Dave Ramsey: Real Estate Can Boost Your Wealth, But It's No Easy Ride

Financial guru Dave Ramsey is a big fan of investing in real estate, but he warns that it's not as easy as online "experts" would have you believe.

A robust real estate investment strategy can significantly enhance your net worth and generate substantial additional income. However, it takes a lot of work and patience to succeed when it comes to investing in properties, according to a May 14 blog post on the Ramsey website.

"Investing in real estate takes a ton of work," the post states. "It's not as simple as sitting back in your recliner and collecting a check every month."

Ramsey offers four key ways to succeed when investing in real estate.

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First, buy your own home and pay it off as fast as you can. You'll save money by paying off your mortgage and building equity. This tactic will also increase your net worth because your home's value is likely to keep appreciating for as long as you own it.

Not having a mortgage means you'll have more money to put toward other investments such as your 401(k) or individual retirement account (IRA).

If you're renting now, start paying off your debt and build an emergency fund to cover three to six months of your expenses. Then save enough cash to make a down payment.

After you've paid off the mortgage on your residence and any other debt you may have, buying a rental property could be a cash-generating investment. However, Ramsey cautions that you should only buy a rental property if you have an emergency fund covering three to six months of your normal expenses.

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He also warns that rental properties can be a headache because you have to deal with renters who sometimes don't pay their rent or break things.

"As a landlord, you'll be on the hook for all those risks and the expenses that come with the — like repair costs and insurance," the post states. "And then there's the time cost. When the toilet busts at 2 a.m., guess who's coming to the rescue? That's you."

If managing a rental property isn't for you, house flipping could be your ticket to enter the real estate industry. After buying the house and making improvements, you'll sell it for a profit. However, you must find a good deal on a house or you'll lose money — especially if the market changes.

Again, only get into house flipping if you already have established an emergency fund. And be sure to talk to a real estate agent about your plans — they can help you figure out how to invest in your market.

Investing in a real estate investment trust (REIT) is another way to get into the game, but you should only invest in them if you're debt-free and have maxed out retirement accounts like your 401(k) or IRA.

When selecting which REIT to invest in, choose one with a history of strong returns that is run by an experienced group of investors. And don't invest more than 10% of your net worth in REITs.

"If you can check all these boxes, then a REIT could be a great way for you to invest in real estate without the potential headaches of house flipping or owning rental property," Ramsey wrote.

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