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:
Best Buy 48 min flash sale on ipads $100 off. Sale ends 3:00 pm CST. They say 4 hours but my email came at 2:12 CST http://t.co/a8zgboY2DM
— BigHabitat.com (@BigHabitatcom) May 12, 2015
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.
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:
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.
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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