I lost all faith in the financial planning industry long ago. I actually applied for a couple of such jobs after getting my MBA (with a 4.0 GPA). At the interviews, neither big name company was remotely interested in my financial knowledge; they just wanted to know how many people I knew.

Akrogirl, that reminds me of a mortgage broker who bought a saddle from me a few years ago and paid for it with a check on a closed account. Due to the Internet, I was able to track him down and chase him and I wound up talking to many of his family and friends. (I harassed him until he mailed that saddle back to me!) I learned he was a con artist whose own house was in foreclosure, way before all this happened to the economy. I was shocked that someone like this could be working in the banking industry! Ha!

I think you ladies lost the main point of the story... It has nothing to do with the Financial Planning industry... This is a story about human nature and how these people handled the good times and the bad times, and what they learned from it all.

LITH wrote:
"I was shocked that someone like this could be working in the banking industry! Ha!"

I was shocked that someone like Coach Paterno could be working with college kids...

"My first book comes out in January, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money""

He might learn to take his own advice...but wait, he did.

Typical over-leveraged fool.

Well, setting aside the whole temptation to pretend none of us have ever made some really big, totally doofus mistakes in our own lives, there's a couple of takeaways:

- He didn't have a lot of experience in financial planning. The independent CFPs I've worked with, are all long-time pros with over thirty years in the business. So yeah, they've seen all the mistakes made, even if they haven't done it personally.

And they've seen the markets go up and plunge downwards, experienced the hysteria and Chicken Littles who come out saying the world is going to end next week. It's maybe true that until you've actually lived through hard times and come out on the other side, you just can't imagine what it's like. Reading about it isn't the same, no matter what.

- He's being honest about not just learning a lesson, but also the moral dilemma of his choices. That's another positive to maturity - sometimes there are no really good choices, just a choosing of the least bad one.

Secrecy about money and finances has perhaps led to more ignorance and bad decisions than need be. Financial education is more needed than ever, and to disparage someone who is willing to share his mistakes is missing the point. I don't feel sorry for him, he made his own bad decisions. But I admire his bravery in admitting his mistakes, because his example may actually help some people...which is the whole point, I think, of his writing.

I agree, jkom. He's taking responsibility for his own actions rather than blaming someone else.

Sort of an aside, but I remember when I refinanced my loan 5 years ago. I was offered all sorts of liar loans, with one mortgage broker pushing an option ARM (which is what the writer took out) very hard. I mean a *really* hard sell. I thought he was going to cry when I told him I went with a another broker.

I read that article a few days ago and just shake my head in amazement. Now I have a friend who is always telling me I need a financial advisor. Even my daughter's friend was aghast I don't have one. She says she has one. Well let's see: I do my own taxes, I handle my own retirement accounts, I own my house outright and I have absolutely no debt. I never took any equity out of the house I bought 27 years ago and that enabled me to pay cash for my current house. So what exactly am I doing so wrong that I need someone else to handle it all for me???? There is virtually no regulation for that industry and I'm not about to be sucked into it. IF ( and that's a big IF) I ever considered it, my one and only question to them would be: did you advise all your clients to get out of the stock market before the financial crisis? Of course they didn't! So they knew even less than I do. I knew it was all going to come crashing down. I told my friends that they were only holding it all together until Bush got out of office. After the debacle, my friends wanted to know when it would all go back to "normal". I asked them: Do you have any money left in your brokerage accounts? If you do, then they haven't gotten it all yet and therefore aren't yet done. This is the new normal!!! Vent over :)

Jkom, thank you for your take on this. I agree, NC, this is more about human nature and how easy it is to get caught up in things. My biggest wish for humanity would include that all of us come out on the other side of our mistakes with greater compassion and empathy for our fellow man.

When any insurance salesman pushing Whole Life can call themselves a "financial professional", there really isn't much to the title.

This guy did exactly what the finance sector as a whole did. The only difference is he only screwed himself and his family, but the finance sector by knowingly over leveraging these worthless mortgages 40 to one almost tanked the global economy.
Also, this guy did not get a tax payer funded bail out...nor does he get to borrow money from the Fed for 0% like the banks.

That said, consequences can be a great deterrent to behaving irresponsibly. Too bad the finance secotr got rewarded instead...which explains why nothing has changed.

Logic - this guy was rewarded. He took out thousands of dollars of equity loans, used the money to live beyond his means, negotiated a short sale and then walked away. Despite all his bad decisions he got off pretty easily.

Exactly Dee... he was bailed out by you and I. I see where he had no choice to do a short sale, but no one can claim that he was not bailed out.

We all need to be up in arms as to why the BO administration id going to bail out Fannie and Freddie, once again! Where are the occupiers on this one?

I read the article a day or so ago. It is a really interesting read.

It is an interesting view of what it was like inside those markets at the time and what people were thinking. As someone who is in a high cost, but not quite the boom area that Vegas, Fl or AZ is.

Not that I feel bad for him, obviously he caused the problems himself, and he did pay a price for it.
But I guess I can see the leaps of logic he made to get him where he is. As a somewhat financially conservative person and someone who isn't in the same market, I always had some of the thoughts of "what were they thinking?" however, this paints a picture of what he was thinking and not that I would say its completely reasonable, but I sort of get it now, some of the choices I definately wouldn't have made, but I see some of the motivations and unfortunately have shared some of them in my actions as well.

Although he is getting "bailed out" I think the bank is paying for the bail out as they are taking less than the full amount.

chrisk327: the bank is NOT paying for the bailout. The taxpayers are. Do you really think the banks are taking a hit? Look at the profits they are posting while at the same time continuing to dole out the ridiculous salaries and bonuses for the big guys. They (the banks) have been rewarded for their bad behavior. I guess I should feel lucky that at least I got my little bit of the dole by taking advantage of the tax credit for buying a home. Yeah my little $6500 payout versus their gazillion dollar goodies :)

I don't take dieting advice from fat people or financial advice from broke people.

There are a lot of people who just got caught up in bad timing and were steamrolled by this whole mess. This guy isn't one of them. He took out equity loans and blew the money on vacations and other lifestyle purchases. Housing is really secondary to his story. If someone wasn't willing to give him second mortgage, he just would have had those purchases on a credit card. The housing crash brought his scheme down, but the real problem was that he was spending more money than he made. That will cause you to go broke no matter what is happening in the financial system.

Unless you were shopping for a house, during that period, you don't realize what it was like. It was easy to get in over your head. The banks were throwing money at everyone. People were over bidding on houses which weren't worth half the amount. Houses were being snapped up so fast it was easy to believe prices were climbing fast because you saw it happening as you looked for houses.

I applied for a home equity loan to fix up my house for sale and the bank was trying to convince me to take 3X the amount we needed. I refused, but many did not because the banks convinced you that you really should take more. We had our house appraised and couldn't believe the amount the bank appraised the house for. We felt we were sitting on a gold-mine!

We didn't get in over our heads, but other people did. It was easy and many were ordinary people who needed to move and find a home. Many were seniors who 'should have known better.'

Realtors pushed people to bid higher prices to 'win' the house. I know, I shopped with my daughter during this period. I couldn't believe the buying frenzy which occurred. They were told their house would continue to rise in price and we all believed it.

Personally, it felt wrong to me but 'what did I know?' That was the attitude of the Realtors as they pushed my daughter and son-in-law to offer ridiculous amounts on homes which were worth half the amount. I started doubting my own judgement as these homes sold quickly.

My daughter and SIL wound up buying and suffered the loss of equity which happened to anyone who bought during that time. They are fortunate as they bought within their means and plan to stay put for the long-term while raising their family. They were lucky as they still have their jobs.

Many were not so lucky and I am not quick to judge them. I shudder thinking about that point in time. It was easy to get hurt.

Jane

"It was easy to get in over your head. "

it took something tat seems to be in very short supply...self control.

I have never borrowed as much as any lender has offered on investments or personal residences.

While it might have been nice to have an even larger house, it was not worth the cost or risk.

just because someone offers you a huge loan does not mean you have to take it.

Some folks have very large credit limits on charge cards, but seem able to control themselves.

Jane, I agree with you totally. If everything is selling at those prices, that's the market. And if you're buying, that's what you pay. I feel sorry for the people who, through no fault of their own, lost their jobs because of the economy crashing. Yes, some people spent more than they should have and used their equity for improvements and vacations, etc. But some people are in a bad way simply because the market crashed, they lost their jobs, and can't sell and downsize because the value of their property went down and they can't recoup what they owe. Even if they didn't lose their jobs, some people just need to sell because, maybe they got sick or a family memmber needs them to move closer, or they got divorced or widowed... There's tons of reasons why people need to sell. And a lot of people who have a mortgage, can't because they owe more than they can get. That's the people I really feel sorry for.

There is a big difference between buying a home and seeing the value fall and doing cash out refi's to live a lavish lifestyle.

I've seen a couple of stories on this guy and I don't have a lot of sympathy for him. He cashed out a couple hundred thousand bucks and just spent it on having a good time. He's definitely NOT taking responsibility for that. He's walked away from that debt and has no intention of ever paying it back. He didn't buy at the height of the bubble and get stuck. He bought as prices were increasing. He road the bubble all the way up, spent all the "profit" and then stuck the lender with the bill when prices fell back down.

I have a lot of sympathy for people who really were innocent victims of this crash. However, this guy was part of the problem, not a victim.

Almost everyone I know is terribly stressed about money and blaming it on the economy. Most (if not all) of them are trying to keep up a lifestyle so far out of their earning capacity that it is a disaster waiting to happen.

I haven't ever figured out a way to convey how peaceful and secure they would feel without all the debt and baggage that comes along with their new cars and fabulous homes filled with expensive stuff, without sounding smug.

I catch a lot of heck for being frugal. I recently bought a home for the first time in 24 years. I could have spent 3 times more than I did. But nothing feels as good as financial security.

The only reason I actually did finally move out of my little starter home was because I bought something with a small house in the back for my dad to live in. The remodeling/renovation process has been much more lengthy and costly than estimated (of course). Had I not had access to the funds needed, it would have left both me and my dad screwed (sorry, best word for it). And it would have been MY fault for not thoroughtly and carefully planning ahead and making sure I had my contingencies and my butt completely covered.

I will never understand how people can seem so smart and practical in every way except planning for the financial future of the ones that love and depend on them!!

"I've seen a couple of stories on this guy and I don't have a lot of sympathy for him. "

One of the ways he is probably trying to make some additional money.

Wold yo purchase a financial advice book from an author who lost his won house?

It will probably hit remnant status in a matter of weeks.

Wold yo purchase a financial advice book from an author who lost his won house?

Hey, it worked for Dave Ramsey.

"Hey, it worked for Dave Ramsey."

How well has it worked for the fools that took his advice?

We never seem to see very many of them.

With all the book sales their should be millions.

"Fools that took his advice"

Huh? People who take his advice live on less than they make, pay off their debt, and build up savings/wealth. Doesn't sound foolish to me.

I find Dave Ramsey very inspiring. And he has inspired many to pay off debts and live within their means.

Dave Ramsey is a hack who has a very limited understanding of how to use credit.

If he was so skilled he would not be hawking his books, but makings lot more money in the financial markets with his obvious 'skill and knowledge.'

Telling people not to charge more than they can afford is not very complicated (or original.

People pay money to learn "live on less than they make, pay off their debt, and build up savings/wealth", "pay off debts and live within their means"?

I wasn't quibbling with whether his ideas were original (even he doesn't claim they are), but whether they were foolish. Nothing dumb about avoiding debt...

Dave Ramsey does not claim to be an investment guru, so why would anyone expect him to make a fortune in "financial markets." His investing advice is basically - pay off your home and start buying mutual funds.

"People pay money to learn "live on less than they make, pay off their debt, and build up savings/wealth", "pay off debts and live within their means"?"

That is kinda like asking why anyone would pay for weightwatchers? It is "obvious" that you just need to eat less and exercise more, right? People are paying for motivation, not the plan itself. Some people can take and idea and just run with it - whether it be financial, exercise, diet etc. Others need some structure and support to ensure they follow through and become successful. If listening to a radio show, joining a class, or reading a book helps someone to make positive changes in their life, I don't see why anyone would object to that.

"Nothing dumb about avoiding debt..."

Except in many cases that is actually how you build long term wealth.

I have pretty good number of rental properties, tat generate a nice profit every month.

I borrowed for every one of them (though not without putting enough cash in to make sure I made a profit).

Her is simply a one not blare of noise.

I agree. Avoiding debt completely certainly isn't the best way to wind up with the most money. However, there is a good-size group of people -- the debtaholics -- who are probably better off doing so, even though it will mean a lower standard of living. They are addicted to spending, simply cannot handle debt, and are headed for certain financial ruin. For them, just like for alcoholics, abstaining completely is the only way to go.

Up until the recession, the "savings" rate for americans was negative. ie on average, everyone was spending more then they make. We aren't just talking about a few people living beyond their means. People who plan and save were in the minority!

BTW - Dave Ramsey isn't targeting his info to everyone. He's very specifically targeting people who are in debt and want to start digging their way out. Those people have already shown they have difficulty managing credit, so I think it is very good advice to tell them to stick with cash.

Saying you've been successful using debt does not equate to it being impossible to be successful without using it. Dave Ramsey has built up a significant net worth--including a lot of real estate--without using debt. You do it your way, he does it his. But it's obviously possible to get rich without using debt.

There is good debt and there is abd debt.
Good debt pays you over time; bad debt does not.

The problem with Dave Ramsey, people follow him like he is a religion.
His advice is good for people that cannot control themselves, who cannot live with any credit card available to them.
Too many people hear his advice and then try to apply it to everyone in every circumstance with religious fervor.
Some people do well with credit and some do not. Just like most things balance is key. And each person needs to honestly assess their own situation for what works for them, not applying they own strengths and weaknesses to others.

"There is good debt and there is abd debt.
Good debt pays you over time; bad debt does not."

Nonsense. There is no good debt. Debt NEVER pays you, you pay it.

Debt is always a negative. Sometimes, you can find a positive that outweighs the negative of the debt, but the debt itself is always a negative. eg home appreciation and rent savings are positives that sometimes outweigh the costs of mortgage debt.

I agree with, and appreciate, many of your comments, Bill. For example, " There is a big difference between buying a home and seeing the value fall and doing cash out refi's to live a lavish lifestyle." And..."There are a lot of people who just got caught up in bad timing and were steamrolled by this whole mess." Thank you.

We relocated from a relatively inexpensive area in 2005 to a relatively expensive area. We certainly suffered sticker shock, but felt we had to face the reality that our new area was pricey. We did not forsee that a bubble was about to burst, but rather, attributed the higher price tags to a high cost of living in this particular locale. So, we purchased in 2006, and our value held steady, perhaps even increased, until mid-2008, when the plummet began.

As far as paying with cash, sure, it would have been swell to pay for the house with cash, but at the prices we were seeing for a decent neighborhood, that was not looking possible in 2006. We did put 50% down, had an interest rate of 5.625%, and a 15 year loan. In 2010, we re-fied to get a 4.25% interest rate. We did a 10 year loan then, so as not to lose the 4 years we'd put into paying the sucker off. We also do bi-weekly payments, which in essence will subtract one more year off the loan schedule. We've done all we can do to make lemonade from lemons.

We can't help that the value of the house has fallen dramatically. We paid $426,000 for the place in 2006, and it's now worth $347,300.

I have replaced the heating and cooling system with Trane Energy Star components, gutted and remodeled the large master bath, upgraded the kitchen, installed a paver patio and walkways, planted trees, shrubs, flowers, and repaired or replaced other interior and exterior features.

I am doing my best to care for the house and improve upon it, even though the "investment" in it may be silly.

"There is no good debt. Debt NEVER pays you, you pay it. "

the debts I owe in every one of my property investments generate more income than the mortgage and expenses, let alone factoring in depreciation.

They are about as 'good' a debt as you can get.

They are all worth significantly more than the money I have put into them, and at this point have a rather decent rate of return without even accounting for increases in value.

Stinky, that really stinks that your value dropped like that, no pun intended, lol.

"the debts I owe in every one of my property investments generate more income than the mortgage and expenses, let alone factoring in depreciation. "

The debt doesn't generate income. Rent generates income. Debt costs money. It always has and always will. Sometimes, you can net out positive, but you are always increasing your risk. Lots and lots of people have bankrupted themselves by financing multiple rental properties.

Thanks for your reply, LITH! Actually, the current Zestimate is the highest in a couple of years. Went alway the way down to $315,000 at one point, then hovered around $330,-$332,000 for about the last year. I'm (almost) elated to see it approaching $350,000 now! What can you do?

One word, OPM, that is the problem. Americans borrow too much, using the bank as a cash machine, borrow it with little intention to pay it back. The govenment does the same thing, floating way too much bond and spend the borrowed money lavishly. As a result, when times getting tough, short sales and forclosures galore.

Personally, we lived through the high flying times of the 21st century in CA and thought we will never be able to buy a home in the Bay Area, as we believe if you buy some thing, you need to have the money for it. So we waited 10 years before buy a home that is about half of what it was in the 2006-7 era. We bought it right and paid for it, all cash. We will own it for a long time. In the mean time I am still driving that 1999 mini van and my wife still driving a Corrola. Our neighbors laugh at us, because they are all driving those 3B's.

wanj you might find some solace in burbed.com, if you've got a bit of a warped sense of humor ;-)

Here is a link that might be useful: Real Estate in the Real Bay Area

"The debt doesn't generate income. Rent generates income. Debt costs money. It always has and always will. Sometimes, you can net out positive, but you are always increasing your risk. Lots and lots of people have bankrupted themselves by financing multiple rental properties."

That mans they did not know what they were doing, and likely over leveraged the debt they carried.
The frast ;itte hicup om cash flow ad they crash ad burn.

while debt costs money, it is one of the things that allows our economy to work and prosper.

he lack of any method to borrow is one of the things that holds may economies back.

It is also a trap for fools that do not understand the money is not free and creditors expect (and often can demand) repayment.

Or you can try to save up to put enough down on investment properties (normally a minimum of 20%, ad often more is actually needed) and not ever get very far.

While it is true the rent is what pays the income, without the ability to borrow at least some portion of the purchase price the income would never have existed.

Better rethink that whole concept a little bit.

Yep, the lender gets a cut.
But I get a nice cut also.

I really like having someone else make my mortgage investment payments for me, while I skim off some cash every month, and then have an increase in value when I sell.

Even when I have 50% of the price into the property, if the value increases by 2%, that is 4% on my investment (and the tenants are paying the expenses).

If only you could find someone to pay for a loan on stock andlet me pcket the increases.

We have met the enemy, and he is us... No question that some individuals had no common sense.

OTOH, when I read Gretchen Morgenson's book 'Reckless Endangerment' I was flabbergasted by the frauds perpetrated by bankers, appraisers, Wall Street, rating agencies, regulators, and politicians during the whole real estate bubble. Worse yet, they're still in positions of power, did not have to return profits earned fraudulently, and mostly are escaping prosecution. I'm usually a kind person, but frankly, I think some of them deserve a financial/political 'hanging'.

"Even when I have 50% of the price into the property, if the value increases by 2%, that is 4% on my investment (and the tenants are paying the expenses). "

And therein lies the problem. 4% is a decent return if you are taking on little or no risk. It is a horrible return if you are extending yourself substantially. That is what the vast majority of "investors" did in realestate prior to the crash. A little hickup might have caused them problems, but the crash bankrupted them.

If you had the foresight not to fall into the trap, great! However, many, many people did and lost everything they owned by mortgaging multiple properties as "investments".

"If you had the foresight not to fall into the trap, great! However, many, many people did and lost everything they owned by mortgaging multiple properties as "investments". "

The seemingly unending price rises attracted and then cleaned out a lot of foolish folks.

They had little to no knowledge of how to actually make money in RE, and many paid the price.

I have two of those properties right now, and an agent looking around for others.

The former owners took a bath, the mortgage holders took a bath, and I profited.

One is already rented, the other will be available in another few months.
Both needed work, one more than the other, but at the price I paid they remain very good deals.

The tenants will pay the bills until the market rebounds enough to maybe sell them.
Possibly even as 'starter' type homes in the area they are in.

It needs to be more than one year though, no point in paying regular income tax when i can get long term capital gains by holding.

Brickeyee,

You have repeated numerous times that others do not know how to actually make money in RE and you have done it right.

Do you mind to share as HOW to make money in RE, especially, we look forward to hearing your advice for a starter who does not have the resource and connection as you already have?

Mr Brickeyee is dead on. It is unfortunate human greed is constantly wanting to be like the Jones. Our downfall is our passion to compete with stranger x because if he got & bragging it why can't I have it?
Real Estate Market - as much as people blame brokers, agents, etc. there is personal accountability if/when someone in Upstate NY believes they can buy condos in a crappy local market of FL, AZ or NV without any due diligence because they heard someone else buy and flip for ##000s.
It is very clear that individual isn't just looking for cheap property because that exist in MI, OH, IN and Upstate NY they simply followed a wave but caught on too late. Sort of like the .com bust and ponchzi scheme - where the folks who already made their profit sell books, videos, speaking engagement how you 'dumb follower' can do what I did without the realization if it is that easy why would that person share their secrets (for more competition or socialism)?
Common sense eludes the brightest and greed fuels losing common sense. Minimalist thinking won't sell as a concept but would prevent casinos and banks from profiting.

"Do you mind to share as HOW to make money in RE, especially, we look forward to hearing your advice for a starter who does not have the resource and connection as you already have?"

You work your a** off.

You do not hire folks for everything, especially when starting out.

Drywall and plaster repair are not all that hard to learn.

I started out by moving from personal residence to personal residence as each was renovated and restored.

It was a real PITA for many years until I had a bankroll large enough to underwrite purchases as an investor.

It is NOT a 'quick money' path as shown on the various 'house flipping' TV shows.

I still do not normally,ally use a service between tenants.
I get dirty and paint and repair the place.

If it is going to take more than a single long night it may be worth hiring some temporary help, but I still stay and supervise.

You have to weight lost rent against the costs insured to hire additional help.

I have specialized in buying older properties from estates, renovating and restoring them, and then selling or renting them out.

How much you need to put down is driven by rents.
If you cannot put enough down to at least generate a neutral cash flow, do not purchase or plan on getting a second job.
Investing addition cash every month (effectively what you are doing with a negative cash flow) becomes unpleasant very quickly, and is not sustainable in the long term.