based. He needs to mature in that aspect but overall I think he's good for those in need of some direction who struggle budgeting.

 

[Marble]

For sure. I didn’t have two nickels to run together in 2010 or else I would have jumped into one or two rental properties myself. One of my big points of contention with Ramsey is he seems to believe strongly in investing in real estate yet he only wants you to pay for that upfront in cash? 1) How the heck is that even practical and 2) don’t you lose one of the key benefits of real estate investing which is having a tenant pay your mortgage for you?

He wants people to pay cash and not have debt. This includes all investments, which real estate, outside of your primary residence, he includes in that rule.

And the danger of having a mortgage paid for by a tenant is that most people cannot swing their mortgage and the rental. Then they are screwed when crap happens.

Having the tenant pay works really well most of the time. But when it doesn't work, it really causes an issue.

Similar to what is happening now with Cobid and people not paying rent.

Sent from my SM-G986U using Tapatalk

 

[CorbLand]

My uncle owns about 10 rentals that he has purchased over the last 15 years. Most on credit but follows the rule of 6 month emergency fund. This includes his rental properties. He also has the advantage of multiple wealthy friends, so if he gets in a bind, one of them can help him out. There are about 6 of them that have all been there for each other a couple times.

 

[Wib]

I have listened to Ramsey for years, off and on. I'm in my 50's, house paid for, haven't had a car payment in near 30 years and we drive newer stuff. So it's not like he's helped me. I find it interesting is all. I agree with most who have said he is designed to help those in debt, and the more debt the more so. I don't agree with him on a number of things. Leasing is not ALWAYS fleecing, there are times you absolutely must borrow some money for college and it makes good sense to, and service contracts for automobiles are not all the same. I've never leased, haven't had college loans, and not a big service contract guy. BUT, he's not always right about those things among others. He HAS helped many, many people and it would be good to teach the bulk of what he has to say in high school.

 

[DLIP]

My last interest rate on a car was 1.5%. If you take that 25K and invest it you will make way more than 1.5%.

This is NOT a call out to Crghss, more just thinking about the statement because I hear this rationale all the time from people I know personally.

When I see/hear statements like this, I always wonder ,”did that person actually invest or have the ability to invest said money into a return greater than the loan interest or is that person just justifying debt with no real intentions to invest?”

I think the thought process that you should put your money where it can get the most return makes sense, but for me if I had enough money laying around to buy a $25k car with cash, I would also have enough disposable income to invest outside of my retirement funds + rainy day savings and would probably opt to “DO BOTH.”

I’m one of the money idiots that doesn’t have a clue about investing outside of my 401k and actually have ordered a couple of the investing books I’ve seen mentioned here. My wife and I have been very fortunate to have jobs that pay well, > 1 year of rainy day money in the bank, 401k’s maxed out and no debt beyond our house(2.9% interest with hopes to pay it off in the next 5 years). Feel like we are in a good position to start throwing some extra cash in the market. Im really enjoying this thread.

 

[Molon Labe]

Ramsey is the McDonalds of financial advice.
Quick and easy. But if you eat it every day you will die.

 

[grossklw]

appreciate the OPs thoughts, but what I didn't see in there was if the market goes way way south (or something else happens) how all that risk is gonna be offset without going under?

That's what I take from Dave's discussions, that debt's all good until it's not, then it's really bad.

I have no debt except my house and no credit cards, and am pretty happy with my situation, but I'm not rich either.

My boss went the full-on debt route and is worth about 5-10 Million$, about the same number of sleepless nights he's endured, plus two stress related heart attacks (according to his doc), plus he's had to bow to shareholders and has specifically said that's very tough ("...the borrower is slave to the lender..." as Dave says.)

I do believe Dave come's across as arrogant when he starts the name calling.

good post.

Robby-
I didn't say I was leveraged to the gills. My entire rental portfolio could stop paying rent right now and I wouldn't miss a mortgage payment for a full calendar year just based on what I have sitting in reserves. And that's not counting any of our retirement accounts that I could dip into if I really needed it. Even at 50% occupancy/paying I'd be ok for quite some time. I'm guessing a lot of people who get into trouble spend some of the cash flow coming in, I haven't spent a cent of mine and I'm hoping that will insulate me should it hit the fan.

I would never tell any of my buddies to skirt by on fully leveraged deals with thin margins, good investors (especially real estate) should be investing from a position of strength, not weakness.

"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 agree, people who are highly leveraged without reserves get their ass kicked when it hits the fan...as they should.

Your client is a poor investor and sounds like an even worse property manager (hint hint, tell him to hire someone that does it for a living). I've had exactly one eviction in the last calendar year and have missed less than 2% of rent across 65 units in my portfolio. I worked with tenants, waiving late fees, spreading one months rent over the next several, etc. Tenant screening matters and it sounds like he did none. Good, solid, working class tenants that eventually have hopes to buy their own home one day don't want a judgment of money or eviction on their record. Investing in a landlord friendly state helps as well. Can't imagine being a landlord in NY or CA right now.

I would also argue that real estate is a nice buffer against the coming inflation with the fed printing trillions. I'm buying real estate with today's dollars and paying it off with tomorrow's less expensive money. You are right though, people think it's going to go up forever, and it's not. The Warren Buffet quote is pretty spot on where you'll see who's naked on an outgoing tide.

This is NOT a call out to Crghss, more just thinking about the statement because I hear this rationale all the time from people I know personally.

When I see/hear statements like this, I always wonder ,”did that person actually invest or have the ability to invest said money into a return greater than the loan interest or is that person just justifying debt with no real intentions to invest?”

I think the thought process that you should put your money where it can get the most return makes sense, but for me if I had enough money laying around to buy a $25k car with cash, I would also have enough disposable income to invest outside of my retirement funds + rainy day savings and would probably opt to “DO BOTH.”

I’m one of the money idiots that doesn’t have a clue about investing outside of my 401k and actually have ordered a couple of the investing books I’ve seen mentioned here. My wife and I have been very fortunate to have jobs that pay well, > 1 year of rainy day money in the bank, 401k’s maxed out and no debt beyond our house(2.9% interest with hopes to pay it off in the next 5 years). Feel like we are in a good position to start throwing some extra cash in the market. Im really enjoying this thread.

You ever want to throw some cash at some rental properties go to biggerpockets and order a few books. You'll thank me later

I just have a real hard time with his cult-like following (several friends are incredibly pushy that his advice is gospel and the only way to build wealth) and the need to only use one of his financial advisors or real estate agents. I completely agree he's great for people who struggle with their finances, but once your net worth hits zero he's one of the last guys I'd follow. I can see the argument that less debt is less stress. My counter-argument to that would be my stress levels would be higher knowing that I need to work until I'm 60 if I go his route....or I can grind out a few more years at my W2 and keep investing in real estate and pick my own hours before my oldest kid turns 6. I've replaced my wife/mine w2 income, but I'm planning on doubling our income's before I consider stepping away from my actual job to ensure I have a significant buffer for when the tide does finally go out (which it will).

Point of my original post was to create a discussion, and it's done that. Interesting to see where everyone sits on it.

 

[Carpet Capital Shyster]

Robby-
I didn't say I was leveraged to the gills. My entire rental portfolio could stop paying rent right now and I wouldn't miss a mortgage payment for a full calendar year just based on what I have sitting in reserves. And that's not counting any of our retirement accounts that I could dip into if I really needed it. Even at 50% occupancy/paying I'd be ok for quite some time. I'm guessing a lot of people who get into trouble spend some of the cash flow coming in, I haven't spent a cent of mine and I'm hoping that will insulate me should it hit the fan.

I would never tell any of my buddies to skirt by on fully leveraged deals with thin margins, good investors (especially real estate) should be investing from a position of strength, not weakness.


I agree, people who are highly leveraged without reserves get their ass kicked when it hits the fan...as they should.

Your client is a poor investor and sounds like an even worse property manager (hint hint, tell him to hire someone that does it for a living). I've had exactly one eviction in the last calendar year and have missed less than 2% of rent across 65 units in my portfolio. I worked with tenants, waiving late fees, spreading one months rent over the next several, etc. Tenant screening matters and it sounds like he did none. Good, solid, working class tenants that eventually have hopes to buy their own home one day don't want a judgment of money or eviction on their record. Investing in a landlord friendly state helps as well. Can't imagine being a landlord in NY or CA right now.

I would also argue that real estate is a nice buffer against the coming inflation with the fed printing trillions. I'm buying real estate with today's dollars and paying it off with tomorrow's less expensive money. You are right though, people think it's going to go up forever, and it's not. The Warren Buffet quote is pretty spot on where you'll see who's naked on an outgoing tide.


You ever want to throw some cash at some rental properties go to biggerpockets and order a few books. You'll thank me later

I just have a real hard time with his cult-like following (several friends are incredibly pushy that his advice is gospel and the only way to build wealth) and the need to only use one of his financial advisors or real estate agents. I completely agree he's great for people who struggle with their finances, but once your net worth hits zero he's one of the last guys I'd follow. I can see the argument that less debt is less stress. My counter-argument to that would be my stress levels would be higher knowing that I need to work until I'm 60 if I go his route....or I can grind out a few more years at my W2 and keep investing in real estate and pick my own hours before my oldest kid turns 6. I've replaced my wife/mine w2 income, but I'm planning on doubling our income's before I consider stepping away from my actual job to ensure I have a significant buffer for when the tide does finally go out (which it will).

Point of my original post was to create a discussion, and it's done that. Interesting to see where everyone sits on it.

What are a few books you would recommend to learn the basics of real estate? I’ve read a couple and was very intrigued. Most of our net worth is in our 401ks but we do own some farm and timberland which is real easy to manage on a day to day or even yearly basis. I’d like to take on a rental at some point and see how it goes. My goal would be to eventually have half my net worth in real estate. I don’t even know if it would be practical but eventually I’d love to buy a place in a ski town in Montana or Wyoming (couldn’t afford Jackson or big sky) and see if I can rent it out during the high seasons to break even and then Ultimately own it free and clear when it comes time for me to flee this deteriorating state. Has anybody else bought a condo/cabin somewhere like Red Lodge and been able to make it work through rentals?

 

[grossklw]

What are a few books you would recommend to learn the basics of real estate? I’ve read a couple and was very intrigued. Most of our net worth is in our 401ks but we do own some farm and timberland which is real easy to manage on a day to day or even yearly basis. I’d like to take on a rental at some point and see how it goes. My goal would be to eventually have half my net worth in real estate. I don’t even know if it would be practical but eventually I’d love to buy a place in a ski town in Montana or Wyoming (couldn’t afford Jackson or big sky) and see if I can rent it out during the high seasons to break even and then Ultimately own it free and clear when it comes time for me to flee this deteriorating state. Has anybody else bought a condo/cabin somewhere like Red Lodge and been able to make it work through rentals?

The book on Rental Property Investing- Brandon Turner
Buy, Rehab, Rent, Refinance, Repeat- David Green (I use this strategy a lot)
What every real estate Investor needs to know about cash flow- Frank Gallineli
Recession Proof Real Estate Investing- J. Scott

Podcasts-
The Real Estate guys Radio (love this for macroeconomics, not a ton of little details though)
Biggerpockets Real Estate Investing Podcast (need to jump around, but specifically shows 200 and 300 to get started buying)
Vacation Rental Success (for short term rentals, used this one a lot lately as I got my cabin underway)
The daily Real Estate Investor (good nuts and bolts podcast)

There are a few different short term rental forums to check out including biggerpockets which I frequent. Also as an FYI I only manage my short term rental, I have property management for the rest of my portfolio and they do a phenomenal job, but if you hire a bad one it can be really really bad.

The numbers can certainly work with short term rentals. I bought my first one this summer on Lake Superior and have it listed now that renovation is complete with proper permitting and have had 5 bookings in the first 4 days it's been online. It can be a bit of a battle getting the necessary reviews, but I think it's going to be a great long-term investment. It's important to make sure your market allows them, some like Duluth MN do not unless your grandfathered in.

 

[Scooter90254]

The world is weird these days. You can agree with 90% of what the guys says but because you disagree with the other 10%. He's dumb and you don't like him.

If the OP has 12 months of emergency fund and no unsecure debt then he's following about 90% of his plan. Its the last 10% you're disagreeing about.

Have a sizeable emergency fund
Spend your money wisely to get the best value.
Don't carry large unsecure debts.
Don't over pay for cars/boats/etc.
Have a budget/plan
Carry as little debt as possible
Invest in good mutual funds

That's 90% of his teachings.

Once you have all that in place and you want to venture out with some risk good for you. In a private conversation he would probably agree.