An introduction to Arbitrage: Using Craigslist to make a living

On Saturday, I drove from Portland to Eugene to meet Jacob from Early Retirement Extreme. He’s on a mini road trip from the Bay Area, scouting Oregon for a place to live. Along with a few other ERE readers, I joined Jacob for a meet-up. (We also go to hang out with Jacob’s dog, Frank, who is so ugly he’s cute.)

For those who don’t recall, Jacob is a theoretical physicist who applied his analytical mind to the problem of retirement. He realized that if he saved 75% of his net income for just five years, he could actually retire at age 30. Like the couple Robert Brokamp interviewed for GRS last week, Jacob set this as a goal and made it happen.

(To learn more about Jacob and his philosophy, check out my review of his book.)

Two Paths to the Same Destination

It was fun to chat with Jacob in person. I feel like he and I are taking two paths to the same destination. We both want financial independence, but we’re using different methods to achieve it. Jacob focuses on cutting costs, and I focus on making money. To be fair, he’s well aware that increased income can accelerate savings, and I’m a vocal advocate of thrift. But when it comes down to it, Jacob’s focus is frugality and mine is increased earning.

Naturally, Saturday’s conversation centered on how Jacob and his readers keep costs low. We talked about building things, about repairing things, and about making things last. We talked about buying used things at thrift stores and off the internet. Eventually the conversation turned to the wonders of Craigslist. “You can find anything there,” Jacob said. We shared our best finds.

But it was here that the discussion took an interesting twist. “You know,” said a fellow named Ryan, “I make my living on Craigslist now.”

“What do you mean?” Jacob asked.

“Well, I buy things on Craigslist, then I sell them for a profit.”

“You sell them on Craigslist?” I asked.

“Sure,” he said.

“Craigslist arbitrage?” I asked. I hadn’t heard the details, and already I was in awe. I knew I had to hear more about how Ryan makes money.

You see, one of the seeds for this very site was my own experience with arbitrage, the art of taking advantage of price anomalies to make a profit. If you pick up some old books for five bucks on eBay and then resell them on eBay for fifty, you’re practicing arbitrage. Clear as mud? Let met explain how I learned about arbitrage.

Playing Games

Back in 2005, I wasted much of my time playing World of Warcraft, an online role-playing game. I liked to slay dragons and fight zombies as much as the next guy, but what I really enjoyed was shopping at the in-game auction house. When you had stuff you didn’t want, you could sell it to other players through auctions. Because the game world was large enough, a stable economy developed. Certain items generally sold for certain prices.

For instance, you might be able to buy a stack of medium leather for ten silver pieces. (I can’t recall exactly how much anything cost, so my examples use arbitrary numbers.) But sometimes, somebody would sell medium leather for five silver pieces. It was simple enough to buy the leather and then re-list it at the auction hall immediately, netting a profit of five silver pieces.

At the auction house…making money!

But buying and selling stacks of leather (which could be used in-game to make pouches, bags, and armor) was small potatoes. Eventually I started buying weapons and magic items. The Sword of Ultimate Slaying might normally sell for 100 gold pieces, but sometimes you might spot it selling for 50 gold. Well. I’d snap it up and then resell it for more. Even if it sold for 70 gold, I’d have made a big profit for very little effort.

I was practicing arbitrage. And soon my lowly little wizard had a fortune of hundreds of gold pieces.

“Man,” I thought. “Too bad I can’t do this in real life.”

It turns out you can do this in real life. That’s what Ryan was describing at Jacob’s meet-up on Saturday.

Trivia: No joke — my experience with buying and selling stuff was one of the prime reasons I decided to start Get Rich Slowly. The connection isn’t obvious (not even to me), but it’s there.

Buy Low, Sell High

Ryan explained that he’s a licensed general contractor, and has done plenty of construction work. But somewhere along the way he discovered he could make a living through buying and selling on Craigslist. I asked him to give me more details.

“You have to know how the system works,” Ryan said. “The good stuff sells instantly. Craigslist updates the listings every ten minutes. You have seconds to reply to get the good stuff, the stuff that’s cheap. If a listing is more than a few minutes old, it’s not a bargain.” It might be fairly priced, but it’s not worth buying to resell.

“But how do you respond quickly?” I asked. “By phone?”

“I have automatic scripts set up on my computer,” he explained. “When I see a listing I want, I click a button in my browser. This automatically creates an email, and I add just a few new notes and send it. It takes very little time.” Plus, he admits that he’s handy with his telephone.

“I’m not the only one doing this. If I were, it’d be easy. There are others out there snapping up the bargains too.”

“What do you buy and sell?” someone asked.

“I’ll buy anything if it’s a bargain. Appliances are awesome,” he told us. “A used washer or dryer is easily worth $50. Often $100. If I can get it for free — and often I can — that’s pure profit.” It helps that Ryan has connections in the construction industry. When he finds something, he knows who to call.

“But it doesn’t really matter,” he said. “I buy what I know and sell what I know. If you wanted to do this, that’s what you’d do too.” In other words, if I wanted to do Craigslist arbitrage, I’d try to buy and sell comic books or computers.

“And you really make a living at this?” I asked.

“Yep,” he said. I suspect it doesn’t hurt that he’s bought into Jacob’s early retirement philosophy; I’ll be Ryan keeps his costs low, which would allow him to sustain his family on a lower income than he might otherwise need.

Ryan’s story is great. I love finding folks who’ve developed creative ways to earn money, and this one was new to me. For me, the best parts of his story were the individual anecdotes he told about great deals he’d made. (Or, in one case, failed to make.) I’d actually like to hear more about how he does it. (If you want to know more, let me know; I’ll bet we could get him to write an article!)

You can read more about Craigslist arbitrage at Dane Jensen’s blog.

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