Whole Life Insurance can be bad if you borrow against it

Dear Dave: I have a whole life insurance policy with zero cash value due to loans I took out per the advice of my agent. I finally realized this wasn’t a smart move, as I now owe premiums plus interest every year. Am I still on the hook for the policy loans if I forfeit the policy to buy term insurance? — Tanner

Dear Tanner: No, you are not. Get your term insurance in place first, then when you cancel the policy; your cash value will offset your loans.

They won’t lend you more than your cash value. It’s seldom that they will lend you 100 percent of cash value, so you might actually have a cash value that is above your loan amount. If they have lent you the full amount of your cash value, it’ll be an exact break even, and just canceling the policy means you cancel the interest and cancel the premiums.

It was bad advice to buy the policy, and even dumber advice to clean the whole thing out and sit there paying interest to borrow your own money and pay a premium to keep the loan open.

I recommend 10 to 12 times your income on a 15- or 20-year level term policy. During that 15 or 20 years, of course, you should be getting out of debt and building wealth so that you have a big pile of money and no need for life insurance. — Dave

Pay off student debt while working towards self employment

Dear Dave: I have student loans in deferment from earning a degree in hospitality management. My career goal is to own a mobile food vending company, so I’m putting most of the money I make from eBay and ride-hailing services — around $1,000 a month — aside in savings for that. Should I forego my business idea for the time being, and knock out the student loan debt instead? — Nicholas

Dear Nicholas: You should put this business idea on hold for now, unless you can start it for less than $1,000. The first thing you need to do is go out, and get a real job. I know you have this dream of being self-employed, but right now you’re not doing so well as an entrepreneur.

With a hospitality degree, you can make $30,000 to $50,000 a year within the industry, clean up your mess, and build out the eBay thing on the side. Just think about how quickly you could save up money for a jump into the food truck or mobile food business, then.

Pay your way through it, Nicholas. Don’t sit around scraping by on the kind of money you’re making now and call that winning. You have a real economic engine at your fingertips, because you have the knowledge from the degree you earned. And it’s a valuable degree. If you go in there and bust it, you can escalate yourself upward through that industry in a hurry.

While you’re doing that, you can clean up all your student loans and save up money for your food truck. Boom — you’re self-employed and you learned a lot of stuff you can use in your new business. Go make some real money, then follow your dream, man. — Dave

Finding investors for an apartment building

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

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.

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.