Thursday, July 07, 2005

Mr Ramsey and Real Estate

The beloved and demonstratably hot Penciliod comments: From what I can tell, Dave Ramsey thinks getting into too much debt was the cause of his previous bankruptcies and the reason why he no longer borrows money.

Ramsey is an interesting cat. He's found a remarkmable nitch where he makes money by telling people things that they already know. Now before I get to much into this, let me just first point out that Julie and I have both read Financial Peace, and have attended his seminar. Virtually everything he says about saving money, spending money, earning money, and debt, we agree with.

Where we disagree is investments.

See.. Dave graduated from UT, and he went out to make his money in real estate. He did too. He made a couple million. Then he lost it all and went bankrupt. Then, that process repeated itself 2 more times before Dave figured out that he was borrowing to much money. In response, Dave took the extreme approach... and formulated his get-out-of-debt quick scheme.

Again... it's a great thing... but a couple parts of it are just screwed. Most notably of course, is the part where he advices you to put 20% down on a house, and never get a mortgage for more than 20 years.

It's dumb. Dumb Dumb Dumb. You'll never get it done.

It sounds good... but how long will it take you to save 20 grand to put down on your 100,000 house? And how much will interest rates have risen by then? Putting more money down does NOT get you a better rate. A 20 year loan, does NOT get you a better rate. These are myths, or outright lies.

As for us... well... if you go by percentage of income... we can afford a ton more house than what we'll actually end up getting... so we're not exactly coming close to extending ourselves... I mean... in the budget we'll be saving at least 4 times the house payment. I mean.... that's not to bad is it?