Personal finance personality Dave Ramsey was recently asked a question about the finances of home-buying and mortgages.
And he had a quick response offering the specific advice the questioner was looking for. The advice applies to homeowners who own rental properties.
DON'T MISS: Dave Ramsey Has Blunt Words For Those Hoping to Buy a Home Soon
A woman named Valerie had inquired about what to do with money from a rental cabin she owned, which she was about to sell. She told Ramsey she expected about $388,000 for the sale.
"Should I take the proceeds from the sale and use it to pay off my home and other debt or use the money to buy another, similar rental property where I could collect about $1,500 per month in rent?" Valerie asked, according to KTAR News in Arizona.
"Right now, I owe $200,000 on my home, and I have just under $50,000 in miscellaneous debt," Valerie added.
Ramsey began his reply by asking her a question.
"If your home were paid for and you didn’t have a mortgage at all, would you take out a loan against your home to buy a rental property?" Ramsey asked. "Let me give you a hint. The answer should be a big, fat no."
Ramsey advised her to use the money she gets by selling the rental property to pay off her home and other debt.
"After that, if you want to start saving aggressively for another rental, go for it," Ramsey said. "Just make sure it’s a smart buy when the time comes and that you pay for it in cash!"
Ramsey offered Valerie some personal advice about a lesson he had learned:
There’s nothing wrong with owning rental properties and other kinds of real estate, Valerie. I love real estate, and today, I have several rental properties of my own.
The difference is I bought all of mine with cash. I didn’t go into debt for them. I learned my lesson about debt the hard way over 30 years ago, and I don’t want you to take a chance on suffering through all that crap too.
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