How to Use Leverage to Make Money on eBay
April 9, 2007
Big time real estate investors use leverage to try and make big time profits. You can use leverage on a smaller scale on eBay without exposing yourself to the large amounts of risk that they assume.
As I read JD’s post on leverage yesterday I thought about how I currently use leverage to earn 30% to 200% returns on eBay. JD summarizes the definition of leverage as “borrowing money to magnify returns”. I’m able to borrow money to purchase items to resell for a magnified return.
How is this Leverage?
I buy heavily discounted items at wholesale, outlet, or unclaimed goods stores then sell them on eBay. I borrow money for everything I purchase by charging it on my credit card. I take posession of the merchandise, list it for sale the same day, and haven’t yet paid a cent. Depending on how the purchase date falls in relation to the closing date on my credit card, I might not have to pay anything for the item for almost two months. If it sells in that time period, I’ll have made money on an item without actually putting down any cash.
Why is this Low Risk?
Most places have a 2 weeks to 30 day return policy so if an item turns out to be unpopular you can always return it. If it doesn’t sell right away but you purchased it for a low enough price you know it will sell eventually. By keeping it longer, you are no longer using leverage because at some point you’ll have to pay your credit card bill. However, you did get a month to test the market for your merchandise and help you revise your price point, all without paying a dime.
The upside to a leveraged real estate purchase is you can make thousands of dollars if you sell the property. What happens if you can’t sell it? Until you can get rid of the real estate you’re holding thousands of dollars of debt and monthly payments.
With my eBay approach, the items I’m selling are much easier to sell than a piece of property. If I do some bad market research and can’t sell an item for my target price, I can always discount it heavily to make back a portion of the purchase price. Of course, with less risk, comes less reward. Does the work required to procure, advertise, sell, and ship the items pay off?
Is it Worth My Time?
Real estate investors borrow large sums of money so they stand to make large sums if leverage works in their favor. In my case, I’ll earn $15 – $150 per item sold. I won’t get rich on one or two transactions but the income adds up over time. You can use this version of leverage to build up capital so when that great business opportunity does materialize you’ll have the money to jump in.
Not only will this give you the money you need for a business venture but it will teach you about market research, customer service, managing cash flow, product pricing, dealing with risk, copywriting, and other business skills vital to an entrepreneur. So what are you waiting for, get started today!
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The principleof leverage works to magnify any asset, not just working capital. Employers leverage the efforts of their employees, for instance. Real estate leverage is just the best known.
I’m curious as to what type of items you are selling?
I can’t get a credit card. Now what do I do?
I really enjoy your ebay articles, and they’ve inspired me to give it a try.
Kevin, I sell anything I can buy for at least 50% off of retail. That’s the cool thing about the millions of users on eBay, if you can buy something for a good enough deal, you can likely find a buyer on eBay.
There are two things I typically steer clear of, electronics and clothing. I stay away from clothes because I just don’t know the products or the market, plus everyone and their brother is selling clothes on eBay.
I haven’t had much luck with electronics because its so price competitive, even if I buy something for 50% off retail, there’s someone out there selling it for that same price. After eBay fees, I wouldn’t make any money.
Of course there’s an exception to every rule, I have, on limited occasions, found amazing deals on electronics and clothing and cashed in.
Joel, I’m glad you’re getting something out of them! Sometimes I wonder if I’m boring people with too much talk about eBay. Let me know if you have any questions getting started. I introduced a guy at work to selling on eBay last fall and he just opened his own eBay store, its contagious
Where do you go to purchase these items at wholesale/outlet prices? I find it really hard to find legitimate places to purchase things at wholesale prices.
Dave, I definitely understand what you’re saying. I rely heavily on one source, an unclaimed goods and merchandise recovery store here locally. They purchase items for pennies on the dollar and sell them at large discounts off of retail to consumers.
I also peruse wholesale or outlet stores for an occasional deal but these are harder to find at low enough prices. Check out the returned items aisle at places like Lowe’s, sometimes you can get great prices there. Store closings are also good places to look when they are trying to liquidate their inventory. Some people hit garage sales but I tend not to take that approach because it’s time consuming and can be very hit and miss.
[…] How to Use Leverage to Make Money on eBay by Ben @ Money Smart Life. Ben shares some of his eBay secrets in this one. I buy heavily discounted items at wholesale, outlet, or unclaimed goods stores then sell them on eBay. I borrow money for everything I purchase by charging it on my credit card. I take possession of the merchandise, list it for sale the same day, and haven’t yet paid a cent. […]
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Mmany thanks for the ideas posted here. I know EBay has a lot of potential, I just have to get out there and do it.
I’ve made alot of money on ebay before, and I was recently thinking about getting into the business full-time. I need monies!
I found your website through an article on the consumerist, of all places. I’ve spent the last hour or so reading a few articles and I’ll be back. I’m also a part time ebayer in need of ideas and I enjoy your openness. Most people out there are not very honest and only seem to be wanting to sell recycled, worthless information. It’s nice to see someone real for a change. Thanks!
Hey Bill & Dean, I’m glad I could help! I’m actually keeping track of the things I try on eBay that work & don’t work. I’m documenting the processes I use when selling on eBay and hope to consolidate it all into a resource for others at some point.
The only snag I can see is that many discount stored don’t offer refunds on heavily discounted products, you can only exchange the goods or get a credit note, which amounts to the same thing. If I could overcome this snag it sounds like a winner!!
That’s true Vans Girl, you want to be sure and check their return policy before purchasing something to resell. A store that I frequent changed their return policy to in store credit instead of cash back but it’s okay because I buy a lot of items there and know I’ll use the credit up quickly.
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Great concept. I’ve never heard of an “unclaimed goods store” before. There doesn’t seem to be anything that fits that description around here. What region of the country are you in?
I’m looking for ways to build up decent cashflow from nothing for my site.
Some nice articles about using leverage, excellent!
I love ebay, but now that I’m at college I haven’t done anything because I don’t have a good place to have items shipped too. During the summers I make some decent money on Ebay though. Good article, I like the point about buying and trying to sell on Ebay, then returning if it doesn’t work out. Thats a good idea!
My wife and I do something very similar on ebay. There’s no insurance policy everything’s going to sell but we’ve been pretty good a snagging quality items for cheap and the turn around by selling it on ebay.
Kudos to you!
Jerry
http://www.leads4insurance.com
I’ve heard about using the leverage on ebay. But not for purchasing items. I read somewhere it is best to use leverage on the ebay monthly posting fees. By the time ebay bills you at the end of the month. You can charge it on a credit card and defer that month expenses. My only other question is I did a lot of selling on ebay. But was never able to get my sales any higher. I received money from paypal.Than use the customers money to purchase the item. I was left with averaging between $15-25 dollars after all fees, shipping was paid. I would sell over 30 items a month. But my account balance would go up and down. Any suggestions?
[…] the risk of violating Rule 6, check out this post from money smart life. It discusses using leverage to profit on eBay. The strategy need not be limited to eBay alone, […]