If You Are Earning Money on eBay - Listen Up!

This is not a "what to sell" post or a "hot discontinued item" post, but I recommend you read it anyway. It could save you a lot of time, money, frustration, and disappointment in the future.

If you are selling on eBay, and depend on the income, or ever want to rely on the income to prove you can afford a mortgage loan, start preparing now. If you have any plans to move, downsize, or rent, start getting your paperwork in order now. Even if you already have a CPA.

Here is the problem. If a CPA has been doing your taxes for you, that is great! A CPA is trained to make sure their clients pay the minimal amount of taxes. With self-employed people and entrepreneurs, their goal is to whittle down "adjusted gross income" so that taxes owed are minimized. This is what accountants are trained to do. Unfortunately, CPAs and mortgage lenders are looking at financial information from two different perspectives. The CPA is looking a how low he can get your income so taxes are minimized. The mortgage lender (or apartment leasing office) is looking at a person's income and ability to pay, which is the amount of income they have claimed and what they pay taxes on.  Usually, you can't have it both ways - if you are self-employed, you may have to strategically prepare tax returns so that you can qualify for a mortgage.

This is where worlds collide and it isn't pretty. Let's face it, self-employed people can look bad on paper. Because of all the deductions we can take, and how we pay expenses out of our business accounts, our taxable income is usually much lower than what we actually "take home." I have talked to several sellers lately who have run into the problem of not being able to prove their income to get a mortgage. They may be able to afford where they live now and have excellent credit. But after the housing crash in 2008, lenders look at self-employed people much differently - as a risker borrower. It is all about how the numbers line up on the Schedule K (if you are an S-Corp) and how much of a salary you take. Bottom line:

The mortgage process is designed for people with a regular W-2 income, not entrepreneurs. 

I am not a CPA or a tax professional, but I am telling you to consult one if you have any plans of moving in the next 12 months. Make sure your CPA knows your goal of getting a mortgage loan or renting a new place. If you aren't showing enough income on your tax returns, or taking an official salary, you may not be able to qualify for a mortgage or even a rental agreement. It is tough out there for single self-employed folks when eBay is the only source or income, or both spouses are self-employed. This post not meant to cause panic or alarm, but to inform so you can prepare.

Start looking into this now because you may have to make adjustments to show more income so you can qualify for what you want in the future. You may need to show fewer write-offs or take a larger salary to make the numbers work. Disbursements usually don't count - you need to show a salary.

If you don't have a CPA, now is the time to find one. Check around in your area for CPAs who offer free initial consultations.  Call the Chamber of Commerce or use our good friend, Google. This is a great time of year to start a relationship with a CPA - come January through April they will be slammed during tax season.

And if you aren't keeping records on your sales, you certainly should be. (I recommend this spreadsheet for eBay sellers.) Get your paperwork in order now. Taxes and accounting definitely aren't the fun part of eBay, but just grit your teeth and do it anyway. Your future self will thank you.

A few tips:

1. Keep good records. Record all inventory purchases, fees, and supply expenses. KNOW WHAT YOUR PROFIT IS AND HOW MUCH MONEY YOU ARE MAKING. (Yes, I am yelling!!)

2. Don't co-mingle personal and business money. Lenders don't like to see that.

3. Mortgage lenders will look at 2 years of tax returns - so make sure you have enough time to get the right documentation in order before you plan to move. (Talk to a CPA!)

4. Work on improving your credit score. Self-employed people have been stereo-typed to have lower credit scores than W-2 employees.

5. Start saving for your down payment. A larger down payment may help counterbalance any self-employment income issues.

6. Talk to a CPA and different mortgage lenders. Seek out lenders who work with entrepreneurs - they may have some workarounds or connections that will help you. Some lenders won't even work with self-employed people because of all the extra paperwork and hassle.

Here are some helpful resources if you are considering buying a house (that includes downsizing) if you are self-employed (even if one spouse is self-employed):

Self-Employed? Good Luck Getting a Mortgage

How to Qualify for a Mortgage When You are Self-Employed

Self-Employed? How to Get a Mortgage

21 Year Old eBay Seller Pays Cash for New Car - Hard Work Pays Off at Any Age!

Now here is a great story about how eBay can help you bring in extra money. A resourceful young woman graduated from high school in May of 2012 and wasn't a good fit for the traditional college track. Her mom encouraged her to start her own eBay business. Mom showed daughter the ropes and after about 3 months, the teenager was making $800 - $1,000 a month. She was on her own with the business - she lives at home but pays for everything except rent. Her mom was there to help her with difficult situations within the business as they arose.

The young woman learned eBay quickly - well, she had been around it most of her life. She even started a listing service for other sellers in her area - she recognized that the backlog for everyone was listing, NOT finding inventory. She had a nice side business making up to $500 a month just listing items for other sellers in her area. (Note - this was not consignment - simply the task of picking up the items from the other sellers, photographing and listing the items on their accounts, and returning them a few days later.) Moms in the area loved the service because it allowed them to use their picking skills and shop and make money without having to do the boring chore of listing.

This process went on for almost 3 years. The young woman had a clunker of a car that eventually ended up on the lot at CarMax. She and her mom shared a car for several months to allow the young lady to save up money to pay cash for a new car.

Fast forward to April 2015. The young woman is now 21 and ready to buy her car. She does the research and test drives a few cars. She decides on a 2011 Honda Civic with low mileage and a price of $9,500. She walks into the bank, makes a withdrawal of a bank check for just over $10,000 from her own account, and heads to the car lot to purchase her car.

Now keep in mind this 21 year old doesn't have a college degree, but she doesn't have any student debt (or any debt at all), she has 3 years of experience running her own business and a list of clients, and a car that is paid for in full. How many 21 year olds can say that?

Who is this amazing young woman? My daughter, Melanie. I am so proud of her. You can visit her eBay store here to see that she is the real deal. She works full time now at an oral and facial surgery office, but eBay is always running in the background. Maybe it is in her DNA?

Encourage those young people to get involved in eBay early. Millenials (GenY) have the computer skills to do this business. Many are savvy enough to understand the resale market early because they already buy on eBay. eBay is a great way for young people to learn customer service skills and make some money on the side 24 hours a day.

Related Articles:

eBay Seller Success: $6,000 in 30 Days

eBay Coach Loves Selling Ugly Shoes

Need Help Increasing Sales on eBay?

Profiles of Successful eBay Pickers - Antique Chic

Time for another installment of "Profiles of Successful eBay Pickers." eBay is getting a lot of bad press lately about not being a sustainable business, losing traction as a trusted marketplace, or being inferior to Amazon. I reached out to sellers on my eBay seller Facebook group, which is now approaching 16,000 members, to find sellers who have a proven track record of selling on eBay and maintaining a sustainable eBay business over time.

My hope is that we can see similar characteristics across these profiles and define the qualities of a successful seller, then work to achieve those qualities and reach success.

The criteria I set for participating in this series:

1. Full time eBay seller for at least 3 years. (To show sustainability.)

2. Does not sell on Amazon. (Because they were doing so well on eBay, they didn't need to go to another platform.)

3. Sells inventory purchased at thrift stores, yard sales, estate sales, auctions, consignment sales or any combination of those sources. Does not purchase inventory wholesale, from liquidators, retail stores, from China, or drop ship. Must be a "picker."

4. Is an "at home" seller.

5. Must be willing to share eBay ID. (Keeping it real.)

Today's star picker is Renee Franco of Antique Chic.

When did you start selling on eBay?

February, 2011 

Why did you start selling on eBay?

The company I was working for downsized and I was laid off. I did not want to go back to corporate America and I surely didn't want to drive an hour each way to and from work anymore.

What is your store name and what types of items do you sell?

Antique Chic, Inc. I sell antiques, collectibles, and vintage items. 

Do you specialize in a certain niche, or are you open to selling anything? If you specialize, why?

Yes, I specialize in my niche because it is what is interesting to me. The items are fun to find, photograph, and learn about. 

How many items do you typically have in your store? 

1,000 - 1,200 items.

What is your average monthly profit? 
(We are focusing on profit here because that's what you get to keep!) 

$4,500 per month and increasing each year.

How many hours do you typically work a week on your eBay business?
  
I work 9-5 Monday through Friday, and Saturdays I am at estate sales or auctions. So usually 48 hours a week.

Many eBay sellers are being shamed into selling on Amazon, as if it is a superior platform. Why have you never sold on Amazon?

I have never felt like I needed to sell on Amazon. eBay has provided a nice income for me, and my sales are increasing every year, so I continue to focus on 1 selling platform.

4th quarter can be a lucrative time of year for many online sellers. Have you typically seen an increase in sales during 4th quarter in past years? 

Yes I have seen an increase in the 4th quarter every year. My average sales per month during the 4th quarter last year was $15,000 per month. During Q1 through Q3 my average sales are $12,000 per month.

Do you sell anything different for holiday selling season, or just sell more of the same kinds of things you normally sell all year? 

I sell more of the same. Usually, during the late summer I begin to buy more merchandise in preparation for the 4th quarter.

Do you list more items in anticipation of holiday sales? If so, when do you start this process?

Yes, I typically begin to buy and list more items in late summer. August is really my "build-up" reminder month to prepare for more inventory.

Do you have any hired help for your business? 

No, I have never hired anyone. My husband helps me from time to time.

What is one piece of advice you would give to new sellers who want to transition to eBay full time? 

If you were going to transition to full-time, I would suggest finding something you enjoy selling. I truly have a passion for antiques. Because I enjoy what I sell, it does not feel like I am working! I really believe this is what has helped me become successful on eBay.

Anything else unique about you or your eBay business you would like to share? 

We also take antique and collectible consignments. This is a great source of extra income and it is risk free inventory for my store.

Be sure to follow this series here on my blog, and make sure you have subscribed to my newsletter for more great tips for your ecommerce business.

Read about more successful eBay pickers:

Michelle Farmer

Nicole Bilbao

Kathy Bradley

David and Rhonda Conner