How My Journey Out of $2.5M in Debt Inspired Me to Live a Charity-Focused Life

When I sold my HR outsourcing company to a publicly traded firm in 1997, I fancied myself semi-retired. My family moved from metro Detroit, which was cratering at the time, to the top of a mountain in Southwestern Virginia’s Blue Ridge. We bought 120 acres, complete with walking trails, a large stocked pond and endless woods for our kids to explore. (It also included these strange old rusty barrels with copper tubing lying around, but I don’t know what that was.)

We set up a not-for-profit organization to reach out to international students studying in the United States. We were sad to learn that international students, who came to the United States for five and a half years on average rarely set foot in an American’s home. We gave students a weekend getaway that would include a chance to ride a goat, milk a cow, go fishing and hiking, and enjoy our Blue Ridge Mountain paradise.

We did this for a year or two, and it was a great opportunity for students who came from Virginia Tech, UNC, Duke, and more. Our kids enjoyed meeting folks from other cultures as well. Though going into semi-retirement at 35 sounds exciting, I was bored. I was a high-energy entrepreneur, and I couldn’t sit still. I wanted to do more. Though I knew nothing about real estate, my friend and I started flipping houses.

Lesson #1: Early retirement is highly overrated.

This was long before Chip and JoAnna Gaines, and I don’t think the term “flipping” was even a thing yet. We sold our first home in a few hours for a $24k profit, and I thought this would be easy. We went on to flip dozens of houses in the next several years. Most weren’t that profitable, so we went on to build modular and stick-built homes, developed a subdivision, and I started an online real estate marketing portal at Smith Mountain Lake that I still operate today.

U.S. real estate was on a steep uphill ascent by now, and it was like a drug to me.

In a recent Bigger Pockets article, I spoke about the pitfalls of speculating. Speculating in stocks and commodities and startups is risky business, and speculators risk losing everything. It is also possible to speculate in real estate. I learned that the hard way.

I started flipping expensive lots at Smith Mountain Lake. My partner and I would locate a waterfront lot that had been purchased for a song decades before. Many were so overgrown that you couldn’t see the water. Erosion had eaten into the shoreline, and the owner was just paying taxes on it while it lay as dormant as his previous dreams of building there.

We’d buy the lot for cash or bank financing. We would then clear the underbrush, thin the trees, and make it a park-like setting (complete with a park bench). We would get dock permits, clean up the shoreline, and shoot professional photos to market on our waterfront website.

We went on to sell these lots for about $100k profit or more in many cases. We did a few dozen of these and thought we’d struck gold. These lakefront lots, which had sold for tens of thousands in past decades, were now appreciating at a hundred thousand or so annually, and we sold them for $300k to almost a million dollars each.

We brought in a few investors, went a little deeper in debt, and got multiple lots going at a time. Not only was it profitable, it was fun.

Lesson #2: Don’t let fun, big profits and greed cloud common sense, especially in a bubble market.

We saw the signs that the market was in a bubble, but we’d never experienced one before, at least as real estate investors. So we trusted our instincts over the wisdom of those who knew.

A May 2006 Fortune Magazine article stated that “The great housing bubble has finally started to deflate […] In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials.”

Those great philosophers, Simon and Garfunkel, in the song “The Boxer” said, “A man hears what he wants to hear and disregards the rest.” Well, that’s exactly what we did. We listened to the siren song of the real estate gurus and our growing bank accounts. And we ignored people speaking the truth.

Lesson #3: Suspect gurus who have something to gain by pumping up an already inflated market.

We didn’t want to believe it, so my partner and I kept buying waterfront lots at so-called deep discounts. We should have seen the signs when web traffic and calls slowed down. By the time we stopped buying, we had quite a few waterfront lots. That’s when the market screeched to a halt. Plus, I had other real estate including a lakefront vacation home and more.

We ended up $2.5M in debt by the end of 2007. That’s when my partner bailed. So now I ended up $2.5M in debt.

This dramatically increased my interest payments and my stress. Since my regular income also came from real estate, which was also drying up, I found myself in a very difficult, painful place. It was easy to beat myself up when I thought about the fact that I had gone from semi-retirement and almost $2M in the bank to working very long hours and $2.5M in debt.

There was only one saving grace in all of this—all of this debt was backed by real estate. Unmarketable, plummeting real estate, but real estate nevertheless.

Lesson #4: If you must speculate, real estate has real advantages. (Many other asset classes would’ve left me with nothing.)

Now what?

It was the end of 2007. I felt somewhat alone. One quiet morning, in my regular time of meditation and prayer, I got this crazy thought: WWGMD?

What would George Mueller do?

Who is George Mueller? I’m glad you asked. George Mueller lived in the 1800s in Bristol, England. He was a Hellion turned Saint who rescued and housed thousands of orphans off the street. His fundraising techniques were unique, to say the least. He carefully calculated his budget, but he never shared this information with anyone. He felt that Divine Providence was leading him, and that this same Providence would “provide.”

Related: 3 Ways Investors Can Give Back to Their Communities (& the Larger World)

It did. But the provision often came at the last possible second. This left him with some very interesting situations.

One such time, the orphans were seated for breakfast with their plates in front of them—but no food or drink. They had no funds to purchase more. After giving thanks, there was a knock at the door ,and a local baker stood there with plenty of bread for everyone. He said he could not sleep for thinking of the children in need, and he’d been up baking for them all night. Minutes later, they learned that a milk wagon had broken down right outside the door. They needed to empty the wagon to take it for repairs and were offering the orphanage all their bottles of milk.

Anyway, I started wondering what Mueller would have done if he was stuck in my situation. After reading more about his life, I concluded that he would have begun by generously giving his way out of debt. Mueller would have started liberally disbursing the funds he had, trusting that it would have somehow lead to a path out of the jam he was in. So that’s what I decided to do.

My friends thought I was nuts. They counseled me to throw in the towel. Declare bankruptcy. “You’re gonna give you way out of debt?”

My wife was scared. (Wouldn’t you be?) “How’s this going to work?”

I had no good answer. I couldn’t explain how it would work. But I believed in the universal law of sowing and reaping. Others call it Karma. I believed—and still believe—that we were created to give and to give generously. It’s written into the fiber of our being.

In late 2007, I gathered my family around and told them my plan. We chose a few organizations we were passionate about—groups caring for the poor around the world, people facilitating adoptions, our local church, and more.

In January of 2008, we began to give generously to these organizations—outrageously, as if we were making a half a million a year or more, not like scared people with enormous debt living off borrowed time. (It’s not in my nature to share this with readers, or anyone, but I want to encourage you by what happened next.)

About four weeks later, I was in a Subway restaurant and saw a real estate developer I knew. I told him a bit about my situation, particularly about my waterfront parcel that could not be subdivided. The developer made a generally off-handed comment that burned like a fire in my brain and set off a series of unique ideas about a completely new way to get the county to approve my request to subdivide.

You see, there was an obscure law that allowed an owner to split a piece of land one time to gift to a family member. And the split piece of land couldn’t be resold for five years. The law just assumed the original piece would be held, but it didn’t specify that. So the spouse could sell off the original piece, then the next owner could rinse and repeat.

I wasn’t willing to try this sneakily without direct county approval. I wouldn’t even consider it if it wasn’t completely approved with full disclosure. My surveyor and I met the county planner the next day. The planner was completely baffled. She studied our plan, she looked at the law, and peering over her glasses with a smirk, she informed us that “no one has ever read the law this way before.”

And she approved our plan.

Then I had another hurdle. Every progressive buyer had to buy the entire remaining parcel—not just the one-acre lot they wanted. So the first couple had to pay about $1.3M to get the $350k lot they wanted and trust the second buyer, who they didn’t know, to buy the remaining parcel at $950k. Then they had to do the same with the third buyer, and so on.

And the lender had to approve all of this—even in the middle of the great bank meltdown of the fall of 2008. (What were the odds?)

It all worked. One thing led to another, and 13 months later, I’d gone from $2.5M in debt to completely debt-free! We even paid off our home in the process.

Make no mistake: I had to work hard, very hard, to achieve this result. I invested time, money, creative energy, and more.

But I’m absolutely convinced this wouldn’t have happened if I hadn’t started with generous giving.

Lesson #5: Give generously, even when it might seem you can’t afford it.

My entire family learned a lesson from that experience that we couldn’t have learned from a book. As a result, we made aggressive giving a part of our lifestyle pattern from that time on. We’ve had a lot of fun along the way, and we’ve helped a lot of people in need.

How to Turn Your Life and Business Into a Giving Machine

We live in the wealthiest society in world history, but there are still billions who are in desperate need, who could benefit from what we spend at Starbucks every week. Here are a few thoughts on establishing a practice of giving back.

1. Consider setting aside a regular amount that is not based on your income. And give ahead.

As a real estate investor and broker, I don’t often have a steady, predictable income. We’re not cashing a check on Friday evening like many of our parents did, so it’s not as easy to establish a regular pattern of giving.

Though I wasn’t aware of it at the time, our plan to give a set amount each week, based on the income we wanted to have, was a key. This became a way of giving ahead, and I find that most people’s income follows this practice.

2. Follow your passions.

With billions in need on the planet, it’s easy to be overwhelmed. “Where do I start? And how can my small donation help?”

You may not make the impact of Bill and Melissa Gates, but your donation can mean every bit that much to one hurting child or one abuse victim.

You will be surprised how a small amount can change their life. My family learned this firsthand on a trip to Nicaragua a few years ago.

3. Trust but verify.

We’ve all heard of non-profits who took advantage of the trust they gained. If you’re going to give big, take some time to check out the organization carefully.

Make a trip to see their work in person if possible. Ask them for financial records. See how much of their donations go toward salaries and administration. Try to learn all you can, and get involved as a volunteer if possible.

4. Consider setting up your own not-for-profit.

This is not a necessary step, but after our giving grew and we became aware of more needs, our family set up our own small 501(c)(3) not-for-profit. This gave us the flexibility to offer matched donations and to play a more personal role in the lives and needs we serve.

Real estate investor and BiggerPockets reader Bill Manassero and his family have established a non-profit organization called Child Hope International. Their mission is to serve the poverty-stricken children of Haiti. Check them out at childhope.org.

5. Set up your company to give back.

Giving back to our community and the world has become a way of life for our family, and our children view it as normal. Now we’re extending it to our real estate investment firm.

You’re probably familiar with Tom’s Shoes. You buy a pair of shoes, and the company donates a pair to a needy child. You don’t have to share your shoes with the child since the company takes care of that.

We’re setting up our multifamily investment firm to give investors access to one of the safest, most profitable asset classes on the planet: commercial multifamily real estate. Investors get to keep all of their profits. They don’t have to share them with needy people (unless they choose to).

We invite investors to tell us what they’re passionate about. What problem in the world do they want to solve? What organizations do they know who are addressing it?

Then, if it’s also something our company is passionate about, we will invest a significant portion of our internal profits (tied to that investor’s allocation) to this organization.

In this way, we are working to change the world. And I see changing the world as the responsibility of each one of us.

A Troubling Example: Human Trafficking

My family and my company are particularly passionate about fighting human trafficking and rescuing its victims.

According to the Department of Homeland Security, “Human trafficking is modern-day slavery and involves the use of force, fraud, or coercion to obtain some type of labor or commercial sex act. Traffickers use force, fraud, or coercion to lure their victims and force them into labor or commercial sexual exploitation. They look for people who are susceptible for a variety of reasons, including psychological or emotional vulnerability, economic hardship, lack of a social safety net, natural disasters, or political instability. ”

Human trafficking is a global threat to vulnerable men, women, and children around the world. This horrific injustice affects millions of people every year in every country, at all socioeconomic levels. Human trafficking generates $150 billion per year from its 21 million victims. That’s about double the annual record profits from Apple, Nike, Starbucks and General Motors combined. Ninety-eight percent of the victims are women and girls.

Our firm funnels a large percentage of our profits to fight human trafficking and to rescue and restore its victims, to tell them that they’re not just a product to be used then discarded, that they’re valuable and precious.

We’re excited to work with our investors to place our profits with organizations that are doing this important work. We have our favorites, but if investors introduce us to others, we’ll check them out and consider investing in them as well.

Many people have asked me about human trafficking organizations we support. There are many great ones. One I recommend is Exodus Cry. They produced a shocking documentary called Nefarious. If you weren’t convinced about the evils of human trafficking, this will do it.

I’m so grateful for the opportunities I’ve had to give back. I’ve been blessed beyond my parents’ dream for me, and I have even higher hopes for my own children’s efforts to impact the world.

You and I only have a short time on this earth to leave our mark. Let’s use the time, opportunities, and wealth we have to make a lasting impact, to leave a legacy of generosity, to experience the satisfying joy that cannot be found through living for ourselves.

“I shall pass this way but once; any good that I can do or any kindness I can show to any human being, let me do it now. Let me not defer nor neglect it, for I shall not pass this way again.” —Etienne de Grellet

[Editor’s Note: We are republishing this article to help out our newer readers.]

What causes does your company contribute to? How do you give back in your everyday life?

Let me know with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.