3 Reasons to Stay Clear of Retail Arbitrage

Buy low and sell high — it’s the basic tenet of retail arbitrage, a trendy new way to make money. It involves buying products from a store when they’re deeply discounted and selling them online (usually on Amazon or eBay) with a steep markup.

Plenty of people have pocketed a decent amount of money by becoming resellers. According to some accounts, the pros rake in more than $2,000 with this switcheroo every month. Some earn as much as $50,000 a year!

Does buying and selling stuff online for $50k sound too good to be true? Your gut instincts might be right. While you can hit it rich, retail arbitrage can also be risky. Here are three reasons you might want to rethink this new career plan.

1. You Have to Know What Items Will Sell

Sometimes, discounted items are on sale for a reason — nobody wants them. Buying cheap items simply because they’re inexpensive might not work out like you hope. Without a buyer, that cheap stuff is just a waste of your money.

You can easily fall for this trap if you don’t have a good sense of the markets. And then you’ll have to find room for everything you can’t move. Do you have enough space at home, or will you have to rent storage?

2. You Have to Buy Items Upfront

Successful or not, you have to buy every item you need upfront, using your own money. So, how will you fund this new career? The right way would be to save up money expressly for this purpose, but impatient individuals might look at their emergency fund as a shortcut.

What’s the problem with draining your emergency fund for retail arbitrage? It’s a two-pronged issue:

  1. You’re Vulnerable: Any time you withdraw from your emergency fund, you lose your emergency fund as a safety net. This means you’re vulnerable to unexpected expenses until you repay what you drained.
  2. You May Not Repay it Quickly: With hope, you can sell your items at a profit and repay your fund quickly. But there’s a chance it takes you a while to find an interested buyer, or you might not find buyers at all. Then you have to refill your emergency fund the old-fashioned way — slowly, with a monthly contribution.

What happens if an unexpected expense happens before you can repay your emergency fund? In this difficult situation, you can visit an online financial institution like MoneyKey. Online loans from MoneyKey are available by application 24/7 over the phone, laptop, or tablet. You can see if you qualify for an online loan as soon as you need help.

3. You Can’t Easily Predict Your Profits

Making a budget is easiest when you earn a predictable amount according to a regular schedule. Unfortunately, no such predictability exists with retail arbitrage.

Because you’ll buy a variety of different products at varying price points, you won’t be able to anticipate your earnings long-term. Your profits depend on the price you buy your items and how much buyers will spend. You may also have to share some of your revenue if you use a site like Amazon that takes a commission.

Variable budgeting tips exist — you can check them out here — but irregularity makes it harder to budget. While online loans can help with the occasional slip-up, they aren’t meant to be a permanent feature of your budget.

Bottom Line:

Some people can turn retail arbitrage into a real job, but you should beware of the potential downsides before you jump headfirst into this option.

 

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