What Is Car Flipping And How To Flip Cars For Profit

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How To Flip Cars For Profit

You’ve probably seen the shows on television that involve flipping home. It’s when you purchase a house, make some improvements and renovations and then sell it for profit.

Flipping is not only limited to houses though. You can pretty much flip anything – furniture, domain names, antiques, and even cars.

This article will introduce you to flipping cars and teach you how to make money by buying used cars and selling it for profit.

What is Car Flipping?

Flipping is a term generally used in the United States to purchase an asset and resell or “flip” it for profit. The term is mostly applied to initial public offerings and real estate. However, flipping is applicable to any asset.

Just like with real estate flipping, car flipping means purchasing used automobiles at a low price and then selling it at a higher price. A car flipper needs to know how to identify reasonably priced vehicles and recondition it. Afterward, he then lists it to a larger market and sells the car at a higher price.

Many car enthusiasts get into car flipping as a hobby. There are some people though who make a living out of flipped cars. Flipping cars is only legal if it is processed through a state-licensed dealership or if the vehicle is titled in your name.

There are several states that limit the number of flipped vehicles you can have in a year unless you are an associate or a dealer. The number of allowed flipped cars varies from state to state.

Unlike real estate flipping, car flipping does not require as much capital. Additionally, there are a lot more buyers available to sell your car over flipping houses.

How to Make Money Flipping Cars

If you are passionate about cars and want to look for a side hustle, then flipping cars could be perfect for you.

You might be wondering how much do you need to get started. It all depends if you want to go with high-end vehicles or keep to stay with more common automobiles. You can flip cars at that price range.

We recommend starting at the lower range as you learn the industry. You will have less risk and turn around your purchase and sale faster. You can buy a used car between $1,500-$4,000 as a good starting point. If you don’t have this amount to start your car flipping business, you can probably find even smaller flips but obviously the amount of profit will be less.

At this lower-end market, you can make a net profit of about $1,000-$2,000. This amount is a good profit for a single flip and can allow you to reinvest your profits to grow your business.

Here’s a detailed guide on flipping cars for profit.

Things to Know Before You Get Started

Just because you love cars doesn’t mean that you can immediately start your car flipping business. Just like with any type of business, you need to arm yourself with the necessary skills and knowledge before you jump in.

Here’s a list that can help guide you through the process:

Understand the Requirements and Getting your Dealer License

The first step that you need to take is making sure that you understand the local laws and rules of the industry. You need to meet all of the requirements and determine if you need a dealer license.

If you’re just a casual flipper, it’s really not practical to obtain a dealer license. The application process of a dealer license could be time-consuming and costly. However, if you’re planning of making a legitimate business out of car flipping, then you must get a dealer license.

The requirements for dealer licenses vary by state. Some states have lower thresholds. Vermont though requires you to have sold 12 vehicles per year that you own but not registered by you before you can apply for a dealer license. You should also check with your state motor vehicle registry before starting your business to avoid criminal or civil penalties.

Find Undervalued Cars that Don’t Require Too Much Money and Effort

How can you get your hands on undervalued cars? Here are your best options:

  • Craigslist – Classified sales ads are free on Craiglist so there’s no shortage of cars for sale in this platform. However, you should still practice precaution and watch out for scams.
  • eBay Motors – This platform is a better version of Craiglist. Aside from used vehicles, you can also find parts for fixing, maintaining and updating your existing vehicle.
  • Public Auctions – If you’re not a licensed dealer and want to get the most out of your money, then a public auction is the best venue for finding used cars. Public auction inventory typically includes vehicles that are abandoned in public rights, forfeited by drivers charged with serious offenses, seized by governments over unpaid taxes or other liens and repossessed by lenders.
  • Newspaper Classifieds – You can check your local listings for used vehicles that are for sale. There are some old-fashioned sellers who prefer listing their cars for sale in the newspaper only.

Get to Know Your Market for Used Cars

You should have a clear endgame in every car purchased. Volume is the name of the game. You’ll make more money if you sell your flipped car sooner and move on to your next flip.

Cars that are suitable for flipping are wagons, efficient sedans, and low-mileage. Compact SUVs from mass-market such as Honda, Toyota, and Ford, are flippable cars. Choose your car based on your area. Undervalued luxury cars have higher demands in affluent areas. Four-wheel-drive cars, on the other hand, is a smart choice if you live in a snowy and mountainous area.

It actually may be a really good idea to buy cars in one area and sell them in others. For example, purchase pickup trucks in Florida and sell them in Montana.

Buying The Right car

Regardless of where or how you purchase your car, these tips can help you get the best deal with minimal effort.

Set a Budget

Most seasoned flippers recommend a starting budget of at least $1500. This amount can get you a serviceable auction car with several years of service under its belt and moderate to high mileage. A higher budget can also mean higher profits. However, it’s not advisable to spend more than $5,000 since you only have smaller target customers as you move up the price scale.

If you want to get the best deals on undervalued cars, then you must come to prepared. Research the fair market value of the desired vehicles you’re looking for. See what private party sales figures look like before you go to any auction. Whenever you see a car of your liking, take the time to look up the resale value.

Know How to Buy

You should learn the rules and process before going to any auction lot. You may be intimidated by more experienced auction-goers if you are not familiar with the process. Or worse, you may be disqualified from the auction. You may want to attend a few without the intention of making any purchasing to see the process in action and build your confidence.

Additionally, you should know how to register the car and legally transfer the title. The registration and transfer procedure may vary by state. Check with your local motor vehicle registry whenever you’re in doubt. Also see if there are certain rules about transferring cars from a specific state to another if you plan on doing so.

Check for Defects and Maintenance

Before you seal the deal, make sure that you check every little thing in the car. Look for any signs of defects and review the maintenance records if they are available. Check the interior for any damaged upholstery, flooring and safety features.

Your future buyers will definitely be looking at those flaws when you put it back on the market.

After checking the interior, inspect the exterior as well. Look for more serious imperfections such as rust, dents and deep scratches. These are the things to look out for since you may need to spend a substantial amount of money to repair these issues.

Once you’re done checking the interior and exterior, proceed to pop the hood. The general appearance of the engine compartment should be a key tell. The dirtier the engine compartments are, the more work may be requires.

Things to Check Under the Hood

There may be too much competition and little time during auctions, but this should not stop you from checking these used car warning signs:

  • Engine Oil – Check the color and levels of oil. Ideally, the color should be light and the level should be within the acceptable range. You won’t be needing to spend a lot of money on changing the oil once you have purchased the car so this should not be a deal-breaker.
  • Transmission fluid – Take the car for a short drive and pay attention to the performance of the transmission. Transmission fluid should be pinkish in color and should not have any metal shavings or particles in it. If there are, it could mean trouble and maintenance. Many lots won’t let you test drive the car so it may be difficult to do so.
  • Listen to the engine – There should not be any shrills or knocking. If there are, try to accelerate and see if the knocking gets worse. If there is, you may need to stay away from that car.
  • Pay attention to the shifting – When you’re doing your test drive, feel the shifting. It’s a sign of transmission issue if the car seems to be shifting weird in any way.
  • Check everything that has power – This includes the interior lights, taillights, headlights, instrumental panels, radio, sunroof, locks, seats, mirrors, wipers, and windows. Any issues, regardless of how small, could add up to repair.

Run a Security Check

The last thing that you would want is to buy a stolen car. To make sure that the car was legally obtained by the current owner, run a Vehicle Identification Number (VIN) with SaferCar.gov and National Insurance Crime Bureau. Both of these services are free. NICB contains up-to-date and accurate information about car theft. Run the vehicle’s VIN on SaferCar.gov to quickly check if it has not been repaired as part of a safety recall in the last 15 years. Carfax can also provide a vehicle history report, including changes in ownership or any previous accidents.

Seal the Deal

handshake

If everything is looking good and you want to go ahead and close the sale, focus on the paperwork next. Ask the title from the seller along with some IDs. You would want to make sure that you are buying from the correct title-holder. Then, ask the seller to sign the seller’s part of the title.

Aside from the title, make sure that you also get a copy of the receipt or some sort of bill of sale written and signed by both parties. The bill of sale should include the VIN number, sale price, and date as well as the description of the car.

Before you complete the deal, make sure that you have the car’s manual, service documentation and keys. Then, hand him the money, shake hands and drive the car away.

Fixing a Used Car

You have purchased the car, with all its flaws and imperfections. Now it’s time to fix the flaws and polish the car. The thing is, you can fix the used car without having to empty your pocket.

Check for mechanical issues

To be a successful car flipper, you must know how to make the car attractive to prospective customers.

The first step in fixing your purchased car is diagnosing mechanical issues. You would need to look for a cost-effective and reliable way of diagnosing potential problems.

You don’t necessarily need to go to a repair shop when you sense an issue. You could end up paying for repairs that you don’t need. Instead, do your own research first. You will find it easier to detect mechanical issues as you gain more experience and confidence.

A car diagnostic tool is also helpful in identifying potential problems. You just simply plug it into the car and it would do the work. This is a good start to give you an idea of what you might be up against and avoid getting swindled by seasoned mechanics.

Set a Budget for the Repair

Estimate a budget for the repair cost. You should also stick to the budget for the entire job. One of the biggest factors that would set your flip’s repair is the car’s problems. Bigger problems would also mean bigger repair bills. This is why it’s necessary to thoroughly inspect the car before you buy. Other key factors that you would need to consider in setting your repair budget are the make and model of the vehicle, your target profit, and the prevailing repair costs in your area.

Choose your Repair Shop Wisely

Scout your area of repair shops and collect repair quotes. Choose the shop that offers affordable price yet quality work.

How to Sell Your Flipped Cars

car for sale

Now that you have made the necessary repair and improvements in your car, it’s time to flip it for maximum profit. Here are some tips on how to sell flip cars:

Set a Price

How do you set the right selling price?

You would need to add up the buying cost, repair cost, cleaning costs, and administration cost. Then consider the profit margin before want to make and add that into the price. For example, if you purchased the car for $2500 and spent $500 on repairs, plus $200 to get the car detailed and another $250 in administrative costs, you should sell it for at least $4450. A $1000 profit gives you a 22% profit margin. This profit amount is quite good for a newbie.

But of course you need to understand what the market can bear. If all other cars of the same make and model are selling under $4000, you may have a very hard time selling the car. This is why it’s so important to understand your costs and the resale value of the car before you sink too much  money into it and then not have enough room to make any profit.

How to Sell Your Cars and Make Money

You have worked hard in improving the used car that you bought, so now comes the fun time of making money for all your hard work.

Create Your Listing

When creating your listing, you must remember that a good car sells itself. Don’t push the sale too hard and come off as a salesman. If you sound too desperate, buyers would think that there are problems with the car and you just want to get rid of it.

Your listing should include great pictures that follow the format of the platform. You may want to take a 360 degree video of you vehicle to entice buyers. Highlight all notable features and provide a general description of the car’s condition.

Venues to Sell Your Car

Digital exchanges

If you want to reach a wider audience, then using the digital platforms to advertise your car is a great idea. Craigslist is the best option to sell your car. There are tons of potential customers who are constantly on the lookout for great cars to buy. Autotrader and CarGurus are also excellent platforms to sell your flip car.

Don’t forget to include your phone number in your listing. An eager buyer prefers calling the seller directly rather than sending an email.

Empty Lots & Bulletin Boards

Renting a space on an empty lot on a busy highway is a great alternative for advertising your car. Contact the business owner and strike a deal with him.

You can also reach out to potential buyers by using bulletin boards to display your flip car.

Closing the Sale

You should consider negotiation for the final price. Set a price of 10% to 15% higher than the market value. So if a smart buyer talks you down, you have plenty of room to get your desired price.

If you don’t think that you’re getting a good deal though, be willing to walk away. As long as you’re not rushing the sale, wait for the right customer that will bite your asking price.

Once you and the buyer have agreed on the price, prepare all paperwork such as the service records, receipts, title, etc.  A hassle-free transaction always leaves a positive impression.

Final Words

Flipping cars for money is not an easy job. It requires getting your hands literally dirty. You would also need to allot time in buying the right used car and getting it fixed and improved so you can sell it at a higher price. But there is nothing hard when you enjoy what you are doing. After all, flipping cars is an excellent type of side hustle.

Start your flipping car business by getting your hands in Samuel Page’s Flipping Cars eBook. It provides a step by step guide on how to buy and sell used cars for profit.

Author
C. James

C. James is the managing editor at Wealth Gang. He has a degree in finance and a passion for creating passive income streams and wealth management.

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