Buying and then reselling consumer goods as a means to manufacture increased credit card spending is something I have been taking a closer look at in the past couple of months, inspired by the likes of BigHabitat and TaggingMiles. However I have got to say every time I see an “opportunity” come up I have struggled to see how compelling the value proposition is. And this afternoon I saw that again. BigHabitat tweeted that BestBuy was having a flash sale on iPad’s with $100 off:

So intrigued I quickly started to work out the math. Now Chris at BigHabitat has already written up his rebuttal to my ensuing dissing of this opportunity, and his numbers differ from mine, but let me take you through how I came to my conclusion on this.

iPad Air 2

Analyzing the Resell Opportunity

My first step was to see how much these were selling for on Amazon. The iPad 2 Air 64gb seems the most popular model, with a retail price of $599.99 so $499.99 plus tax with this BestBuy deal. Now Chris seems to think they are selling for $578, but my search at the time he tweeted showed pricing at around $567-69:

Amazon Reselling iPad Air 2

Now of course just because it sells for $567 does not mean I would pocket $567. But apparently Amazon already thought of that and created a tool that let’s you calculate the net proceeds on a sale. Plugging in this item shows that I should net about $533 based on selling at $567.

So what is this baby going to cost me? Well here in NC I will pay 6.75% sales tax, so at a $100 discount I am getting it at $499.99 plus tax which comes out at…. well right about $533. Now I am guessing for guys like Chris and Trevor @ TaggingMiles who do this day in day out they are probably thinking breakeven is OK. But as a cynic over here, I am thinking a trade like this where I am just breaking even apart from the points sounds terrible. Oh and wait that calculator does not take into the account the cost of shipping this damn tablet to Amazon either. So I am already losing money at this point.

Let’s first play devil’s advocate and look at what is earned doing the deal:

  • 2% Best Buy rewards – so about $10 in short-expiring vouchers that require me to spend more at the big blue box store everyone loves to hate. Chris gets a bigger number because he does this more often and gets $15, but I go with what I would actually get not what someone else gets
  • Portal points / cashback – Chris goes the SouthWest route but y’all know what I think of those cattle herders, I would have gone with Discover Deals 5% cash back so $25 in cash which I can maybe get $50 worth of value on car rentals from. And when you rent a car you get to choose your seat too.
  • Whatever you earn on the card used to fund the acquisition. Let’s keep it simple and say I use a 2% cash-back card to earn another $10.66. Chris is working towards min spend on a credit card but I am basically discarding that as a bonus. Now he does make a valid point he could have juiced it up by running to a grocery store and getting a Best Buy gift card at 5% back, but that would not have worked here and just adds more complexity to an already complex proposal.

So at the end of the day I see the earning as $45.66 on $533 spend, a “return” of 8.5%. Chris used a whole bunch of more optimistic numbers than I did but came to something not so far off in he thinks he’s getting 9.5%. We are in the same ballpark. And that number sounds awesome right!? Well yes but….

Analyzing the Regular MS Opportunity

This is where I had to stop and think a little. Because a simplistic comparison would be to see how this compares when manufacturing spend using the same kind of 2% card. But that fails to address that there are still many 5x opportunities in the general MS world. At the very least it now seems we can do $50k at 5x on the old Amex Blue Cashback card, and of course you can do $50k at 5x at office supply stores using Chase Ink. And it is very possible to get multiples of these cards if you have willing family members etc. So I am going to compare with MSing on a 5x card, as the scale of these cards definitely compares to the scalability of the resell opportunity.

So let’s consider a simple MS turn – buying one visa gift card at a drug store and then using that visa gift card to buy a money order which is then used to pay the funding 5x card. In this case the economics break down as:

  • Spend $504.95 at 5x earning cash back of $25.25
  • Assume money order cost at high end so $0.99
  • “Sell” the gift card for the money order netting you $499.01
  • Net profit = $25.25 cashback less $4.95 GC fee – $0.99 money order fee = $19.31 or 3.8% of spend

Comparing Reselling vs Regular MS

When I started to write this post it was titled “Reselling is Horseshit”. However this is where blogging can be quite enlightening as when you take the time to analyze the opportunity in detail and think about the risks and rewards in more detail, you can ultimately change your opinion. I still think at the end of the day for me reselling is not that appealing, but it’s definitely a useful arrow in your quiver. Here are my thoughts on the advantages and disadvantages of each method:

Simplicity: Regular MS is much more simplistic, you do not need to set up Amazon selling accounts, you don’t need to understand the pricing of anything. Regular MS definitely wins out on simplicity.

Accessibility: Regular MS can be very easy or very hard depending on where you live. I have written in the past how I thought NYC was an “MS wasteland” and on the flip side my hometown of Raleigh makes life very easy. However reselling is generally do-able from anywhere, though some in-store deals are geographically specific. But overall I’d say reselling has the edge in terms of accessibility.

Time: While BigHabitat points out that driving around looking for GC’s can be tedious when there is a great deal on, doing “regular” MS is very time efficient. Many people can slot a stop off at a grocery store or drug store as part of their regular commute. On the other hand I know that some of the reselling gang can literally spend their entire evening looking through Staples or Sears for resell opportunities. Then once the goods arrive they have to be shipped to Amazon, and then you have to track your sales and track returns and so and so fourth. Without doubt reselling is more time consuming.

Risks: I think BigHabitat does a pretty good of assessing the risks in reselling. However many of his points were very specific to this product (the iPad) opportunity – that the item sells quickly, that Amazon does not sell it directly. But either of those could actually change really quickly. The best way to simplify the description of risks in reselling is that the risks are complex. There are a host of factors that can significantly affect what you might ever get back for an item you buy and understanding these takes expertise. But gift cards are pretty straight forward. They are not entirely without risk either, but generally you are not going to buy a $500 gift card and then because you waited a couple of weeks before cashing out you suddenly find it’s only worth $300 because the issuer came out with a new style of card and there was a price war on the old one.

Profitability: In this example of a good resell opportunity vs a good regular MS opportunity the resell op comes out on top. There are some great resell opportunities that can be better, but there are also some amazing regular MS opportunities where you basically get paid to generate points. But comparing the base levels while I think reselling is more profitable I think I see this as a tie. Let me borrow an oft used and rarely understood phrase from my investing career – I think the risk adjusted returns are about the same. Now while I am not using any fancy formulas to reach that conclusion, what I am thinking is that after you take into account what I feel is the additional risk taken and time required to do reselling effectively, I think the returns are about the same. Yes one may make 8.5% while the other makes 3.8%, but over the long run the time I spend getting my 3.8% and the chances of things going wrong and me having to deal with that make up for that.

Bottom Line

At the end of the day I think reselling is a good additional tool for generating fake spend that can be more profitable in absolute terms. However given the additional risk and complexity involved I still think it’s an “experts only” area and you should only get into this activity if you are willing to put in the time and effort to really understand the nuances of this little cottage industry. It may not be absolute horseshit, but it is a niche that takes some mastering.

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  • Rick I

    I’ve done both extensively and am sticking to MS for the long haul. A small group I formed including a private mailbox postal center and 4 people finding deals set up an FBA site and concentrated on computers as they had the lowest commission rate with Amazon and the highest potential returns with INK at the office supply stores. We started in the fall of 2013 and shut it down in December 2014. With over $400K in sales we netted about $60K for the time and effort figuring the UR points earned at 1 cent each along with the actual cash profit.
    FBA is SCREWED UP. They don’t follow their own return policies. Their tracking is a disaster and to top it all off, there was soon too much competition doing the same thing and the margins went to c__p. Just not worth the time and effort to keep track of Amazon more than anything.
    I’ll MS any day rather than deal with Amazon and reselling.

    • Hey Rick yeah I just have to agree… while $60k might sound a big number that’s a lot of time and work to get to that, time and effort that can be spent well elsewhere. And I am just trying to get setup with FBA it is beyond a pain in the ass. Not even MMS with boxes and arrows could simplify this one

  • disqust101

    Your first instinct is correct…

    The problem with reselling is scale and velocity. Very difficult to do much more than modest reselling without it getting into “business” territory (with taxes/reporting and all that hassle). Your return could be up to ~30% lower after tax (depending on your tax bracket and how much you fiddle your expenses). Also, hard to purchase in scale – most “good deals” are limited one way or another, so you’re always on the hunt, always learning new tricks, with the associated steep learning curve. Plus reselling has big hassles with returns and issues with competition (lower prices/vanishing profits as @Rick I mentions in the comments).

    On the other hand, MS can be done in both scale and velocity, with no taxes (as points/miles are considered rebates). In my tax bracket, that money is worth an extra ~40% or more…

    The velocity of MS can be significantly higher. Turning your money reselling takes a month or more – while MSing can turn your money in as little as a few hours. Plus one can buy in scale, repeatedly, with certain returns. Give me ability to scale, even at lower margins, with certainty, over uncertain, low volume, high margin reselling ANY day.

    That said, if you have low CL, and/or are in remote areas where typical MS venues are in limited supply, reselling may be your only viable option.

  • JM

    Generally agree with this. I use reselling for specific opportunities like the ability to get a companion pass (which I value pretty highly) in one or two days with the right Sears bonus. Taxes are not a concern if the goal of reselling is miles, because miles are not taxable even if earned via reselling. Cashback of course is taxable in the reselling world, whereas in MS it’s generally thought not to be. Due to this I tend to stick to miles deals, and margin generally needs to be 20%+ to take on the risk. Overall, MS is less risky and more easily scaled.

  • Andrew C

    I do quite a bit of both MS and reselling. A few thoughts:

    1. I don’t have to go to Walmart for reselling. I generally don’t have to go into OD/Staples and get grilled. I don’t have to go to the grocery store/check casher/wherever and feel like a criminal. I don’t have to make another stop at the bank.
    2. It’s not an either/or for me. I can handle the float and have honed my craft so that I don’t spend too much time on either while benefiting quite a bit.
    3. I can do reselling at whatever time of day I want from my own home. (Matt’s underpants factor) Everything happens there, including UPS dropoff/pickups (working from home is a big advantage for that part)
    4. The math changes for me quite a bit depending on portal multipliers. If I can get 20x and otherwise break even, that is pretty huge. Being able to scale that quickly is really attractive to me, particularly for currencies that aren’t generally available at higher than 2x (+fees) on CC.
    5. People spending all evening looking for deals aren’t doing it right. Once you get some experience, it’s pretty easy to spot deals and estimate margins.
    6. I earned a 10% pretax margin on reselling last year. Yes, I paid tax on it – schedule C is pretty easy if you keep halfway decent records for this. Still, netting 7% or so plus points was pretty lucrative for me. I could have done better on either a margin or points basis, but this was a pretty good effort-minimizing solution.
    7. Yes, Amazon FBA can be a little weird, but I think their funniness nets out in the end. There have been as many errors against me as there have been in my favor

    8. Specific to this iPad example – don’t assume for every product that it’ll only sell at the lowest FBA price. I regularly sell those guys for $580 as BH claimed. This is something to get a feel for, depending highly on category and item rank.
    9. Another risk not discussed for reselling is bans from merchants or manufacturers. Some make trouble now and again. Apparently some don’t like people buying items at their advertised prices within advertised quantity limits. That said, compliance risk from MS is obviously significantly higher – I never have to talk to Metabank or worry about MO quantities or structuring with reselling.
    10.-100. I don’t have to go to Walmart for reselling.

    • Andrew C

      All that said, I still don’t think reselling is for everyone. Certainly not the boxes and arrows crowd or those without a high risk tolerance and strong analytical ability. I’m happy and unsurprised that it hasn’t taken off as a mainstream blog topic. But I know this isn’t a mainstream blog 😉

    • optostar

      Can you please comment about scammers on Amazon – people who return opened things for no reason or who return things in a worse state? For example, if you sell a brand new in box iPad on Amazon, and someone buys it with the intention of returning it to you after swapping it with one they bought off Craigslist but was iCloud activation locked (aka a brick)? Or other scams I can’t even think of?

  • Hey, Phil this was actually a pretty balanced post. I was expecting some more extreme views I could point to and pick apart. Are you sure this wasn’t a guest post :). And I agree with many of the points Andrew made below, no need to repeat them. It’s not an either / or proposition, I’m happy to hear about MS techniques. And fortunately today after a 3 day dry spell Kroger was back in business with some variable load visas while I picked up my Ipad at Staples next door..

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