Dave Ramsey Real Estate and Mortgages (Class 12 of 13)

After dumping debt, real estate is the great passion of Dave Ramsey’s life. He was born in a real estate salesman’s family, he had his real estate license by the time he was 18. He went to school in finance to pursue a career in real estate. He was a real estate millionaire while still in his twenties. Real estate debt was his downfall and put him on the road to becoming famous. Real estate still constitutes the third leg of his investment stool. He has owned over 1,000 different properties during the course of his life. When Dave talks about real estate, I listen.

First Dave talks about selling your home. When selling, think like a retailer. Everything in your home should appear to be nearly perfect. Everything should be spotlessly clean. Everything that can be painted should be freshly painted. The carpets should be new and the lights blazing brightly. Closets and kitchens should be nearly empty. Curb appeal is most important. Most buyers have already made a decision from the curb. Chop down all those bushes. Trim the trees. Repair the fence, the gutters, the doors, etc. etc. The goal is a house that looks like a model home in a new development.

Dave Ramsey recommends using a real estate agent to sell your home. Choose your agent based on the Prado Principle. 20% of the agents make 80% of the sales. Choose one of the 20% that are killer sales people. If your agent does not know how to use photography and the Internet, find another agent. The Internet has become the most important sales tool in the business. Do not choose a friend or a relative to sell your home unless they are part of the 20%.

Even after the real estate crash that began in 2006, Dave considers buying a home a good plan for most Americans. It is a forced savings plan and a tax advantaged inflation hedge. When buying, look for old paint, dirty carpets, ugly bushes and other cosmetic problems that can be fixed with a little money and elbow grease. Then low ball the owner.

Location! Location! Location! Buy on the basis of the cheapest property in a desirable neighborhood. Never compromise on a good basic floor plan. Have the home inspected for mechanical and structural problems by a professional, licensed home inspector. Look for a home with a view and/or proximity to water. This will always increase the value of a property.

When buying a house, always be certain to have title insurance. Dave has too many stories to tell about what happens to buyers who did not have title insurance. If buying property outside of a modern development, always get a land survey. Where grandma thought the property line should be might not be the actual property line.

Never buy trailers, mobile homes, or timeshares. Particularly, never buy timeshares.

By this time it should not surprise the reader that Dave Ramsey preaches a hard word on mortgages. He recommends that young couples rent and save until they can make at least a 10% down payment and still have a full three to six month emergency fund after closing. The traditional rule of thumb for buying a house is 3 times gross annual salary with 10% down. Dave is a little tougher. He recommends a mortgage payment that is less than 25% of take home pay. Dave only recommends a 15 year mortgage. The savings when compared to the traditional 30 year mortgage over a lifetime are huge and the difference in the size of monthly payments is not that great. Recent increases in the cost of mortgage insurance and other changes in the business really give the edge to buyers who can put 20% down. I wonder if Dave will modify his recommendations when he remakes these videos.

Dave considers the Adjustable Rate Mortgage to be a horrible option. The risk of rising interest rates is transferred from the bank to the home owner. Bad idea! Of course interest only loans, reverse amortization loans, 40 year loans, and other foolishness from the real estate bubble years are beyond the pale. Never pay extra for an accelerated or bi-weekly payoff. While a good idea, don’t pay someone else for something you can do for yourself.

At the time this video was filmed (1988 before the crash), a conventional loan with at least 10% down, guaranteed by Fannie Mae was the best buy. These loans require private mortgage insurance with less than a 20% down payment, a big expense. Other options include a FHA loan insured by HUD and VA loans for our veterans. These were actually more expensive than the conventional mortgage. The mortgage business has become hugely complex. There are more options than at any time in history. They are difficult to understand and are constantly changing. It is good advice when Dave Ramsey counsels, move very slowly when buying real estate.

Finally, Dave is a big fan of owner financing. When negotiating a deal directly with the owner of a property, the loan can be creatively structured to meet the needs of both buyer and seller. Some of the possible options might include bartering work for lower house payments, no payments for the first year, predetermined changing interest rates, or discounts for early payoff.

This lesson also includes a calculator for estimating mortgage payments and a decision tool for refinancing. Similar tools are available on the Internet.