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.)

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