'There's Nothing Wrong With Owning Rentals,' Says Dave Ramsey, But Forget The Get-Rich-Quick Nonsense Some Want You To Believe

Regarding building wealth, rental properties can be a solid investment. Personal finance expert Dave Ramsey is all for owning real estate – but only if you do it correctly. In his usual straightforward style, Ramsey is clear about one thing: don't fall for the get-rich-quick schemes that often pop up around real estate.

The Real Estate Hype Comes Back Every Few Years

Ramsey points out that every seven to eight years, a wave of get-rich-quick real estate hype rolls through, targeting people who don't remember how risky it was last time. The promise? Buy properties, take on a ton of debt, and let the renters cover your payments while you sit back and collect cash. According to Ramsey, this is a fantasy.

Every so many years, the get-rich-quick real estate movement kicks up again. It's about a 7–8 year cycle, because you have to get the young people who don't remember how stupid it was a little bit older, so they don't remember how stupid it was.

There's nothing wrong with owning… pic.twitter.com/NNjqTTjhwG

— Dave Ramsey (@DaveRamsey) August 27, 2023

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"If you tell me the renters are going to pay the payments for you, that tells me you’ve never managed rental property," he says. Life happens – tenants lose jobs, deal with health issues, or face other financial hardships. Rent doesn't always show up on time; assuming it will is a rookie mistake.

Ramsey's Rules for Smart Real Estate Investing

Ramsey isn't against real estate at all. In fact, he owns several rental properties himself. The difference? He buys them with cash. No debt. No risky assumptions.

Here's his advice for anyone thinking about getting into real estate:

1. Get your financial house in order first: Pay off your home mortgage and other debts. Build an emergency fund covering 3–6 months of expenses.
2. Avoid debt: Ramsey learned the hard way over 30 years ago that debt can destroy your financial future. He's adamant about buying properties outright instead of taking out loans.
3. Start small and stay smart: Once you're financially stable, save aggressively to buy a rental property with cash. This approach minimizes risk and ensures you're not overleveraged if things go south.

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Protect Your Investments with an LLC

For those building a real estate portfolio, Ramsey suggests setting up a Limited Liability Company to protect personal assets. If a tenant sues, the LLC limits claims to what it owns, keeping your home and savings safe. Once your properties in one LLC hit a value of around $5 million, Ramsey recommends forming another LLC to spread the risk.

Don't Fall for the Passive Income Myth

If you think rental properties are easy, think again. Ramsey bluntly calls the idea of passive income from real estate "moronic." Owning rentals means dealing with tenants, fixing problems, and staying on top of legal issues. It's a business, not a hands-off investment.

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