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Home Financing the hobby

Financing

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Financing one's gold and silver hunting habits can be tricky. It depends on each person's personal situation. From the person who buys a piece here and there out of pocket with cash, to someone that has a lot of extra cash, to someone that is working off credit cards and/or Home Equity Lines of Credit. All are options, but one needs to be aware of risk and scaleability. I'll talk about each funding method:


Here and there, purchase by the piece

A lot of people pick up scrap silver or gold in random ways. Not high volume but rather depending on the situation. Run across a deal, decide on it, pay out of pocket with cash, take it home, throw it into a bucket, repeat. A true hobbiest. However, the volume of materials and frequency are generally pretty low, and though fun, aren't as profitable as higher risk situations. Yes - higher risk.

Lot of extra cash

If you happen to have a couple of grand in the bank, perhaps $1,000-$10,000 in cash, you can definately be 'dangerous'! These are the types of people that typically go to flea markets with $1-3K in their pocket, in cash (remember to have a good number of small bills for small purchases, 1's, 5's, 10's go a long way at a flea market), those folks are ready to purchase whatever deals come into sight, decide, pay for it quickly and move on to the next vendor. I count myself among these people. Slightly higher volume generating individuals, good at calculating risk on the fly, and able to wander through piles of crap, looking for the elusive shiny stuff.

Even if you don't have a lot of extra cash to start with - starting at the "purchase by piece here and there", one can work up to a good solid base of cash (say $500 for flea market), to advance to the next level of having a wad of cash (couple grand) - walking through the flea markets and estate sales. Partly it's a comfort level of dealing with higher volume, higher risk activities. Once you get the hang of it though, it can be very adicting. I like to think of it as small scale negotiation! Everything has a price and there's a strategy to acquire what you want. Have fun, be civil about it, and use that wad of cash to your benefit, buy low, sell high, repeat!

I will build out a section on this site regarding negotiation tips and tricks by late May when I create the flea market section of the site.

The extra cash is also necessary for hosting Gold Parties or buying from family, friends, and co-workers. I will eventually create a section on this site talking about Gold Parties but the basic concept is that you gather a group of people (like a Tupperware party or Cookie swap) and they bring gold and silver. Providing some beverages and snacks is helpful - and then over the course of a couple hours, you can clear from a couple hundred to a couple thousand dollars of material, but it requires having cash to pay people. I will build a section on hosting gold parties tips and tricks in early June.

Working with credit cards

I also count myself among this group of hunters, though it's not the type of people that can work at estate sales or flea markets since neither typically accept credit cards. Rather, these are the online eBay hunters that look for precious metal online. See the section on eBay hunting to learn more. For example - this past month I've done about $40K of purchases on eBay...some months it's only a couple hundred - depends on if I'm board or not ;-p

Basically what I do is hunt all over eBay (often with help from a RSS Reader & live Kitco gold price monitor called Kcast). I find a good deal, and then when I win the auction, I pay for it on credit as well as kick backs from loyalty programs. Why bother using hard cash from my bank account (either Money Orders or eChecks etc) when I can use "other people's money" via credit cards AND take advantage of loyalty programs that can kick back up to 15%. As long as one understands that credit is not free - it's a great deal. However, I NEVER EVER EVER carry a balance on a credit card. If you do - then it's a losing proposition - and you should stop! What I do for instance, during the month of April 2010, I purchased over $40K of precious metal, both bullion and scrap, from eBay -- all on credit. I happen to have the existing credit lines to support that debt, and while I was accumulating the auctions, I was also turning the metal around and sending it right to the refinery for smelting. While doing that, a good amount of cash is generated -  that is in my pocket - and not yet needing to pay off the credit card - see the section below on utilizing a Home Equity Line of Credit to futher optimize the return on your investment.

Buying with Credit Cards is basically a game of cat and mouse. You time it so that you begin working with you credit card once the monthly statement has been closed. Now you are on a "new month" and you can start hunting like mad for deals on eBay using methods I talk about in the eBay Hunting section. In a 2 week period I was able to actually spend $40K on credit, recieve the resulting metals, and then as they came in, I sent multiple packages to various refineries to begin the smelting process...which in turn generated a check, that I received and cashed. I took the resulting cash and paid down some of my Home Equity Line of Credit (HELOC) which is at 5%. Then when it was time to pay off the credit cards, I drew the money back from the HELOC to pay off the credit cards. So with all those movements, and with kick back from loyalty programs like Bing and Mr Rebates, I end up with a sheer profit margin of up to 20%. Easy as that ;-p However I have to say - I like flea markets better. It's more personal and has way better margins. Here's a slower, step by step of how it works:

  1. Setup all the loyalty programs before you begin hunting on ebay.
  2. Learn how the Bing program works and how Mr. Rebates works by reading about those loyalty program rules
  3. Once you start buying on eBay you start by going to Bing.com, logging in, linking from bing to ebay so that your computer 'gets a tracking cookie'
  4. THEN go to Mr. Rebates, log in, search for eBay on the site, and go from Mr. Rebates to eBay - your computer will get another cookie
  5. THEN in the same browser window you search for auctions of interest. Use the Buy It now button, immediately pay with your credit card, and the auction is done.
  6. By doing this you get 8% up to $200 for that transaction from Bing. 3% from Mr. Rebates up to $30. Up to 2% from your credit card loyalty program. Up to 2% from eBay eBucks program (if you are eligible). At the end of the day, you basically end up with up to a 15% discount from any eBay transaction. Amazing.

Granted that the Bing method only lasts for a short while you max out after $2,500/yr (though Mr. Rebates is unlimited) - but the concept of purchasing, even without loyalty programs, remains the same.

Home Equity Line of Credit

If you own your own house (and again don't mind a little bit of risk), then you likely know what a Home Equity Line of Credit (HELOC) is. In short it's a lot like a credit card drawn on the value of your home (if anyone has value left in their home now a days). The advantages of tapping a HELOC in your gold hunting adventures is that you can use if frequently and fluidly. Besides pulling money out of the HELOC - I actually like PAYING IT DOWN. Here's how it works:

  1. At the begining of the month you go on eBay or to flea markets and you buy a couple thousand dollars worth of metals (presumably on credit cards - not always the case of course). Doing that allows you to get gold and silver material in your hands immediately - the bill isn't due to the credit card companies for a month
  2. As quickly as you can - turn around the scrap and send it to the Refineries. This will convert the metal to cash. Then for the next 2-3 weeks you have cash on hand...so put it against your HELOC. My Home Equity Line of Credit is at 5% for now - but it's not uncommon to have higher interest rates, especially once the economy comes back to life.
  3. By putting that extra cash against a HELOC of say 8% (0.08), you are instantly getting an 8% return on Other People's Money (i.e. The credit card company).
  4. Assuming you have say $5,000 that you are doing this with, that works out to be $5,000 x 0.08 / 365 days x 3 weeks = $23 of return on your $5K that you put against your HELOC for 21 days. Not huge - but it's free and basically like a 1/2 gram of 24K gold! [That's commitment]

There are really only 4 potential risks that I've run across:

  1. You pay your HELOC down past some magic limit that triggers fees. Example, my HELOC has $50K of credit, if I pay it down to less than $20K my account changes slightly and I start getting fees assessed to my account
  2. Alternatively I used to have a $60K HELOC...I paid it down to $20K with fluid cash...and then the credit crunch hit and the Bank cut my line by $10K...that was a surprise but I was able to weather it. Be aware that Banks can cut your line at will.
  3. If you send a large check to your HELOC to pay it down - say $10K (due to US Patriot Act & also Bank cautiousness) it could take up to 11 days for the funds to hit your account. To work around this I usually put the funds into the HELOC either as cash or as an electronic transfer from one of my Bank Accounts - then it clears in a day or two.
  4. Lastly, I've found ... I don't recall but when I do, I'll update this bullet ;-p
Last Updated on Saturday, 08 May 2010 09:25