POST OF THE DAY
Retire Early Home Page
Investing in Physical Assets

Format for Printing

Format for printing

Request Reprints

Reuse/Reprint

By JBtheJunkist
July 7, 2004

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

As some of you know, I used to own an antique mall. I have bought and sold over $3,000,000 of merchandise in my mall over a 5 year period. I also am a licensed auctioneer, and have sold over $4,000,000 worth of merchandise in that business. I tell you this to preface what I am about to attempt to explain: buying and reselling physical assets. I know what I am doing, because I've done it since I was 14 (I am now 37) and have made a lot of money over the years.

What is a Physical Asset?

A physical asset is an item. Any item. It can be a car, a house, a piece of art, a cow, hay, lumber, scrap metal, clothing, food, whatever. It is tangible. Once you purchase it, hopefully with cash, so you don't have a payment, it's value becomes your asset. Hence the name, physical asset.

Where Do You Buy PA?

Most of us know about the venerable yard sale. Some places call them garage sales, or second hand sales. They are interesting to tour, because you just never know what someone is wanting to part with. You can also go to estate sales, second hand shops, thrift stores, and even to antique and collectibles malls. Once you get established in your area, you can pass out business cards or run an ad in a local paper. You can also attend auctions, but be aware of what you pay for something at auctions. Many people get "auction fever" and pay too much for items. It is easy to pay too much for stuff. KNOW YOUR ITEMS, KNOW YOUR MARKET, AND BE PATIENT.

Where Do You Sell PA?

This is going to depend on several things: Do you own a shop? Is there a consignment store in your area? Do you have, or are you willing to sit in a flea market booth for a weekend? Are you willing and are you able to have a yard, garage or estate sale in your neighborhood? Do you EBAY? Are there several shops in your area that will buy your items from you? Do you know dealers who will buy items for you, or will sell stuff for you on consignment? Do you know any auctioneers? There is an enormous variety of ways to sell your assets, once you've acquired them. It will also depend on what TYPE of assets you buy. You can sell lumber, architectural items, etc to a salvage yard. You can sell scrap metal to a scrap yard. You can sell cows and pigs at a cattle barn. You can sell used farm equipment, automobiles and boats either through the paper, on consignment thru a dealer, through an ad in the paper, or buy putting a for sale sign on it in your yard. If you have invested in art, glassware, or unusual collectibles, you can also consign them with a dealer who sells online. The trick in selling your item is to have SOME WAY to sell it, BEFORE you buy it. Otherwise, it will just become fodder for your next yard sale.

Does Investing in Physical Assets Work?

I got out of the military in 1997 and immediately began to invest in PA. Within one year, I had so much inventory, I had to rent a storage room @ $190 a month. Soon afterwards, I built a shop behind my home, and began to sell specific items online and offering items through local ads. In late 1998, I bought an established antique mall, and during the next five years, became a professional antiques/collectibles dealer, as well as an auctioneer and estate liquidations specialist. Am I telling you this to get you to go "into the business"? (Which is more of a disease than a business! :)  ) No. I am telling you this to prove to you that you can make money investing in PA. Many times, you have time, sweat, and storage tied up in a physical asset. You should take all those points into consideration while considering your return on investment. The greatest thing I've found with investing in PA is you can easily get your money within a few weeks or even a few months. Many times, I have been able to sell items within a few days, or even a few hours. You have to have a "sellable situation" in order to turn your money over that quickly, but it can be done. A few examples:

My sister-in-law lived in Erie, Pa and wanted to move in with us in Mississippi. We were going to make the trip over Thanksgiving and we scheduled 5 days. When I called the rental companies for a 15 pax van to rent, the cheapest rate I received was around $2000 for 7 days, mostly due to holiday price hikes. No sweat. I went to a local GSA auction and bought a 2001 Dodge 15 pax van for $5900 and paid an additional $750 in tags, taxes, title and insurance, for a total of $6650. On our trip, we spent $125 for food, drinks and ice, $280 for gas, and $225 for hotel rooms. Our total outlay was $7280. Once we'd returned home, I cleaned the van up, put in on a consignment lot for $100, and sold it three weeks later for $8500. With a total of $7380 invested, I made a gross return of 13.2%. Once you take the insurance refund of $214 into consideration, you have a 15.4% return on investment in six weeks. Was there work involved? Absolutely. But, once you consider that I didn't have to pay $2000 in rental fees, along with $630 in gas, groceries and hotel fees, you can actually say the overall return on this investment was $9280 gross, with the return being much higher (along the 33% range).

Another example: I began buying items at out-of-the-way country auctions. I would then take the items to flea markets and sell them to dealers the next weekend. The dealers became my "regular customers" and I had a new source to sell to. Most weekends, I'd net between $100 and $200, but some days I would get lucky and make as much as $500, doing something I thoroughly enjoyed, as well as being relatively easy.

Another example: Once I had "gone pro" and owned my mall, I bought an estate from a heir. We paid $2800 to 'mop up' the estate, as all the "real antique dealers" had already gone through the house and bought most of the furniture and nicer items. One of the items they didn't find, was a Weller puppy figurine which I sold on EBAY for $2900. The rest of the estate earned us over $10,000, as there was a bunch of "just junk" that other people didn't see the potential in. Overall, there is usually a lot of work, repair, cleaning, etc involved in PA investing, but the returns are normally much, MUCH faster than with financial assets.

Know Your Assets

Should you begin investing in PA, do one of two things: either buy stuff that is so under priced that there is no way you can lose money, or that the money you may lose is insignificant, or KNOW EXACTLY what you are buying. You can go to a yard sale and buy an old lamp for a few dollars and put it on EBAY for another $1 or less. So, you have less than $5 invested. If it is just a run of the mill lamp, you would be lucky to sell it at a profit, or even get your money back. If it wound up being an antique or rare collectible, you could hit a grand slam and make several tens or even several hundreds of dollars. The trick is to KNOW what you are investing in, or at least have a reasonable expectation of what you are investing in. NEVER let someone tell you how much something is worth, unless they are a trusted opinion to you. You may wind up with assets that are actually worth less than what you paid for them. I don't specialize too much, because over the last 6 years, I've developed a great knowledge of what "should be ok" and what is junk. Sometimes I am so wrong it's laughable, but that is the nature of the beast. Sometimes I get a Drysdale painting for $2 and spend $100 to have in touched up and authenticated, and then sell in for $1800. For each and every grand slam I hit, I have a dozen (or more) misses. You need to get out there and start doing it, and learn.

Know Your Market/Customers

As I've mentioned before, you can sell PA on any number of venues. The trick for me is to get the money as quickly as possible. If I can buy something for $50 and sell it the next day for $75, then I've made 50% in two days, or 9125% gross return a year, should I be able to buy and resell items every two days. NORMALLY, I can resell an asset within two weeks, so I have an average return of 1300%, minus 25% of the gross in gas, time, wear and tear on vehicles, etc. It can be a lot of hard work, but the returns can be absolutely phenomenal.

Decide How You Want To Sell

Some folks like to maximize each investment. They want to work each transaction to the fullest profit potential. The want to take their time, and do it right. I have a great friend who has helped me in this business. He buys antique, collectible and high quality modern (but used) furniture, cleans, repairs, refinishes and resells it. He has 10 booths at a local flea market, and does over $200K a year in sales. He has two part time helpers and his wife. Overall, he takes home over $75K per year, but he sits on $60K to $80K in merchandise at any given time. He also has three large box trucks, booth rent, insurance, etc, to pay for. He is running a business, but each piece he buys is an investment.

Some folks like the hunt. They enjoy looking for and finding the great deal, then they want to get some money out of it and get going to the next investment. These types of people usually sell to dealers or shops. That is how I got my start. I began to notice odd things drew more money, and as I become more knowledgeable, I began to sell the odd pieces or "higher dollar" items on EBAY. After that, I opened a flea market booth, and then grew that into the business that I owned and sold after six years. My overall point is this you can make physical asset investing as small or as pervasive as you'd like. If you want to keep it small, you can. If you ever had the opportunity to "go pro", you can. It can be extremely lucrative and can also be an extra $100 a month in your pocket.

Some people enjoy buying very nice "investment-grade" PA and sitting on them, thus acquiring an enormous amount of asset worth for much less than what was paid for their items. A good friend of mine collects rare books, artwork, and antique textiles. She has amassed a HUGE collection over a period of 15 years, and has selectively sold to continue to pay for the expansion of her collection. She uses her collections to decorate her home and at the same time, they are appreciating in value. I foresee her investment coming to great fruition in the near future, as her collection is already being called "The Mrs. T. Gorden Collection" (not her real name!), thus adding to it's collectible appeal, and therefore, it's value.

Taxation

I know, I know. Taxes are a dirty word. However, if you make more than $400 per year (I think.) you are required to report it on your Federal and State Income tax return. I report a large majority of my sales, but, in all honesty, if I paid $100 for something and sold it for $400 CASH, then I could easily write down "sold for $200" in my ledger and no one would be the wiser. It is up to you, whether you want to report the income or not. If you keep in on a strictly cash basis, the IRS is going to have a hard time proving you are doing anything, unless you keep a ledger, or start making huge deposits into your accounts. In all honesty, I don't think the IRS looks for stuff under $1000, but I don't really know. My wife and I decided a long time ago, it was just easier and more restful to pay our share to Uncle Sugar and be done with it. We get enough legal breaks with our CPA.

In Summary

Whether you buy day-to-day usable items, commodities such as lumber, cattle, or scrap metal, antiques and collectibles, or automobiles, investing in physical assets can make you money in almost any market. Even if you don't make money, you can normally use the asset, or feel secure it's value doesn't appreciate or depreciate because of a "buy/sell" recommendation, or lose value from accounting "mistakes". It can be a lot of work, but you can also satisfy your "day trader urge" by being able to liquidate your assets in a much more controlled environment, in a much quicker fashion that in most financial investments.

Peace,

JB


Become a Complete Fool Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.