Owing on Commercial
Dawn and her husband own three commercial buildings with debt. The buildings are leased out, and they earn $190,000. Is it okay to owe on commercial buildings, or should they work to pay those off?
QUESTION: Dawn in Boise and her husband own three commercial buildings with debt ($500,000 on one and $400,000 on each of the other two). The buildings are leased out, and they earn $190,000. They still owe a little bit on their mortgage as well. Is it okay to owe on commercial buildings, or should they work to pay those off?
ANSWER: I own a bunch of commercial buildings, and I don’t owe a dime on them. I love real estate. I’m not going to tell you that it’s all right. I think the best plan for building wealth is to become debt-free.
Now, does that mean in your situation, you need to panic and start selling everything in sight in order to get there? No. But I think systematically over the coming years, you work your way out of these debts intentionally rather than constantly refinancing them and buying more and going further into debt.
If I were in your shoes, I would pay off the home then start looking at these commercial buildings and asking how you can debt snowball them. Start throwing chunks of income at that smallest one. When it gets paid off, that frees up more income because you no longer have that payment.
You’re telling me that you have $1.3 million in commercial debt, so if we start chipping away at that and being sensible and intentional about it, it might take you 10 years to clean it up. Just take your time.
Maybe you sell one of them. If you have a bunch of equity in one of them that you don’t even like, maybe you sell that one and throw the equity at the ones you do like. But whatever the timeline is, I’m going to develop a game plan to move away from this debt.
With the numbers you gave me, I don’t think you’ll be in debt longer than 10 years. That would be cool to have all that paid for. Talk about cash flow!