Dave Ramsey Misery Index

DRMIOn October 30th, 2011 Dave Ramsey’s column in the Dallas Morning News had the following bad advice for a 21 year old concerning buying a home:


The question from this 21 year old was as follows: I’m 21 and make $45,000 a year. I’ve heard about your 100 percent down plan to buy a house. I’d like to know more about this, and where I should put my money I’d be saving.


Dave Ramsey’s advice was as follows: “…It’s just a matter of saving like crazy and living on rice and beans for a few years so you can save up the cash to buy your home outright.


Quote continues “If you’re looking at buying a place in less than five years, I’d put it in a money market account. In this case, you’re not going to be saving long enough for interest to be a huge factor. Your best buddy is going to be a low-key lifestyle.” The advice continues: “If your time frame is more like 15 or 20 years, then you should look into mutual funds. Most people don’t stretch the idea out over that period of time, but if you do you’ll get some great help from a friend named compound interest. I don’t beat people up for taking out a 15-year fixed rate mortgage. But I’m always for people living like no one else so that later they can live like no one else.”


Even if this person was able to save a third of his salary every year, after five years he would be able to buy a $75,000 SHACK in Orchard Park, New York.


BAD ADVICE! The Dave Ramsey Real Estate Misery Index strikes again! 




According to a report prepared by Stephanie Morgan of JRS Morgan Realty using the sophisticated software developed by Altos Research out of Mountain View, California the Dave Ramsey Real Estate Misery Index would be $70,135 in Orchard Park, NY.


This 21 year old could have qualified to buy at least a $150,000 home in October 2011 at a 30 year interest rate of 4.37%.  Assuming a 5% down payment his mortgage payment (Principle & Interest) would have been $708 per month (Average rent in that market was $861). Taxes, PMI, and insurance would have added probably about $499. However, due to a 15% tax bracket this individual would have been in, the comparison between after tax rent and after tax mortgage payment amounted to $24.90 more per month for the mortgage. The interest rate differential was very small but had he waited it would have cost him $179,130 to purchase the same house in March of 2014.


With that type of home price increase, Dave Ramsey just cost this 21 year old in Orchard Park, New York $70,135 in real dollars! That is equivalent to 156% of the poor guy’s annual salary. Not to mention what appears to be some coming inflationary pressures to make that same home more and more expensive the longer he waits.


Back in 2011 I was screaming on my video blogs for people to get out and buy a home. Prices were the best they had been for many years and the interest rates were as low as we have seen them for decades. Interest rates continue to remain low and although prices are going up on real estate it is time to buy if you can before they go up even further!


Don’t listen to Dave Ramsey in regards to his advice as to when to buy a home. It will create a lot of misery for you!

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