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Dave Says Archives for 2023-03

Pay Off My Home or Buy a Rental?

 

 

Dear Dave,

 

I’m going to sell a rental cabin I own, and the sale should bring me about $388,000. Should I take the proceeds from the sale and use it to pay off my home and other debt or use the money to buy another, similar rental property where I could collect about $1,500 per month in rent? Right now, I owe $200,000 on my home, and I have just under $50,000 in miscellaneous debt.

 

Valerie

 

 

Dear Valerie,

 

Let me start by asking you a question. If your home were paid for and you didn’t have a mortgage at all, would you take out a loan against your home to buy a rental property? Let me give you a hint. The answer should be a big, fat no.

 

The shortest distance between where you are right now and a high-quality financial life—including wealth building—is getting your home and other debt paid off. Then, use the cash flow that’s freed up, and the increased peace of mind, to rapidly pile up a bunch of money and buy another rental property.

 

There’s nothing wrong with owning rental properties and other kinds of real estate, Valerie. I love real estate, and today, I have several rental properties of my own. The difference is I bought all of mine with cash. I didn’t go into debt for them. I learned my lesson about debt the hard way over 30 years ago, and I don’t want you to take a chance on suffering through all that crap too.

 

Use the money from the sale of the cabin to pay off your home and other debt, and to make sure you’ve got a solid emergency fund of 3–6 months of expenses set aside. After that, if you want to start saving aggressively for another rental, go for it. Just make sure it’s a smart buy when the time comes and that you pay for it in cash!

 

— Dave

 

 

Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning AmericaCBS This MorningToday, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for the company Ramsey Solutions.

Tips for a First-Time Home Buyer

 

 

Dear Dave,

 

I’m 20 years old, and I’m planning to buy a home in the next year. Besides having a 20% down payment, what other tips do you have for a first-time home buyer? Also, is there anything I need to guard against when it comes to buying a house?

 

Jacob

 

 

Dear Jacob,

 

I’m glad you’re planning on making a down payment of at least 20%. That’s a smart move, because it’ll help you avoid the added expense of private mortgage insurance (PMI). Also, remember to get a 15-year fixed-rate mortgage loan, one where your payments are no more than 25% of your monthly take-home pay.

 

Now, the next pieces of advice are for you, Jacob, and anyone else who’s planning to buy real estate. Always get title insurance. Always! If you’re buying a piece of property that’s not a traditional subdivision-type lot, have a survey done. This isn’t as much of a worry with a standard subdivision lot, something that’s pre-platted and has changed hands three or four times. But you don’t want to buy a piece of land under the impression that it’s 3 acres and then find out the hard way it’s only 2.25 acres. Get a home inspection too. Unless you happen to be an electrician, contractor or something like that, you’re probably not an expert on things relating to home construction.

 

This last piece of advice may sound funny, but don’t buy a house with a great, low price if it looks ugly from the street. I did that with the very first house I bought, and it’s a bad idea. No matter what you think, when it comes to houses, you can’t fix ugly. You can change out carpet, and you can put up new shutters or gutters and stuff like that. Those things aren’t a ton of work. But there’s a reason you can get a screaming deal on an ugly house—it’s ugly. And the guy you sell it to down the road is going to get a great deal on the house. Why? Because it’s just an ugly house.

 

If you’re not careful, you can get a little too excited on your first home purchase. So stay smart, look at everything involved, and don’t let a case of house fever push you into a big, expensive mistake!

 

— Dave

 

 

* Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show. He has appeared on Good Morning AmericaCBS This MorningToday, Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people take control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

This Guy Has Potential!

 

 

Dave,

 

Recently, I made a few hires for the upcoming season for my lawn care business. They’re all good, motivated people, but one really stands out from the rest. I could see him moving out of the field and into a sales position before the end of the year. How should I begin laying the groundwork for this idea?

 

Dan

 

Hi, Dan,

 

This is great to hear. Believe me, I know the feeling when you look at roomful of people and realize you’ve built a really good team. I’m excited for you!

 

One of the first things I’d do is talk to some other owners of landscaping companies outside your area that are about your company’s size and pick their brains as to how they’re structured. Let them know you’re thinking about hiring your first salesman, and find out how they pay their team and if it’s working well for everyone.

 

What we’re talking about here is called best practices in business. Find something that works for someone else in your industry and apply it to your specific situation. Think about it this way: If you wanted to lose weight, you’d begin by doing what people who have shed some pounds are doing, right? You want to emulate behavior that’s been proven to generate positive results.

 

I’d also advise you to make sure the person you’re talking about is on board with the idea and that he understands that any compensation agreement you initiate in the beginning will be implemented on a trial basis for a specified length of time. You’re venturing into uncharted territory here, Dan, so come up with a temporary compensation plan that’s satisfying to you both at the onset. Then, have an agreement to revisit the plan in 90 days, six months or even a year down the road. There may be a little bit of give and take involved, and it’ll take some time, but at the end of the day, you’ve both got to be okay with the upside and downside of the scale and the results.

 

You’ll both be really happy if he’s busting it and making himself and the company successful. But as a business owner, you’ll want him to feel a little pressure if he’s not producing—for himself and for you!

 

 

Leadership and small-business expert Dave Ramsey is CEO of Ramsey Solutions. He has authored eight national bestselling books, including EntreLeadership, and is a host of The Ramsey Show and The EntreLeadership Podcast.

Sometimes Helping Means More Than Just Giving

 

 

Dear Dave,

 

How do you handle a situation where someone needs financial help, but has misspent money you’ve given them in the past? My wife and I have been trying to help a young man we recently met. He told us he was trying to get his life together after a divorce and job loss, and he just needed a little money for groceries and household items. He has asked us a couple of times since for more money, but we discovered he was buying alcohol with most of the cash we gave him. We learned from friends what he said about losing his job and being divorced was true, but we are unsure what to do next.

 

Andrew

 

 

Dear Andrew,

 

This young man’s problem sounds as much like a mismanagement of money as it is a lack of money. He seems to have an issue with lying, and possibly an addiction problem, too.

 

I’ve never been against helping people who have good hearts and just need a break. But if someone is bold enough to ask for your money, you have every right to attach requirements to the help you give—especially when it’s for their own good. If he really needs food or household things, you can just buy them for him. At least that way, you’d know you were providing necessities. 

 

But in many cases, truly helping someone is a lot more work than just giving them money. Sometimes, you have to get down in their mess, get real with them and walk with them. If you haven’t been put off by what has already happened, and you still really want to help, I’d suggest getting to know this young man and his situation a little better. Be straight with him, and let him know you’ve learned he hasn’t been honest with you in the past. Hopefully, as a result he’ll apologize and start making better choices. If he does, you might even offer to arrange for him to talk to a good pastor or counselor.

 

This whole situation is much bigger than helping someone with a little cash. This guy needs someone who cares enough to help him get his life back together.

 

— Dave

 

 

Dave Ramsey is an eight-time national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 18 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

 

I Wouldn't Do It That Way

 

 

Dear Dave,

 

I have an uncle who wants to gift some property to one of his sons, myself and my sister. The property is about two-and-a-half acres, and it’s probably worth around $125,000. My wife and I are trying to pay off debt in Baby Step 2 of your plan, and we’re not sure how we feel about the situation. What do you think?

 

Dave

 

 

Dear Dave,

 

If your uncle asked me if he should do this, my answer would be no. The thing is, you’ve got three different sets of people with different lives and very different situations. Not only that, but these three potential co-owners probably have differing ideas about the land and what should or shouldn’t be done with it. To me, the whole thing sounds like a big family fight just waiting to happen.

 

If I were in his shoes, I’d just sell the property and split the money equally between the three of you. It’d be a lot easier that way, and you’d avoid the chance of hard feelings between you and your relatives down the road. Don’t get me wrong, your uncle sounds like a kind and generous man. He’s trying to be a blessing to all three of you, but it has a very real possibility of causing unintended problems he may not see coming.

 

That’s the way I’d handle it, Dave. A couple of acres of dirt split between three people isn’t worth all the squabbles and bad feelings it could cause.

 

— Dave

 

 

 * Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of “The Ramsey Show.” He has appeared on “Good Morning America,” “CBS This Morning,” “Today,” Fox News, CNN, Fox Business and many more. Since 1992, Dave has helped people regain control of their money, build wealth, and enhance their lives. He also serves as CEO of Ramsey Solutions.

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