Don’t Burn the Boats: Why You Need a Plan B
There’s a story motivational speakers like to tell about Spanish commander Hernán Cortés burning his ships so there was no choice but to fight. By burning the boats, as the story goes, Cortés created a point of no return. There was no going back. They either had to fight or die. So they fought. And they were victorious.
I heard this story for the first time in 2004. I had been listening to real estate investing training courses and motivational tapes on the way to work and back every day for months. I had listened to them so many times that I had them mostly memorized, and I was hungry for more.
To help satisfy that hunger, I signed up for a subscription from a real estate investing radio show. Every month, for a low fee, they sent me two cassette tapes containing recordings of the previous month’s shows. One of these tapes contained the story that would lead to my downfall.
You see, the story achieved its purpose. It motivated me to make it impossible to turn back. But burning the boats doesn’t guarantee success.
After listening to that tape, I decided it was time to go full-time into real estate investing. I had been doing it as a side hustle for several months and I was doing OK. I figured if I had more time to work at it, I’d do even better.
I’m not sure if I put in my notice the next day or if I waited a few days, but I do remember that my birthday was a few weeks away, so I decided my last day would be March 23, 2004 — the day before my 32nd birthday.
Three months later I was homeless.
I couldn’t find tenants for all of my houses, and I started having problems with the tenants I did have. Some of them didn’t pay on time. Or they got behind and couldn’t get caught up. Or their partner left and they couldn’t afford the rent on their own. One claimed that her ex had been stalking her and had found out where she lived, so she had to move even though she loved the house.
I had been been suckered into thinking I could buy houses with no money because that’s what all the gurus were teaching. And yes, you can. (And I did.) But even if you try to protect yourself by putting a clause in the contract that says you don’t have to start paying the house payment (or rent, in the case of a lease with option) until you find a tenant, you still have to keep paying it when your tenant stops paying you.
If you don’t have enough money set aside to keep paying that payment, you lose the house. Worse, you let down the people you were trying to help by buying it in the first place — the sellers who were so desperate to avoid foreclosure that they were willing to sign over their homes subject to the existing mortgage with no money down. So the bank gets the house, the seller’s credit is damaged, and you, the broke real estate investor, have no money coming in to pay your own bills.
That’s where the burned boats come in. I had quit the best job I ever had, and then everything fell apart. I didn’t have enough money to pay my own house payment, or even to buy groceries. I lost my house and had to let my kids stay with their Dad for a while. I had my tent and my Jeep, so I stayed at campgrounds for about a month. After that, some relatives took me in. I got my kids back, but the Jeep got repossessed. I had to start over from scratch.
The story that started it all? The one with the burned boats? There’s no doubt that it is inspiring. It can be an effective way to get people to take action. The problem is that without the boats, there is no safety net — nothing to catch you if you fall. And people still fall.