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”Â. 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 possession 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!
All posts by Ben Edwards