Dave Ramsey says: Work way slowly out of debt on commercial properties

Dear Dave,

My husband and I own three commercial buildings in Boise, Idaho, that are leased out long term.

We owe about $500,000 on one and $400,000 on each of the others, and they earn $190,000. The only other debt we have is a small amount left on our mortgage.

I know you don’t like debt, but is it OK to owe on commercial properties that are making good money?

— Dawn

Dear Dawn,

I own several commercial buildings and I don’t owe a dime on any of them. So, I can’t tell you that I think it’s OK to have debt on commercial buildings. I believe the best plan for building wealth is to become debt-free.

Now, from the situation you’ve described, that doesn’t necessarily mean you guys should be in panic mode and start selling everything in sight. But I do think that you should systematically work your way out from under these debts over the next few years.

If I were in your shoes, I’d go ahead and get the house paid off first.

Then, I’d take a look at these commercial properties, and begin working the debt snowball on them. Start throwing as much money as you can at the smallest debt, while making minimum payments on the other two.

When you get it paid off, roll that amount over — along with every dime you can dig up —and attack the second largest one. Follow these steps until you pay off all of your commercial properties.

It might take up to 10 years in your case, because we’re talking about at least $1.3 million in debt.

If you have a bunch of equity in one you don’t particularly like, you might consider selling it and throwing the cash at the remaining two.

But whatever the timeline, I’d develop a hardcore game plan to get rid of this debt.

Wouldn’t it be cool to have all that paid for? Talk about cash flow!

— Dave

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