Why Owning Real Estate Is NOT Passive Income

foreign Teddy is with us in New York City hi teddy how are you hey Dave how are you better than I deserve what's up thank you for having me on the show again I called you last year to get a little guidance in terms of my career and whatnot especially financially and just to kind of remind you you told me to potentially hold off on my masters I'm going to be pursuing that due to the fact that I just got engaged over the summer and my fiance has one more year in the same school so we're just going to finish up our degrees her undergrad and meet grad school and then head to the beautiful state of Florida um but my goal long term is to have a good career and more importantly to have Financial stability ideally in the aspect of real estate passive income and whatnot um I have no real guidance in that regard so I'd love to get your take on it what's your Masters in mechanical engineering and what what career are you pursuing after this mechanical engineering okay do you have a job already lined up I had a couple for this cup for this year but like I said I decided to just get my masters it just didn't seem reasonable to take a job for one year and then you know head to a different state okay um in addition to that my Master's Degree only costs less than 14k for the whole program and I'm currently debt free as well so um it's something that I can reasonably pay off while I'm in school that's awesome how did you pay for your education um predominantly through scholarships and some financial aid I'm in New York so there's a lot of that that's awesome I'm all for you buying buying some real estate um uh but when idiots on the internet say real estate is passive income that means they've never owned any because there's nothing passive about dealing with renters and heat and air heat and air that goes out and roofs that leak and a coach Department shows up and wants to shut you down because somebody across the street cut a sewer line there's nothing passive about managing real estate nothing whatsoever you want Passive by mutual fund they'll just put the check in your mailbox and you won't think anything about it but real estate ain't passive it's very active even if you're managing the managing company they've still got to call you and approve the 8 400 New Heating and Air system that blew up or the other day I had a 26 thousand dollar one go out on one of our commercial buildings didn't feel passive to me at all so um anyway I love real estate but please enjoy the idea that this is going to be some hassle factor that other Investments don't have it does give you a better rate of return that other Investments don't have but when I hear someone say passive income and real estate in the same sentence it means they've been on get rich quick websites because they make it sound like oh well the renters will just pay for it uh nope you're going to pay for it maybe the renters pay you uh that's how it works in the real world so you know go buy you some real estate after you get your life started and pay cash for it after you get your home paid off and after you get your 401ks and other stuff started but um this idea that you're going to build a portfolio of uh heavily debt written real estate and the renters are all going to make you rich is is so freaking laughable that it makes my head spin and it's all by people who have never done it before well and you're in such a good spot right now you went through college debt free you're walking straight into baby steps four five and six I think that's really where your focus needs to be right now real estate can happen someday but focus on retirement starting out and and get that primary residence in place and pay that off once you get to that spot then we can start talking about really investing in real estate for profit but you've got some very clear steps ahead and if you do that right you're gonna really especially at the age you're at right now set yourself up for Success versus getting kind of lost in this get rich quick world that's so prevalent right now like you said on Tick Tock and Instagram it's like very very popular but it's also really leading a lot of new grads down some crazy routes yeah and sometimes sometimes people misunderstand my sarcasm or anger at that stuff like it's because it disagrees with me that's not it at all it's I know what it's going to do to you when they mislead you and you people listening go along with some of the stupid butt stuff that is out there you're gonna you're gonna end up like I did in my 20s broke I followed the same siren song the exact same one only it was just the 1980s version okay and uh and although if you just didn't understand listen honey I I believe me if there's only if there's one thing I know how to do it's numbers okay so I completely understood and I did it with Great Gusto uh starting from nothing in three years I had over a million dollar net worth 125 properties okay so starting from nothing in three years so I didn't half butt do it I did it all out I mean PhD and dumb and I knocked it out in a short period of time you know so and here's the thing I discovered Christina not directed at him by the way for you sir you are an engineer which is the number one of all careers most likely to be a millionaire when we started millionaires number one was engineer number two is accountant number three was teacher okay so you got a lot of good stuff on your side just don't fall into get rich quick so in our day they didn't call it passive income they called it nothing down and there was a guy that wrote the book called the book was called nothing down it was a best-selling book and and a whole bunch of people including me followed a lot of his strategies on buying a house with no money because that's precisely how much money I had none so that's all I could use so I used other people's money OPM talked the bank in 100 financing 90 day notes I bought a property made money on it bought another property made money on it every time I made money off the banker gave me more money it was a nice formula and until it wasn't nice anymore and uh you know a few years later the guy that wrote the book went into bankruptcy ouch I joined a group an Investors Group a Real Estate Investors Group that were following this guy's he put together groups and cities they were following this guy's guidelines and got to be friends with a bunch of guys we would you know one of us we couldn't do a deal we found a deal we'd find somebody else to do the deal we'd give it to one of our buddies right and we swapped it around there was about I was probably 60 people in that group that were doing this stuff actively 10 years later from the time we all started that how many of them were still buying real estate and not broke none nobody made it not one I take that back two guys made it but the reason they made it was they woke up watching the rest of us go broke and they turned a whole bunch of their properties took the equities and paid off the rest they became debt free and they came out of it with about 30 percent of the property but it was all debt free instead of Leverage to their eyeballs and they they you know they re they reverse engineered and got out with the skin by the skin of their teeth and I ran into one of those guys the other day that was 30 years ago he's still buying real estate and he's still healthy but he was one of the few smart enough to look at the rest of us and going these fools are all going broke doing the same thing and I was one of those fools so you know but you find people get rich in real estate they're not ones that leverage up to their eyeballs it's hard to find somebody follows this passive income crap and 10 years later is not broke it's very difficult to find 10 years later a real estate investor that follows that plan they're they're very rare they're unicorns but you can still invest in real estate I mean cash for it look at you now real estate but just pay cash for it and grow slower and don't try to go follow all this mind-numbing get rich quick stuff

Channel: The Ramsey Show Highlights

Views: 165,420

Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, Why Owning Real Estate Is NOT Passive Income

Id: l2E4aLbXld4

Length: 7min 50sec (470 seconds)

Published: Sun Sep 18 2022