Sorry for the recent absence on posting, I’ve been tied up with a few other projects, building some pipelines, here’s a few thoughts on what I’ve found. And while MS isn’t dead, most players I know are taking things to the next level through branching out into other fields. The concepts are fantastic, but come with some caveats, which we can explore today.
The AirBnB Gig
No, this isn’t the one with a coupon or Amex offer where you get $30 back. This is the one where you buy an apartment, or a series of apartments, and start making bank as a landlord. Sounds crazy? Well, if you find the right market, and have the right capital, it isn’t that much of a stretch. Plus, it ties into many of the full time MSer/Travel Hackers skills.
Starting out, if money is tight you could list your own property, and whenever you get an AirBnB client, use your ninja skills to book a Cat 1 hotel somewhere, this means that you sold your hotel points for the price of income received from AirBnB. Obviously, with some wastage for lost time, and inconvenience.
Let’s say you can earn Hilton points at $90 per 30K. That’s 4 nights in a Category 1 Hilton. Say your apartment nets $90 per night… that’s $380. The spread between the two, that’s the arb.
Now, there might be some valid concerns about allowing a stranger into your Primary Residence, but if you can figure out security around that, it could be legitimate way to increase your float – perhaps to the point where you can buy a second home, and turn the first into a decked out Ikea special..
A little odd I know, but it is a way to leverage the skills from MS into something more substantial, and a point may come along where you just don’t have enough time (or interest) to be earning those Hilton points any longer.
The Reselling Gig
Reselling is Hot. I’ve spent some time in the past week or two looking closely at building a reselling pipeline (I’ll explain more below). And in doing so I get the impression that most people who jumped into reselling aren’t on the level.. either they aren’t declaring the proper taxes (both on gains and on a state tax level) or if they are, they don’t have a proper accounting system that can grow with the business. Going ‘legit’ is likely something that they spend a lot of time thinking about.
Pipelines are revenue streams that plug into the Framework™ Rather than running out there to buy as much crap as possible for reselling, I explore reselling from a Pipeline perspective. This means understanding what the roadblocks are in terms of fulfillment, if using FBA, this can be silly things like an efficient packing system, integrating third party tools and streamlining the process. It also means finding out the best practice to account for and track everything. My goal here is to see if I can build something that we then pass on to someone else to actually do the sourcing/selling, since my time is best spent elsewhere.
Example of Pipeline questions:
You buy a discount gift card to buy a product which you later resell – how would you track the balances of the gift cards and how would you account for profit?
I’m actually still working on different solutions for this. Most book keepers would suggest that you create a ‘Bill’ inside the platform (Quickbooks or Xero) and then apply a credit note to the bill… but if you think about an effective Reselling system, you should probably be purchasing cards opportunistically, and carrying a balance. I’m exploring the idea of setting up ‘bank accounts’ within Xero where you could have a generic ‘gift card account’ or even one account for each flavor of card. The work here is in progress, and it ties back into my own philosophy in that I become more adept at bookkeeping and taxes as I puzzle it out, skills within skills.
The above two Gigs tie into further thoughts. For the Gift card Gig, it is an interesting way to think about the extent of your empire. Periodically, people think about the notion of dying with gigs in play, and how would your survivors know where to find your money? If you are the type that buys $1000 in gift cards in any given month, would they know which ones had value? A well crafted accounting system would be a roadmap in the Estate Plan, allowing them to see where the wealth is, and track down the components.
Self Contained Pipelines
Another thought is the concept of internal/gig specific diversification. Whenever we evaluate a gig, diversification, risk, and threats must be examined. While we need to consider this from a holistic manner, we also need to look at it in isolation. If a gig can stand on its own feet, it can be considered a Pipeline that adds value to the Framework™.
Going back to the AirBnB gig. One of the biggest flaws here is that it is a churn cycle. While the internal process of renting via AirBnB can be made efficient via systems, which might include adding technology to allow the housekeeper to enter, and new guests to have new passcodes. Even the most efficient system here is still dependant on churn, or flow of visitors.
This can become a problem when you scale, because if you grow to 10 properties, with monthly debt service of $10,000, you can find the gig extending outside of the Pipeline, and threatening your core wealth, at the Framework™ level.
A way to deleverage this risk is to no longer think of this as an ‘AirBnB’ gig, and instead think of it as property management, with a diversified set of income streams. Instead of holding 10 AirBnBs you are constantly looking to farm out into full time rental properties, which offer a consistent revenue, this reduces the occupancy percentage required on the AirBnB properties to cover costs. Ironically, it might be that the true evolution of wealth here is that you build a portfolio of full time rentals, who in turn use AirBnB to take themselves to the next level.
This internal diversification applies in the Reselling Gig also. The biggest problem that you will face after building the proper Pipeline in Reselling is fueling it with sourced items. If your business model is to chase after every discounted deal, you’ll find that scale becomes impossible. You’ll spend all reading about discounted items, and acquiring them. It is a constant earn and burn cycle. However, if you diversify into long tail products, and use float to hold inventory, you can fill up buckets of future income streams, taking the pressure away from constant inventory replenishment.
A key tool to use to evaluate the viability of both the AirBnB diversification and Reselling long tail vs churn items is the XNPV equation found within Excel. And this all comes back to the idea of using your float correctly. It might be that instead of looking at a site to source into Amazon that you simply acquire inventory at a firesale price off season, and hold it until the price rebounds.
We always advise a newbie to stay within their float, and the concept holds true with the seasoned pros too… however, it is worth considering how your float could grow with time. If you have a proper Framework™ a few well placed Pipelines should increase your net worth, and as such your float. This can make things like buying a property, or buying a chunk of long tail inventory quite feasible.
Drew Beall says
Matt, great post. This is something I think about a lot. I’ve been scaling up a lot with reselling, but eventually I want to outsource as much as possible. I’ve hired a couple employees so far, actually paid taxes (ouch), etc. I’m working on making it legit – waiting on a liability insurance quote now, I need to think about business structure, sales tax, maximizing deductions, etc.
One way I know a lot of people outsource reselling is with VAs. I know some resellers have a fairly large team of VAs who constantly source for them and send them product lists that meet their buying criteria. They also outsource packing/shipping to prep companies. So basically all they need to do is buy, list, and manage the other details. I suppose you could outsource most of that if you want as well.
Wow – glad to hear that you are making a success of it like that! If you have questions about business structure let me know, I might be able to share some insights on that.
Fantastic post, Matt. You have touched on a theme I encountered many times – How to scale. Doing things one time or ten times is easy. The real profits(and hard work) come when we are able to scale thousands of time.
Yep, doing them 1000 times, without lifting a finger 🙂
Matt, I am doing the AirBnb thing since Jan 1 on the house here and it is working well. It will enable me to finish off the basement to be the “Mother-in-law” suite that I had planned when I bought the house. A fixer upper, it has taken 5 years to get it to rental status but it is really working well. It also helps that my location is very desirable as well. As far as other avenues, the float is always the PITA to deal with, but starting small works for me and the AirBnB gig is working well with my eBay thing (I have done that for years) and that helps too. Gonna have to get a CPA soon and really get legit and parlay this more, but one step at a time. Great column and thanks for the very thoughtful ideas put forth!
Good stuff man, it’s little things like you are working toward that form the foundation for real wealth down the line. Keep at it!
Matt – Regarding your thoughts on how you track gift cards. Mike Dean (speaker at the last ResellingDO and speaker at the upcoming one), has a system similar to what you describe, where he treats the gift cards for major retailers that he sources at, as their own bank accounts, where he credits them when he buys more gift cards, and debits them when he makes purchases. I’d have to check my notes to how he accounts for the percentage saved when he credits them.
Second, while long tail items can be positive, they run the risk of incurring higher storage fees (either at your own home/space or at Amazon’s FBA), which cuts into profit. There’s a few other options though, Private Label, where you essentially pay a manufacturer to make a gizmo and put your label on it. There you have to create the listing, create the market, generate the buzz, and if successful, can just replenish stock, all things die at some point though. The second option, is a “replen” – replenishable inventory, this is gold, because you can optimize your sourcing / packing / shipping efforts (e.g. if I buy 6 of this product, vendor x ships them all nicely packed, inspect, relabel, done).
I heard from someone else that he did that too (after I thought of it!) so it would be cool to see how he figures the credit too. I think that really is the best way, and it allows you to know where your money is (if you aren’t doing a fast burn on the cards). Of course, it does bring in some risk of loss/fraud which requires tracking. I wonder if you could also upload the cards as a line item… you’d have a great record then.
As for your other points – you’re actually doing this, I’m just blowing hot air, so yeah, very valid and I’m sure things that will come up down the line.