Re-Selling 101 – How To Buy on Credit and Leverage? PART I

wtd leverage

When it comes to re-selling or even just starting your own business, the most important thing you need aside from a good idea and hustle is…MONEY! Regardless if you are a start up or a company doing business for many years, the saying of CASH IS F*CKING KING is absolutely true.  Without sufficient cash flow, it could hinder and limit you to future potential and lucrative deals.

Your next question would be how do you get more cash?  Well first off, it would be a lot easier if you are over 18 years old and at the very least have a part time job.  I don’t suggest this method to most kids, but it is definitely a viable method for those that can maintain discipline on cash management.  What most of you can do is buy on credit via a credit card.  Most students are eligible to apply for a credit card, which most of the time you can get a credit limit of $2,000.  Credits cards are great because you can essentially get FREE credit and access to cash flow for 45 days interest free.  For example, let’s just say a deal came up for a pair of DS Nike What the Dunks for $1500 today.  You don’t have the cash, but you decide to buy with your credit card.  What happens next is you don’t pay the $1,500 on your credit card till 45 days later.  Typically what happens is your credit card sums up your statement every 30 days and then issues you a bill and gives you 15 business days to pay before the due date.  So essentially you need to come up with $1,500 by day 42 because you need to allow 2-3 business days for processing.

Now within these 42 days, you need to do a quick flip and find a buyer for the shoes.  Let’s just say in the next 2 weeks you find a buyer willing to pay $1,800.  For the sake of simplicity, let’s just assume after all cost, you profit $300.  You can either repay $1,500 to pay off the credit card bill and profit $300 OR you can use the cash from the sale and buy/sell other shoes until your 42 days is up.  This is where disciplined cash management comes into play.  The credit card company doesn’t care what you do as long as you pay back the $1.5k within the stated time period before the due date.  Once your billing cycle is complete and you pay off the bill, your credit limit goes back to $2k.  If all goes well, you successfully increased your buying power from $2k to $2.3k.

Here’s the most important part you must understand.  In the scenario if you are unable to unload the shoes, what happens?  The one reason why I DO NOT recommend credit cards is if you do not have good cash management it will burn you.  Credit cards usually have interest rates of 20%+.  So if you are unable to make a payment on time, you will have to pay 20% interest on the amount you took on credit. Well don’t be entirely scared.  The posted 20% is an annualized rate, so effectively if you do not make the payment on time you pay a total of $37 ($1500 x 0.20 (45/365)) in interest for the month.  As you can see, this interest eats into your profit, but from a bigger picture as long as you can find a buyer for 1.8k to cover the cost, it still works out.  Though its not the end of the world if you can’t sell within the 42 days, but the thing is not being able to make full payments can affect your credit score, which is something you do not want to do.

In summary, credit cards are good access to cash flow interest free if you are able to maintain a disciplined buying and selling practice.  On a best case scenario…you borrow, pay off and repeat in between the payment cycles.  However, i must emphasize again…credit cards aren’t necessarily the best credit options out in the market due to time constraints of cash flow.  The obvious best option is to ask your parents for money to invest in you as a kid…but most of us don’t have that luxury.  Stay tuned for Part II…

 

 

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