Dear Dave,
I want to build an 18-unit apartment complex, but I don’t have enough cash to do it on my own. My net worth is around $400,000, and I have $100,000 I can put toward this project. It is estimated to cost $1.2 million. Would lining up investors, who will take a percentage of the profits, be the same thing as acquiring debt?
-- Jay
Dear Jay,
It wouldn’t be the same as taking on debt because if there are no profits, the investors get nothing. It’s more like taking on partners and what you would call an equity position -- meaning they’re owners in the business. They may have only limited rights as owners, but essentially you’re taking on partners.
There’s a method that was used in the old days that’s still available today called syndicating a piece of real estate. You would set yourself up as the general partner and set the investors up as limited partners. They would be limited in their input, because the general partner runs the show. They can be given the lion’s share of the tax write-off, and the depreciation schedule. Traditionally in those models, the general partner takes less of the depreciation schedule but gets a fee for running things and has a position of ownership.
There’s a restriction under Blue Sky Laws on the number of limited partnership units allowed before it becomes a situation where you’re selling stock. Check with your state and current securities laws to be sure of the exact number to avoid any impropriety. You can do a limited partnership or syndicate a piece of real estate, but they can both be very messy and time consuming for the money you get out of it.
Honestly, I don’t think it’s a good method for you to buy an apartment complex at this stage of your investing life. It’s more like a way for you to get into the business of running a bunch of limited partners with a ton of paperwork and bookkeeping thrown in. It doesn’t sound like a lot of fun to me.
If I were in your shoes, I’d use the $100,000 in cash to buy a money-making property -- maybe a nice rental house. Then, save your money, invest and buy another one. And again, save the money, invest and buy another one, over and over again. It’s a gradual process, but I don’t teach or advise people to go into partnerships or borrow money.
via www.hutchnews.com/business/20170725/dave-ramsey-bad-method-at-this-stage
Monday, July 31, 2017
Monday, July 24, 2017
Payment plan VS Paying it off immediately
DEAR DAVE: My wife just had our first child. Now, we now have about $3,000 in medical bills not covered by insurance. We've got $8,000 in our emergency fund, and I make between $25,000 and $30,000 a year. Should we try setting up a payment plan with the hospital, or is dipping into our savings a better idea?
— Matt
DEAR MATT: I'd write a check today and knock out that hospital bill. This falls under the heading of “emergency” in my mind, so pay the bill and jump back into rebuilding your emergency fund.
You've done a really good job of saving on your income, but let's see what we can do about making better money in the future. Extra practical training in your field, or more education in the classroom, could increase your income quickly. Your emergency fund needs to be a little bigger, as well, and it'll be a lot easier to make this happen if you're making more money.
I'm sure you're a hardworking guy, but it's going to be tough for even a small family to make it on what you're bringing home now. The unexpected can become a common occurrence when there's a little one in the picture.
— Matt
DEAR MATT: I'd write a check today and knock out that hospital bill. This falls under the heading of “emergency” in my mind, so pay the bill and jump back into rebuilding your emergency fund.
You've done a really good job of saving on your income, but let's see what we can do about making better money in the future. Extra practical training in your field, or more education in the classroom, could increase your income quickly. Your emergency fund needs to be a little bigger, as well, and it'll be a lot easier to make this happen if you're making more money.
I'm sure you're a hardworking guy, but it's going to be tough for even a small family to make it on what you're bringing home now. The unexpected can become a common occurrence when there's a little one in the picture.
Monday, July 17, 2017
Should you help a family member who was in a bankruptcy ?
DEAR DAVE: My dad wants me to buy a house on a 30-year loan for him and my mom in my name, and let them make the payments. I'm 24 years old and have a good credit score and a nice apartment, but my job depends largely on how the oil industry is doing. My dad filed bankruptcy nine years ago, and he's already $150,000 in debt again, so he's never been very responsible with money. I think this would spell big trouble for me, but I'm sure he will be mad if I say no. What are your thoughts?
— Emmanuel
DEAR EMMANUEL: Yeah, I think doing something like this would spell big trouble for you. If your dad is irresponsible with money — especially to the point of having to file bankruptcy — what makes you think he'll make these house payments on time?
I know this would be an uncomfortable conversation to have with your dad, but you need to brace yourself and just do it. Be respectful and explain exactly why you won't do this. Think about it, Emmanuel. When he doesn't pay the bill on time, it's going to screw up your credit score. And when you get ready to buy a house, guess what? You're going to have trouble qualifying because you already own a house. Most people don't make enough money to qualify to buy two homes.
Basically, your dad is asking you to not buy a house so they can have one. I can't tell you how to make your dad OK with saying no to this, but I can tell you that your answer should be no. Let him and your mom know that you love them both, but this is something you just can't do.
— Emmanuel
DEAR EMMANUEL: Yeah, I think doing something like this would spell big trouble for you. If your dad is irresponsible with money — especially to the point of having to file bankruptcy — what makes you think he'll make these house payments on time?
I know this would be an uncomfortable conversation to have with your dad, but you need to brace yourself and just do it. Be respectful and explain exactly why you won't do this. Think about it, Emmanuel. When he doesn't pay the bill on time, it's going to screw up your credit score. And when you get ready to buy a house, guess what? You're going to have trouble qualifying because you already own a house. Most people don't make enough money to qualify to buy two homes.
Basically, your dad is asking you to not buy a house so they can have one. I can't tell you how to make your dad OK with saying no to this, but I can tell you that your answer should be no. Let him and your mom know that you love them both, but this is something you just can't do.
Tuesday, July 11, 2017
What to do when a debt collector contacts you
Dear Dave,
I got a call from a debt collector regarding $2,000 I owe in medical bills. I’m trying to get my finances in order and pay this off, but I’m afraid they’ll follow through on their threat to garnish my wages. Can you give me some advice?
Mike
Dear Mike,
First, I want you to take a deep breath and calm down. Debt collectors like to play on your emotions because they think you’ll give in and do something you can’t really afford to do. Most of them don’t care about you or your situation as long as they get some money.
They won’t garnish your wages because they can’t. They would have to go through the formal, legal procedure of first suing you and then winning the case. They broke federal law by saying they would garnish your wages but hadn’t sued you. If I were in your shoes, I’d be filing a complaint against these bozos with the Federal Trade Commission.
Don’t react with fear and panic in the face of debt collector threats. Talk to them and explain your situation. See if you can work out a compromise. If they get nasty or break federal law again, let them know you’ll be filing another complaint with the FTC. You’d be surprised how reasonable these people can be when faced with the possibility of government intervention.
In the meantime, do everything you can to scrape up as much cash as possible. Have a big garage sale and sell everything in your attic or basement you don’t need. Then, when you get this mess cleaned up, pay off the rest of your debts — if you have any — and start living on a written.
I got a call from a debt collector regarding $2,000 I owe in medical bills. I’m trying to get my finances in order and pay this off, but I’m afraid they’ll follow through on their threat to garnish my wages. Can you give me some advice?
Mike
Dear Mike,
First, I want you to take a deep breath and calm down. Debt collectors like to play on your emotions because they think you’ll give in and do something you can’t really afford to do. Most of them don’t care about you or your situation as long as they get some money.
They won’t garnish your wages because they can’t. They would have to go through the formal, legal procedure of first suing you and then winning the case. They broke federal law by saying they would garnish your wages but hadn’t sued you. If I were in your shoes, I’d be filing a complaint against these bozos with the Federal Trade Commission.
Don’t react with fear and panic in the face of debt collector threats. Talk to them and explain your situation. See if you can work out a compromise. If they get nasty or break federal law again, let them know you’ll be filing another complaint with the FTC. You’d be surprised how reasonable these people can be when faced with the possibility of government intervention.
In the meantime, do everything you can to scrape up as much cash as possible. Have a big garage sale and sell everything in your attic or basement you don’t need. Then, when you get this mess cleaned up, pay off the rest of your debts — if you have any — and start living on a written.
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