Highlights from the Dave Ramsey Show

QUESTION: April in New York is trying to convince her sister to buy a house. Her sister is hesitant because people at work are telling her not to because she won't have anyone to help her with the house. Dave advises April to have her sister contact a real estate agent about a rent versus buy analysis.

ANSWER: If she is only going to stay there for five or seven years, then I agree with you. There are a couple of things that come to mind that you could do. One is that you might get in touch with an Endorsed Local Provider in her area who does real estate. Most quality real estate agents like that can show someone what is called a buy versus rent analysis. It's a pretty sophisticated analysis.

You say that rents in an area have, over the last 20 years, gone up X% per year. You are paying a certain amount right now and, if the rents go up the amount that they normally go up over the next five years, you'll be paying that new amount. Based on that, you will have a cost of housing of a certain amount.

If you compare that to buying and owning versus how much the house goes up in value and the fact that your payments are now fixed, then you start to see the financial, mathematical benefit of owning. That's a good analysis to show someone.

The second thing that comes to mind is that she doesn't need to listen to broke people at her work for financial advice. You don't ask people who have been divorced 10 times how to be married. These people are sweet and they mean well, but they're stupid. I'm not going to do what they say with money, because they don't have any money.

If it's a bunch of rich people saying to not buy a house, I need to stop and think about what they are saying. And that's not happening, by the way, because a lot of wealthy people made their money by having a big chunk of their first push of wealth in home ownership.

What I would have her do is pay off all of her debts, cut up her credit card, save up an emergency fund and a down payment, then look at buying. She doesn't need to buy until she gets these things cleaned up.

To do a proper analysis, she can do a rent versus buy analysis with a quality real estate agent, and it's pretty amazing to see those things.

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QUESTION: Mike and Danny want to know what Dave thinks about rent-to-own housing. They are not ready to buy a home and don't like giving money to landlords. Is renting-to-own a wise compromise? Dave tells why it helps the seller, not the buyer.

ANSWER: It is not a wise compromise. Rent-to-own works out for the landlord; it does not work out for the buyer. I would not recommend it.

You say you are not financially ready to purchase a home. When you get financially ready to purchase a home, then purchase a home. Get your debts paid off, get an emergency fund in place, and save up a down payment. That's hard, but it's worth it to be able to become a homeowner, and I would suggest you do that.

Buying a home when you are broke or trying to somehow trick the system with some kind of rent-to-own plan does not work. The vast majority of people who do rent-to-own never end up owning. I don't know an exact statistic, but I will tell you that anecdotally, having been in the real estate business my whole life and done a lot of leases in the old days where we give someone a lease with the option to purchase as a type of rent-to-own, the number of people who have closed on properties to date under those deals is zero.

That's just from my perspective, and from other people I know that run that kind of deal, I can tell you that it doesn't work. Nobody does it. My guess is that fewer than 10% actually ever end up owning a home in that situation. Rent-to-own is a bad plan.

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Question: Catherine in Charleston owns a rental property that makes enough money to pay the taxes and insurance. Her tenant is subleasing the property for the short term as a vacation site. Should she approach him about it or let it go? Dave tells Catherine he needs to stop this subleasing without her agreement.

Dave Ramsey's advice: He doesn't have the right to sublet it in your lease if you have any kind of standard lease. Immediately, he stops the sublease. Call him today. All sites come down. He stops the sublease immediately. If he does it again, he'll be evicted.

The new two-year lease doesn't matter. He's in violation of that too. We'll just tear up what we did Friday if you want to tear it up, but there will be no subleasing. That's what the lease states. You lose control of the property then. What happens is that he leases it to someone as a vacation rental, and they decide to come in there and break every window in the place and kick holes in the wall. They leave, and he's got no money to fix it. Why did that happen to you? Because you lost control of your property. As a landlord, I would be very firm and very gentle but very blunt and very clear. "This is not going to happen. By the way, you knew it shouldn't happen and so I've really got to question your integrity at this point. I'm not sure I want you to stay at all." Let him address that.

He's got enough street sense to know he's screwing this up and signed a lease with you Friday knowing he's lying to you. I think you send this boy on his way. I think you're going to have continued problems. If he'll lie to you about this, he'll lie to you about something else. You're going to find a kennel in there the next thing you know.

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