Help with the money side of buying new inventory

[User5346]

Hi everyone,

So hopefully this isn’t a stupid question or a very bad mistake that I’ve made, but basically I am not sure what the best way to manage cash is when buying new sets. For example, if I decide to buy some sets right now, I will most likely use whatever is in my PayPal balance, which is mostly money from eBay sales, however I’m worried that I’ve messed up because I feel like I’m just reusing the profits and buy in money to buy new sets to resell. Reusing the buy in money is fine as that is the initial money I’ve put forward right?

Example:

I buy a set for $50, sell it for $100. I have made a $50 profit, so do I safe that or split it? If I saved half of that profit, ($25), the other $25 I reinvest? 

That said, I do save some money each month and usually leave a set amount in PayPal. So my question is, what should I be doing? Is there a better way to do this? Should I have a seperate account for profits so I don’t get confused and reuse it? Or a set amount of money to spend each month? I get confused quickly as I also buy sets for my personal collection, which the profits should pay for. I would truely appreciate knowing what everyone here does and hopefully I can get some advice. Anyways hope everyone understands what I mean. Looking forward to responses, cheers.

[gmpirate]

Set aside money that you can afford to use for investing and leave it there.  I would only hold back some funds because better deals, limited runs, etc. can and will happen and you want to have funds available to take advantage.  Especially in the beginning you want to avoid long terms holds so you can flip faster and grow profits.  It's more work, but its faster than just holding.  Think of it like compounding interest.

[Jessekidd13]

I love this question, because I struggle with some of the same ideas.  I use this as a part time job and hobby, and while I don't need the income, it's really hard to keep defined lines on how much to invest, and how separate to keep my "LEGO" funds from my cash reserves, investments, etc.  There's a tough balance in making sure you have cash to act on opportunity, and also always having it work for you.   I've found something to be helpful, and I'll use two sets as an example.

Lego 76119 Batmobile Pursuit of the Joker - RRP $30 Widely Available $21-24 

Lego 10260 Downtown Diner - RRP $170 Widely Available (kinda) $170 

I think both of these sets will be great 2 years from now, and have purchased both in quantity.  I have an expectation of a 100% return on both at that time(slightly higher on the Batmobile).  However, I've been much more careful with the Batmobile, because it isn't a liquid set.  If I had to sell because I overstretched myself, didn't want to pass up a unique opportunity, etc., after factoring in shipping costs and/or selling in bulk(I am limited to Ebay/Bricklink/local) I'd take a 25-35% hit on the Batman sets.  If I needed to liquidate the Diner, I could do so at approximately a break-even point.  If I have $500 sitting around that I'm considering putting into play, but could conceivably need later, I'm much more likely to buy 2 or 3 more Diners than a bunch of the Batmobile, even though I think the total ROI on the Batmobile will be better in the long run.  

A bit of a ramble, but I enjoy thinking about this stuff.  

Jesse

[House Schubert]

This is a great question.  Basically what we are doing here is retail arbitrage... different variations for each person, some like the quick flip, some are buy and hold... I would suggest that since you are just starting, you should focus on the quick flip, while understanding that you will miss on that sometimes, so your second parameter should be sets that you feel will appreciate after they retire... it is all a bit of a guess and a hunch, and as you go you should develop an explicit strategy based on what works for you.

Regarding the "am I doing it wrong" question, no, as long as you aren't pulling out "profits", and you are letting all of your capital ride, you are doing it right.  It will take a while for the capital to accumulate (and you should be tracking all of your invested capital (meaning money you put in) and your buy in costs, and your sales.). But, this is a bit like an exponential curve, so for a while it will seem like you are doing a ton of work for a small amount of money, but if you truly let it all ride, and you don't get stupid and bet it all on Jyn Erso buildable figures, it will grow much faster than money in the market.  

But... remember.. Buying is easy...

 

[Mark Twain]

Hi everyone,
So hopefully this isn’t a stupid question or a very bad mistake that I’ve made, but basically I am not sure what the best way to manage cash is when buying new sets. For example, if I decide to buy some sets right now, I will most likely use whatever is in my PayPal balance, which is mostly money from eBay sales, however I’m worried that I’ve messed up because I feel like I’m just reusing the profits and buy in money to buy new sets to resell. Reusing the buy in money is fine as that is the initial money I’ve put forward right?
Example:
I buy a set for $50, sell it for $100. I have made a $50 profit, so do I safe that or split it? If I saved half of that profit, ($25), the other $25 I reinvest? 
That said, I do save some money each month and usually leave a set amount in PayPal. So my question is, what should I be doing? Is there a better way to do this? Should I have a seperate account for profits so I don’t get confused and reuse it? Or a set amount of money to spend each month? I get confused quickly as I also buy sets for my personal collection, which the profits should pay for. I would truely appreciate knowing what everyone here does and hopefully I can get some advice. Anyways hope everyone understands what I mean. Looking forward to responses, cheers.

If you buy a set for $100 and sell it for $50, you haven’t made $50 unless you sold in-person on Craigslist. You’re out marketplace fees, taxes, and the most valuable thing, your time. If you’re doing this as an investment you’re much better off opening a Roth IRA and getting into a tech or medical mutual fund and let what you invest passively grow and compound with interest. LEGO reselling is not a passive thing. You have to constantly hustle to find stock at the lowest price, be on multiple marketplaces and provide excellent customer service even when your buyer acts like a jerk. If you are serious about selling you’ll dig in here and read and listen and absorb stuff like a sponge.

[exciter1]

On 10/22/2020 at 10:11 PM, User5346 said:

Hi everyone,

So hopefully this isn’t a stupid question or a very bad mistake that I’ve made, but basically I am not sure what the best way to manage cash is when buying new sets. For example, if I decide to buy some sets right now, I will most likely use whatever is in my PayPal balance, which is mostly money from eBay sales, however I’m worried that I’ve messed up because I feel like I’m just reusing the profits and buy in money to buy new sets to resell. Reusing the buy in money is fine as that is the initial money I’ve put forward right?

Example:

I buy a set for $50, sell it for $100. I have made a $50 profit, so do I safe that or split it? If I saved half of that profit, ($25), the other $25 I reinvest? 

That said, I do save some money each month and usually leave a set amount in PayPal. So my question is, what should I be doing? Is there a better way to do this? Should I have a seperate account for profits so I don’t get confused and reuse it? Or a set amount of money to spend each month? I get confused quickly as I also buy sets for my personal collection, which the profits should pay for. I would truely appreciate knowing what everyone here does and hopefully I can get some advice. Anyways hope everyone understands what I mean. Looking forward to responses, cheers.

In reality, you buy for $50, sell for $100, most of the time it might net your $20-$25.  You need to set aside some money up front, so you can spend a chunk, flip or wait to profit 1k, and then maybe start recycling that 1k into a larger investment. Rinse/Repeat, the more you risk up front, the more you have to spend to reinvest down the road.

Factor in labor, like @Darth_Raichusays, $5 is $5 an hour, maybe

[chinothegeeko]

Sell other things you don’t need to have more money to invest in lego.

[exracer327]

A key aspect that took me a bit to appreciate is shipping.  This is a good read: 

I began buying my own boxes a few years ago.  Like someone else said, if you're shipping air, you're losing money.  Even if the buyer is paying for shipping.  

 

[Groovejet]

If you can, I would buy sets with a points or cash back credit card rather than PayPal balance. May be harder to track funds, but your spreadsheets should be doing that, and you get a little something extra for your efforts.

However, to respond to your original question, it all depends on what your aims are. If it is to maximise returns, I would say you should re-invest everything (and track it all through a spreadsheet), if it is to fund personal Lego purchases, then as you say set aside a certain portion of your profits, ideally in a separate account, for that.

[SpaceFan9]

Lots of good advice here so far.  I'll try to summarize from my point of view

• set a goal, make a plan, and then stick to it.
  • when I started out, my goal was to subsidize the lego hobby.  I would buy 2 at discount and quick-flip one for ~50% gain to subsidize the one I built.  Or sell off minifigs and keep the bricks to make the bricks nearly free. 
  • later, realizing that better returns could be made with a bit longer hold, I dropped both of those strategies and started buying in bulk.  My goal changed, and thus so did my plan.
• don't spend money you can't afford to lose
  • I think the strategy of keeping your lego funds in a paypal account is quite good.  This will put a natural brake on your spending, and trigger the pain center of your brain if the funds get too low. Credit cards reduce the impact on that pain center, and make it easier to over spend (on both lego, and life).
  • always keep in mind that buying is easy, selling is hard.  Don't buy more than you can afford to store, or have time to sell.
• When you're starting out (say for the 1st year or 2), its a good idea to keep all of the funds from sales in the account and add to it from other sources when you can.
  • This is the building phase.  Once capital is built up, and your buy/sell process is working smoothly, then you can draw funds from the sales---i.e. reinvest 1/2 and pull 1/2, depending on storage/time constraints.

Hope this helps.

[Sozial]

I would not leave the funds in paypal, because there is always the risk that someone hacks your account or paypal decides for whatever reason to freeze your account, better use another bank account.

[exracer327]

4 hours ago, Sozial said:

I would not leave the funds in paypal, because there is always the risk that someone hacks your account or paypal decides for whatever reason to freeze your account, better use another bank account.

This is what I did - set up a checking account specifically for ebay.  It helped that a new bank moved into town and was giving away cash to sign up for new accounts.  Nothing like getting a free $100 for my LEGO hobby. 

The upside of having another account is even if paypal gets hacked, the xfers usually take 3 business days so you might be able to intercept it if you catch it in time.

[redcell]

Don't worry about reusing your profits...that's how you really grow your money. Debt is another way, but I wouldn't recommend that until you have a very good handle on things.

[donbee]

“Buying is easy”
That’s so 2019.

[User5346]

Wow, thanks everyone for all the replies so far. I am still interested if anyone else has anything to share.

Just to clarify a few things:

. I am in Australia, so a heap of things are going to be different such as prices, availabilities, shipping costs, bank accounts etc.

. Additionally, I have been selling since the beginning of this year but buying since late 2018, (small scale).

I am still a bit confused on what I should do from now on. I do have an excel spreadsheet that tracks everything, but another thing I want to ask is should I be calculating profit by the month (monthly sales)? Currently, I just write all the sales down in a list so it gets a bit messy, but maybe there is a better way to do it? 
 

What I am leaning to do is split profits in half exactly, allowing me to “save” one half and reinvest/use the other half to buy sets for selling or for my personal collection. Is this a good idea?
 

Thanks again everyone, I do really appreciate all the replies, so hopefully there is more to come! Cheers

[legoray01]

1 hour ago, redcell said:

Don't worry about reusing your profits...that's how you really grow your money. Debt is another way, but I wouldn't recommend that until you have a very good handle on things.

If you are funding this through debt I would be  very concerned.  Profits are hard to come by and paying interest to do  Lego investing is not a winning strategy.  (I would say the same thing for almost any investment.)  

[Bricklectic]

If youre comfortable with your business plan. a 0% APR CC is very helpful

[Groovejet]

2 hours ago, User5346 said:

I am still a bit confused on what I should do from now on. I do have an excel spreadsheet that tracks everything, but another thing I want to ask is should I be calculating profit by the month (monthly sales)? Currently, I just write all the sales down in a list so it gets a bit messy, but maybe there is a better way to do it? 

This is interesting and I have been having a similar internal debate so will give you my perspectives.
I have been doing this in some form for several years but my aims/ambition/scale has changed. I previously had no fixed overhead for it and so considered solely my return on each set, given the alternative is cash in the bank (which in UK at least gets basically nothing and part of my aim is to diversify from stock markets before anyone tries to give me investment advice!), and even the timescale was mostly irrelevant. I have recently started incurring overheads (storage) with a monthly cost...so now my view has changed. But if you are buying sets to hold because you believe they will appreciate, how do you judge monthly profit? Over time you will realise the profit but not while scaling up/waiting for appreciation. But some will end up being duds and/or taking forever to turn any profit.
Now i don’t really have an answer but I am hoping that my monthly gross margin will at least cover my fixed overheads and ultimately when investments are realised I will do a lot better, which makes it worth the time and effort.

So...as with all of the comments above...it depends on your personal circumstances and aims. Set yourself goals so you can judge your success.

Interested to hear how others organise (justify) their hobby / investing / part time business / bit of fun.

[redcell]

3 hours ago, legoray01 said:

If you are funding this through debt I would be  very concerned.  Profits are hard to come by and paying interest to do  Lego investing is not a winning strategy.  (I would say the same thing for almost any investment.)  

I hear this a lot, but using debt has worked out very well for me.  

[SpaceFan9]

16 hours ago, User5346 said:

I do have an excel spreadsheet that tracks everything, but another thing I want to ask is should I be calculating profit by the month (monthly sales)? Currently, I just write all the sales down in a list so it gets a bit messy, but maybe there is a better way to do it? 

 

I track both total ROI and CAGR in a simple spreadsheet.  The first measures gain, the other velocity.  

[KShine]

12 hours ago, redcell said:

I hear this a lot, but using debt has worked out very well for me.  

You are an exception (successful & experienced) - I would never suggest a newbie to do this.

Using cheap credit can be a great angle, but it usually works best for those who don't actually need it.

[redcell]

15 minutes ago, KShine said:

I would never suggest a newbie to do this.

Using cheap credit can be a great angle, but it usually works best for those who don't actually need it.

That is definitely true.  I started out taking advantage of 0% balance transfer offers and just bounced the balances between different cards each year.  It wasn't until I felt that I really had my strategy dialed in that I started pushing it more aggressively. 

[donbee]

You are an exception (successful & experienced) - I would never suggest a newbie to do this.
Using cheap credit can be a great angle, but it usually works best for those who don't actually need it.

Yeah. We shouldn’t promote the Redcell model to newbies.
I’m on step 3 of his 8 step program and my risk adversity is screaming.

[redcell]

Yeah. We shouldn’t promote the Redcell model to newbies.
I’m on step 3 of his 8 step program and my risk adversity is screaming.

If you think it's screaming now, just wait until you reach step 5 and have a six figure minimum credit card payment.

[Thanos75]

Wow!!!! Thats next level.