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+--- Thread: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey (/showthread.php?tid=54306)
Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - Microman - 05-04-2008
I listen to an all news radio station, but on Sunday mornings they put on this paid advertisement with call in listeners. This Mortgage Makeover guy "Micheals" swears that everyone should take out their equity before it is all gone and reinvest.
I watch the Dave Ramsey guy on cable tv and first listened to him on radio on a trip. He insists that we should never buy anything on credit, and even cut up your credit cards. Not sure how one is to buy a house with Daves's approach.
Which of these two thoughts would be the wisest? I consider the guy trying to have you go more in debt and use your equity to buy something else a risk taker.
Anyone familiar with either?
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - Black Landlord - 05-04-2008
I you could guarantee a certain level of appreciation for a property for a certain period of time, you'd be able to compare the return to the cost of the money, and putting equity into other purchases would be a smart move.
But you can't.
And lots of small-time real estate investor types are in dire straits at the moment.
The best approach is a mix of the two-- you can have and use a credit card without carrying a balance; you can have some of your equity in a money market account to use in an emergency; neither should break you but both increase your ability to survive a rough patch.
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - Chupa Chupa - 05-04-2008
I think DR is talking about buying consumer goods on credit, not real property. Indeed, there is no financial benefit to buying consumer goods on credit (assuming you are not going to pay the bill in full each month). Very few people pay cash for their home even if they can.
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - Paul F. - 05-04-2008
Dave Ramsey has espoused (the times I've heard him), that one of the VERY FEW things to carry debt on is a mortgage...
Of course, he's also of the opinion that you should have a pretty good sized down payment, and 6 months of payments in the bank for an emergency fund (which is NOT a bad idea).
I think his rules change when you're talking about property as "investment" vs buying a place to live.
The first couple times you listen to Dave Ramsey and his "NO CREDIT CARDS" rants, he sounds crazy. Keep listening, and he starts making a LOT of good sense.
I'm using credit less and less, and keeping more "real dollars" and budgeting things.
I'm finding that I have a surprising amount of money left at the end of the month, rather than wondering where my money went. (OK, it's not much in absolute dollars, but the point is it doesn't evaporate into a credit card payment!).
I'd listen to Dave Ramsay on Mortgages.
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - Filliam H. Muffman - 05-04-2008
It depends on a lot of things, some things have already been mentioned. Do you have an iron clad stable job? Do you currently have zero credit card debt? Is your home worth more than your mortgage? Have prices in your neighborhood stayed stable or risen during the recent mortgage problems? Do you have good enough credit that you can get a low interest fixed rate loan without a bubble clause that might come due in 2-5 years? Are the estimated maximum loan payments less than 40% of your adjusted after tax income? I could keep going if you are interested...
If your cash flow is good and there is no chance getting under water on your home loan, you can make money investing the money that would be your equity. Generally there is very little that is as safe as home equity and will give you are good a return. It depends a little bit on what your local real estate market is like.
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - M A V I C - 05-04-2008
My understanding of what Dave Ramsey says is that he takes one extreme to wake people up who are not financially responsible.
Using a computer analogy, it's like shutting off all ports on a firewall, then slowly open up the ones the network needs to function.
It's also important to note that there are different ways to define "debt." Some call it "good debt" or "bad debt." There's "unsecured debt" and "secured debt."
What most will agree on is that it's okay to have debt if it's secured in an asset.
I really question anyone who says "take out their equity before it is all gone and reinvest." That's worse than a credit card. If you know your property is going to devalue past the point of what you owe on it, now you're paying ~6% interest but that's worse than most credit cards because it's compounded over the term of the loan.
So while many say not to have any debt, a mortgage often isn't considered "debt" because your net of the situation is positive and therefore not debt.
Depending on the market, I think keeping a minimum of 20% equity is a good idea. Take the rest of the equity and diversify. Either in other properties or other investments.
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - Bill in NC - 05-05-2008
That's essentially what this guy advocates:
http://7million7years.com/
though his real estate investments are passive, not active.
Used to be you could build cash-flow and equity over several years as a small-scale landlord w/ SFRs, but all the houses on the market here have trashed rents - it's a much riskier endeavor today.
>I think keeping a minimum of 20% equity is a good idea. Take the rest of the equity and diversify.
Re: Mortgage Radio shows Mortgage Makeover vs Dave Ramsey - M A V I C - 05-05-2008
[quote Bill in NC]Used to be you could build cash-flow and equity over several years as a small-scale landlord w/ SFRs, but all the houses on the market here have trashed rents - it's a much riskier endeavor today.
Not in this area. Biggest problem I know for people who own rental properties, is they have long term (eg 6mo+) leases with their tenants. With greater restrictions on who can buy, there are more renters than there have been in a long time. That's driving rents up and owners with leases are not able to raise their rents.
Now is one of the best times to own rental properties in a long time. Here, all of the houses on the market have no impact on the rent prices since it's two different markets.