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Tom called into The Ramsey Show in early August, sharing what he called “quite the financial mess.”
The 30-year-old former commercial real estate analyst from New Jersey is swimming in debt with four mortgages, a car loan, and a credit card — all to the tune of more than $1.8 million in debt.
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Before being laid off seven months ago, Tom earned $130,000 annually in commercial real estate credit risk. Now he’s an Uber driver, which he told The Ramsey Show [1], “isn’t too great” an income.
His wife has a full-time job making $130,000 a year, but the couple worry about their financial future. Here’s more about Tom’s risky situation and what financial expert Dave Ramsey had to say.
The whole story
Tom and his wife pay $4,400 a month toward the $540,000 mortgage on their home. Meanwhile, they have three rental properties which are more income strain than income stream.
On top of their principal residence, they pay a bundle in mortgage payments on their investment properties every month:
$2,956 on Rental #1 $1,019 on Rental #2 $1,184 on Rental #3, which he purchased with a business partner.
That doesn’t include property taxes or home insurance policies. The couple are behind on those, and owe $6,000 in property taxes and face $1,000 in forced insurance.
Oh yeah, and they have a car loan and credit card debt. The one bright spot is that they have $12,500 in emergency fund savings, but it can’t get them out of a hole this deep.
In desperation, the couple are now ready to sell off all their assets: the car, home and three rental properties, including the one Tom bought with a business partner.
“You went into all these properties thinking there was no risk and the tenants were going to pay everything,” Ramsey said. “And you found out the more debt there is, the more risk there is. And you just took on a boatload of risk for no money.”
A common trap for landlords is thinking that rental income fully offsets your mortgages. In reality, lenders only count about 75% of projected rental income when calculating what you can afford.
Even if you’re able to shoulder the costs, you’re still on the hook for dealing with the headaches of managing properties and tenants.
Nowadays, you don’t need to buy multiple properties or undertake another mortgage to tap into the appreciation potential of the housing market.
Real estate investing platforms like Homeshares offer investors direct exposure to hundreds of owner-occupied homes in top U.S. cities through its U.S. Home Equity Fund — with a minimum investment of $25,000.
The fund offers nationwide diversification, as well as built-in 45% downside protection — ensuring your investment remains somewhat hedged against risks.
With risk-adjusted target returns ranging from 14% to 17%, this approach provides an effective, hands-off way to invest in owner-occupied residential properties across regional markets.
Read more: Robert Kiyosaki warns of a ‘Greater Depression’ coming to the US — with millions of Americans going poor. But he says these 2 ‘easy-money’ assets will bring in ‘great wealth’. How to get in now
Follow the 28/36 rule
When it comes to affordability, most lenders rely on a simple yardstick: the 28/36 debt-to-income rule, which says that no more than 28% of your gross monthly income should go toward housing (mortgages, insurance, taxes) and no more than 36% should cover all your debts combined — including car loans, student loans and credit cards.
According to Bankrate, some loan programs stretch that ceiling to 43%, but investors playing it safe should stay well below.
Now imagine your household income is cut in half, whether through divorce, job loss or illness. The same rule applies, only the limits are cut in half. Suddenly, multiple mortgages that once looked comfortable could push your debt ratio into red-alert territory.
Owning rental properties can build wealth, but, as Ramsey advised Tom, the risks grow with every mortgage you add.
Crowdfunding platforms like Arrived let you invest in real estate for as little as $100.
This way, you can enjoy the benefits of investing in real estate without having to worry about your debt-to-income ratio or deal with multiple mortgages.
Backed by world-class investors like Jeff Bezos, Arrived offers you access to shares of SEC-qualified investments in rental homes and vacation rentals, curated and vetted for their appreciation and income potential.
Arrived distributes any rental income generated by properties to shareholders on a monthly basis, and capital gains (if any) at the end of the investment holding period.
Their flexible investment amounts and simplified process allow accredited and non-accredited investors to take advantage of this inflation-hedging asset class without any extra work.
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- Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
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[1]. The Ramsey Show. “I’m $1.8M In Debt With No Job”
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