Setting a Budget – Getting Started
Before we get started buying & selling and thinking about retirement there are some things we need to prepare first. You will need to establish your starting bankroll, basically figure out how much money you are going to allocate to get started, than create a budget. This should be disposable income, especially for those just starting out because you may make some costly mistakes, so don’t use your rent money to get started! What I typically do is withdraw $5,000 every month that I am going to use for purchasing inventory; my target return when I am making purchases is three times what I spend. My monthly target is usually $10,000 profit, so therefore I need to make sure I spend my $5,000 on inventory and I can hit my goal. Don’t be discouraged by the numbers, you should be getting a much greater return if you are buying lower cost items than higher ones. Here is my basic spending principles that have treated me well; If I buy an item for $5 I need to be getting 5 to 1 on my money or it just simply is not worth my time and trouble. For example if I see a Nintendo Gameboy it might be worth $25 on Amazon but I am not going to bother bidding on it if it goes above the $5 mark, you need to leave yourself room for profit. There may be something wrong with the item and if you’re potential return does not justify the risk of more profit than you need to simply pass it up and move on to the next item. Again, this is only a guideline, if you know that there is a guarantee that the item you are buying will sell all day long at $25 and there is no risk of damage to the item and your ok with making a small profit, go ahead and spend the $10 on it. Sometimes when you’re at a tough auction or sale and you can’t get anything at the right price but you can buy a large quantity of items and only double your money, go for it if you’re ok with the return. Moving on with my return guidelines, buying an item for $10-$15 it is good to try and get 4 to 1, when moving up to $20-$50 items I like to try and get 3 to 1. The $75-$150 range at least 2.5 to 1 and $200-$500 is when I start looking at just doubling my money and when you start getting higher up such as spending $2000 on an item (maybe a car, or jewelry, antique weapons, rare coins, etc) it is ok to start taking smaller percentage returns because the dollar values justify the spending. I can remember spending close to $2,000 (including buyers’ premium and tax which I was aware of when bidding) on a rare Carson City Morgan Silver Dollar that I knew I could sell for a minimum of $2,500, I ended up selling it for $2,900. After fees I was looking at a $700 profit, which is not too bad for an hour’s work. It becomes obvious of the difference of percentages you are expecting when the value goes up, at the same rate it would not be wise to spend $20 on an item you expected to sell for only $25.
If you are just starting out I recommend buying mostly $5-$10 items and a lot of them so you can minimize your variance, maximize your returns, build your bankroll and not tie up to much of your spending cash. Don’t automatically assume if you’re buying items for $5 that you’re not going to make any money and you’re wasting your time. Be aggressive and take chances, don’t be caught waiting on the sidelines at an auction for one or two specific items or not pulling the trigger when you have the chance and somebody else grabs your item. Buy and bid with confidence!
Many people come up to me asking for help getting started but they don’t think they have enough money to get started. The philosophy that it takes money to make money is simply WRONG! When I was in my hay day as CEO I was also an investor and I was part of a group of real estate investors, known as Investors United and I watched members of their group make millions, yes millions of dollars without putting out a cent. They would find people interested in selling their homes and sometimes in desperate need of money, than they would have them sign a real estate contract and gave them rights to buy the home. The investors would than sell the house at public auction, pay off the seller of the home and pocket the profits. There are many ways we can use similar techniques to sell items on the internet. For starters do you have neighbors or family members that might want to get rid of stuff that you could potentially sell for them? Maybe they want to sell a car for $2000 that you know is worth at least $3000 but you don’t have the capital to buy it, what a shame right? Most people would walk away from the opportunity but not you, you’re too creative so you write up a simple contract or verbal agreement if you trust them to give you the exclusive right to buy the car for the next 30 days. It is always best to be honest and upfront with your intentions, most people are reasonable and are willing to leave you a little on the table if you explain the situation, sure you could just try and find a buyer without talking to them first but they might not react as favorable as you hope to what you have done and might cut your out of the deal entirely. So after you have a deal in place with the seller you decide to put ads in the newspaper, craigslist, auto trader and eBay for the car at $3500 OBO. You find a buyer willing to pay your asking price and he writes you a check for the money, you pay whoever you were selling the car for the $2000 they wanted and you pocket the rest, guess what you just brokered your first deal!
There are other ways of getting starting capital if you’re not interested in consignment or selling personal items and you have no extra money. Do you own a credit card? While many people are scared of using their credit cards and getting hit with interest payments, this can be a viable solution. You have 30 days before interest will begin accruing on your spending which is more than enough time to flip a few items and repay your debt before you owe any interest. If you can’t resell the items in 30 days does it really matter? Even if your APR is 20% and you spend $500 on the credit card you are only going to pay interest for one month which would be about 1.6% of $500, so now you owe $508. If you can’t beat the low interest rates of a credit card flipping inventory something is seriously wrong.
I understand the concept of taking on debt scares many people and if you can’t force yourself to do this, or you are worried about losing sleep at night over debt than don’t do it. Instead consider family members, friends or other trustworthy people you know who might have a little bit of extra cash lying around. Don’t simply ask them to borrow money, tell them what you plan to do with it, offer them a percentage return. You’re helping them out now by putting their money to work and providing a winning solution for both parties. Early in my business days my business partner and I did not have the capital to make the deal of the century, a local scuba shop had gone out of business and we had the chance to purchase their entire remaining inventory and the asking price was $21,000. After doing our due diligence (proper research and analysis of the situation) we were able to calculate a minimum return of the listed inventory to be $50000. The inventory was all brand new and top of the line, and looking at the market for such equipment we knew it would be a very fast turn over. We presented this information to my business partner’s father who was very wealthy by this time in his life. We presented him with projected sales figures, our past sales history and turnover rate and he was ready to sign a check. We promised him a return of at least $23000 in 60 days, we paid him $25000 in 40 days. Needless to say after that we knew we had a confident investor for any future deals. The point of this deal is that you should not be immediately scared off by high numbers, if there is the potential for money to be made all you need is the will to make it happen.