The Story, Part 3

Second MortgageWhen I was trying to buy vending machines to start a vending business, the U.S. was in the midst of a real estate boom built on the shoulders of the Fed’s low interest rates. Second mortgages were becoming as fashionable as SUVs.

My condo had appreciated about $20,000 in a year. I had also put down $10,000 when I bought the condo. The two numbers added up to $30,000, which was a little bit more than I needed to buy five vending machines.

I promptly called up USAA and asked for a second mortgage. They promptly agreed. So a couple weeks later, I had $28,000 in my account to pay for the machines. I wired the money to the company, they shipped the vending machines, and I cleared out my single car garage to make space.

The day I received the machines I was still on an emotional high. This was how I planned to quit my job and make it big. I wasted no time using the company’s mailing list of businesses in my area and preprinted direct mail pieces. I labeled them, paid the postage, and waited eagerly to see how many people responded.

I probably don’t have to tell you, the response was underwhelming.

For one, the mailing list the company had provided included businesses like Borders. I had never seen a vending machine in a Borders. There were other businesses of questionable quality.

I also discovered the direct mail pieces were not that effective.

But one of the biggest obstacles of all was underestimating the competition. I had done no research. I had assumed I had purchased a viable area for a vending business. It turned out that the soft drink companies themselves (Coke in this case) had locked up all the public schools in all of Douglas County where I live.

Nobody else could place a beverage machine in any public school. Coke had an exclusive contract. (I’m assuming they were giving the schools a large financial kick-back in exchange for the pseudo-monopoly.)

Anyway, barring these obstacles, I placed two complete machines plus a stand-alone snack machine. Which left three beverage machines and two snack machines in my garage. (A complete machine was a beverage machine with the snack machine attached to the front.)

I was not off to a great start.

Nevertheless, I attempted to place the other machines. And I stocked the machines I had placed. Or I tried to. At one location, they drank Diet Pepsi like there was no tomorrow. I had to be there almost every day to keep it filled. This was hard to do since I had a full-time job at Merrill Lynch.

I would stock my little car with as much as I could fit, then use my lunch break to run my route.

Eventually, the company asked me to remove my machines because they had gotten a larger full-service vending company to take over.

This was the end of my business. I had discovered I didn’t like running a vending route. I was never passionate about it because I’m not a soda pop drinker. And placing machines had turned out to be much more difficult than the parent company had advertised.

Anyway, the end of my business was also the beginning of my debt. When I attempted to sell my machines, I got literally pennies on the dollar. If you don’t know this, there is a HUGE market for second-hand vending machines. What you pay thousands for can only be sold for hundreds… if you’re lucky.

I ended up paying a second mortgage payment until I sold the condo. At that time, I had to bring $1,500 to the closing table just to get out because the realtor fees wiped out what little equity I had. So fortunately I didn’t have a $28,000 loan hanging over my head, but I had no money for a down payment on my next home. I had squandered all of my equity.

I don’t know what my debt load looked like at this time, but I remember it was somewhere around $10,000 to $15,000 in credit card debt. Not only had I racked up a couple major purchases (the real estate course and the HerbaLife debacle), I had rolled in some major car repairs, some plane tickets to Pennsylvania (to be “best man” in my friend’s wedding), the postage for the mailing pieces, and some Christmas gifts.

Also of importance to this story, my wife had gotten pregnant with our first child. The hospital bills for that amounted to a few thousand dollars, which also took a toll on our finances.

When we sold the condo, we moved in with my parents for a few months. My daughter was nine months old. We made a little bit of headway without having as many monthly expenses, but it didn’t last for long…

(Click here to read Part 4.)

The Story, Part 2

Candy BarWhen I turned 18, I immediately joined Amway. This was before I was married. I cold-called. I drew circles. I drove all over the country to rallies and events. I must have spent a small fortune during the 3 years I tried to succeed with MLM.

Well, sometimes I’m not a fast learner. Around the time I bought H. Roger Neal’s Fast-Flip Real Estate, I got involved with HerbaLife.

Let me tell you, that was really stupid. In fact, after I spent some time thinking about their “marketing plan,” I realized it would never work. So I got buyer’s remorse and asked for a refund a couple weeks later. I got some money back, but lost a good chunk of change. (Note: A couple of months later, I found out that HerbaLife’s marketing practices were outlawed. Shortly thereafter, there was a class action suit.)

Anyway, this is all really a set-up for my worst financial decision ever.

I got a mailer about a free seminar in the Denver area where I live. It was to present a business opportunity. The sales copy claimed you could make money while you sleep. That sounded pretty good to me, so I decided to attend.

At the seminar, I discovered the opportunity was to start a vending business. You purchased the machines from the company. Then you placed them at various businesses in your area, filled them with pop and candy bars, and collected the money.

This by itself was compelling to me. But what really got me (again) was the “marketing plan.”

In this particular case, you would buy your machines and be assigned a geographic area. This meant you wouldn’t have any direct competition from other people who bought the same types of machines. This exclusivity appealed to me because in multi-level marketing, anybody could sell anywhere.

Next, as part of the company’s package, they offered to provide a mailing list with pre-printed direct mail pieces. All you had to do was pay for postage and send them out. According to the company, many people were able to place their machines within a couple weeks of mailing the sales material.

All of this got me very excited. It seemed like a complete turn-key system. Just buy the machines, send out the marketing material, and start collecting cold, hard cash.

The cost for this opportunity? A minimum of roughly $18,000. That would get you three vending machines.

If you bought more machines, you paid less per machine. So in my haste to get rich, I decided I wanted five machines. The cost for five was about $28,000, including shipping.

I had one problem. Where was I to get the money?

I began by talking to a bank to see if I could get a business loan. The banker was a savvy man. He had been in the business for many years. He flat out told me the bank would not lend any money to start a vending business. It was too risky. Nearly all of them failed.

But he didn’t stop there. He was so concerned, he gave me some advice I will never forget. He said, “If I was your father, and not a banker, I would still tell you not to do this. It’s foolish, and you could lose a lot of money. There are better opportunities out there.”

Of course, I had spent three years in multi-level marketing. I had been told never to let people steal your dreams. So I interpreted this sound advice as an effort to steal my dreams. So after my wife and I left, I promptly began seeking another way to make the deal work.

That’s when I discovered the concept of a second mortgage…

(Click here to read Part 3.)

The Story, Part 1

Just MarriedMy wife and I were married on September 11, 1999. When we got married, neither of us had any debt.

We both had good jobs. I worked for Merrill Lynch. My wife worked for Parker Blake, a company that specialized in commercial picture framing.

At first, we lived modestly. We drove a 1985 Saab 900 Turbo that I had purchased for $1,250. We bought a condominium for less than $97,000. The mortgage payments, after our down payment, were only $600 a month.

Life wasn’t luxurious, but it was good.

During the first two years, we used credit sparingly and paid off debt quickly.

For instance, we bought some furniture from Ethan Allen for our condo. We financed it to build our credit. Then we paid off the balance before we were charged any interest.

Later, when we couldn’t tolerate driving without air conditioning any longer, we financed a 2001 Hyundai Elantra. We paid off the car in two years, and we are still driving it today.

These are examples of the few times we made reasonably prudent decisions. Unfortunately, it didn’t take long for us to begin using credit in an unhealthy manner. We started buying more with credit cards. We began carrying our balances.

What caused this to happen?

It was really my fault. You see, I’ve got an entrepreneurial bent. And I got bit by the “get rich quick” bug. For more than a couple years, I bought almost anything that promised to help me make money fast.

Some of the purchases were small. Sometimes $50. Sometimes $100. While these purchases were mostly a waste, they did not create a debt burden. It was when I started spending the big money that my debt problems started.

First, there was H. Roger Neal’s Fast-Flip Real Estate program. It cost $5,000. I bought it.

Unfortunately, I realized too late that his strategies violated my personal ethics. I simply could not do what he recommended.

But this ridiculously expensive purchase was nothing compared to what came next…

(Click here to read Part 2.)