There’s a widespread notion that real estate is easy money. Just buy a property, rent it out and let the tenants cover all the mortgage and maintenance expenses while you sit back and sip a margarita. Couldn’t be more simple, right?

Well, finance guru Dave Ramsey vehemently disagrees, calling this a “ridiculous assumption” that trips up a lot of potential investors. Anyone who believes the rental business is that simple is “a novice at best, an idiot at worst,” he said on The Ramsey Show.

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Here’s why the entrepreneur and veteran investor, who says he’s owned more than 2,000 properties worth “several hundred million dollars,” dismisses this common misconception.

The assumption that tenants take care of the payments every month hinges on a misguided assumption that rent payments are predictable, reliable and consistent. In the real world, Ramsey explains, that’s simply not true.

“Anybody who’s ever had a renter or been a renter, and I’ve been both, I have been a renter too, knows that sometimes renters don’t pay,” he says. “Sometimes, there’s cancer. Sometimes, there’s car wrecks and job loss. Sometimes, there’s a pandemic.”

Ramsey calls it a “ridiculous assumption” that renters provided a steady stream of income every month that investors can rely on to make their “stupid little payment” every month.

Indeed, 42% of Americans said they don’t have an emergency savings fund, while 40% say they can’t deal with a $1,000 emergency expense — despite 60% of them reporting facing an unexpected cost in the past year, according to a survey by U.S. News. In other words, an unexpected medical bill or vehicle breakdown could delay rent payments.

As of November 2024, 14% of renters had faced a late fee on their rent payment within the past 12 months, according to the Consumer Financial Protection Bureau. That ratio was 23% in early-2023.

Missed and late payments are only some of the risks landlords face. In the 50 largest metros across the U.S., it is now cheaper to rent a property than buy one, according to Realtor.com. The combined costs of mortgage interest, taxes, maintenance and homeowners association dues can be higher than the rent available in certain cities, which means the rental property is cash flow negative.