Flipping stuff is one of the most common and potentially most profitable businesses around. People flip all kinds of stuff, houses, TVs, clothing, stuff from yard sales, stuff from liquidation stores, the list can go on and on. I myself ran a business in college buying and selling electronics (mostly gaming systems), and in high school I flipped Beats headsets (until discovering they were fake).
In college I got significantly more involved in auto-mechanics, I gradually became the family mechanic and picked up a part-time job at a German automotive repair shop. After I graduated college I figured I could make some extra money by flipping BMWs. My first couple of cars did not go exactly as planned but luckily I eventually learned how to avoid pitfalls and maximize profits.
In this article I want to discuss some of the mistakes I have made in flipping cars and things that I have learned along the way. I also want to give you some tips about how you can avoid having to learn a lot of these lessons “the hard way” and make more money in the process!
Dealer Licensing Requirements
Before I get into the nitty gritty of how to flip cars successfully I want to briefly discuss the legal aspects of car flipping. I am sure you have heard of a “dealer license” but many people are unaware of when the casual car flipper becomes required by law to obtain a dealer license. Unfortunately the laws are all over the place depending on the state you live in. I recently wrote an article that featured an up to date list on all fifty states requirements for when you have to obtain a dealer license. Some states like George and Oklahoma require a dealer license for buying and selling a SINGLE CAR with the intent to profit! Other states such as Vermont which allows for individuals to sell up to eleven cars, and North Dakota which does not have a set maximum of car that an unlicensed dealer may sell, are far more permissive in their allowances for unlicensed dealers.
The name of the game here is to be familiar with how many cars you can legally buy and sell without a dealers license in your state.
Is Flipping Still Worth Your Time?
It certainly could be. The most common state maximum is five cars. It is common for a good car-flip to be well within the $2000-$3000 profit range. At five cars a year that is a really nice piece of change for most people. Of course I would like to stress that profits you take out of cars vary tremendously depending on the specific vehicle and the unforeseen repairs that may or may not arise out of the vehicle.
Be Careful About Trying to Avoid the Rules
The automotive industry is heavily regulated and flipping cars is no different. States take their automotive regulations seriously. Over the years I have seen people do different things to try and get around the dealer licensing requirements. Some people do “title jumping” which is the act of buying a vehicle and selling it without ever registering the vehicle in your name or signing the title. Title jumpers avoid the vehicle maximum because there is no record of the flipper ever owning the vehicle. This may sound attractive and I will candidly admit that it is a common practice. However title jumping is illegal in every state, and it typically carries a civil penalty along with a criminal misdemeanor penalty. Even if you buy a car and then sell it the next day you are still required by law to register the vehicle in your name.
Well is a Dealer’s License Worth It?
Generally the answer is a HELL NO for the vast majority of people. Dealer licensing requirements vary state to state but they typically require that you have insurance, pass a background check and meet zoning requirements. Most states also require that you purchase a motor vehicle dealer bond and there is a dealer licensing fee. Some states have significantly more stringent requirements that effectively remove anyone except career car dealers for licensing.
I never got a license because I did not enjoy flipping cars enough to be interested in operating a full-time dealership, however your situation may be different and it may be easy to obtain licensing in your state so I leave it open as an option.
On to tips and tricks that I have learned flipping cars…
You Need Cash
Many auctions take credit card, but Joe from Facebook Marketplace is not going to accept a check for $5,000 so you will likely need some upfront cash. I started off with only $600 but I strongly recommend against this because as you will see my first car flip was just barely saved from disaster. Don’t forget to also have some extra cash ready for after you purchase the vehicle. Unexpected repairs, maintenance and advertisement costs can run up the amount of money you will need.
Where to Look
One of the most important components about flipping cars is finding the right car at the right price. If you can’t do this than you might as well throw everything else out the window. Well in order to find a good deal you need to be looking in the right places. Here is a list of the resources I most commonly use to find cars to sell.
It is amazing how fast the used car market is changing. When I first started buying and selling cars six years ago the most common place where I found cars was on Craigslist. Fast-forward to 2020 and Craigslist is not what it used to be! Listing a car for sale on Craigslist now costs $5 and there are far fewer vehicles available. To make matters worse, the amount of fraud is utterly ridiculous and Craigslist’s seeming inability to put a dent in it has driven people to greener pastures. Craigslist is still a good buying tool that you should be keeping in your arsenal, just do not expect it to be the goldmine of used car deals that it was in the past!
So what avenue do I most frequently rely on to flip cars in 2020? My favorite online tool nowadays is Facebook Marketplace. It took a few years for Marketplace to really garner some popularity but there are now TONS of listings and buyers on Marketplace. Marketplace resolves many of the issues commonly found on Craigslist such as fraud and having to give out personal information. You can check out an article that I recently wrote here on buying and selling cars on Facebook Marketplace.
Letgo & Offerup
When these applications first started emerging I had my doubts about their utility regarding the used car market. However they have become increasingly popular, especially among the younger generation. Nowadays around 1 million used cars are added to Letgo every month. As of this writing Letgo has significantly more users than Offerup does but that does not mean that you should ignore Offerup completely.
Car auctions can be an excellent option however I have found that they vary considerably in quality. First, many car auctions are open to licensed dealers only. As a part-time flipper I was never allowed through the door to one of these auctions. I have attended several public auctions over the years and I have found that they are only worth my time when I check the listings beforehand. Not all public auctions give bidders the chance to check out the listings before the auction occurs. Unless you are an expert on a variety of different car values I would stay away from these auctions.
There are some serious setbacks to buying cars at public auctions that you should be aware of. The vehicles are always sold as is and many auctions do not allow you to test drive the vehicle before you pay for it. This opens you up to additional repair risks that you may have discovered had you driven it. Another issue is that auctions are not necessarily the best places to find good deals. I used to frequently see cars at car auctions sell for little under what they would pull at retail value. Therefore you should be very familiar with the price and condition of the vehicle you are looking for before you go to an auction.
Markets Can Vary A LOT
Something that I have discovered overtime through flipping cars is that geographic markets can vary tremendously. My automotive flipping and parting out business has always exclusively focused on the 3 Series BMW. Because of that and my habit of searching for deals when I am on vacation I discovered that the South Carolina market for 3 Series BMWs was significantly cheaper than North Carolina (I reside in NC). Of course in hindsight this makes sense because BMW’s U.S manufacturing plant is in South Carolina. However I have used this information over the years to my advantage by purchasing the majority of my flip vehicles in South Carolina and then reselling them in North Carolina.
You can use this same tactic by taking a look at listings on Facebook Marketplace and Craigslist that are a few hours drive away from you. If you see a pattern of different prices than you likely have a variation in the market. If the variation is significant enough you can take advantage of it by buying in the low priced market and selling in the high!
**Another cool thing I noticed on a trip to Florida is that BMW convertibles were DIRT cheap compared to NC. I assume that this is because luxury convertibles are so ridiculously common in Florida, but I have taken advantage of this huge discrepancy twice now.
Targeting the Type of Car
As I mentioned above I target specifically 3 Series BMWs. When I first began flipping cars I exclusively bought E36s (90s models), then I moved to E46s (early 2000s), and then I added E90s to my repertoire (late 2000s). There are several good reasons why I am not a “generalist” and why I recommend that you specialize in a couple of models like I have.
First off I do not claim to be an expert mechanic that can work on everything under the sun. Sure, I can figure out how to work on just about anything but that takes TIME and time is money when you are running a business. I have replaced so many coolant systems, valve cover gaskets, starters and VANOS units on 3 Series BMWs that I can pretty much do these jobs with my eyes closed. But give me a Toyota or a Honda and it is going to take me forever because I have not repaired one before. Being able to perform a wide variety of repairs on a vehicle you are flipping gives you a lot of extra flexibility.
Second, it is extremely difficult to be a true expert on more than a couple of car models unless you work on cars for a career. Why is it important to be an expert? Because as you become more accustomed to flipping a certain type of car you learn more about the market for it, what price people are willing to pay at what mileage and in what condition. You learn about the kinks in the specific models and what problems to specifically look for in that year. What all of this means is that you will inadvertently avoid pitfalls that less educated buyers would fall into and all because you are extremely knowledgeable on that specific vehicle.
Consider Flipping Something Else If You Are Not Comfortable Repairing Cars
I am not saying that you have to be a career mechanic to be a successful car flipper however I strongly suggest that you be comfortable with repairing cars before you try and flip your first vehicle. I understand that other people may tell you that you do not have to repair the car yourself to make money, but after years of doing this I will tell you that it gives you a TON of FLEXIBILITY.
What happens if you pay $2000 for a car and discover several weeks later that the transmission is beginning to fail and a replacement will cost $1800? There went your profit, HELL you might even lose money, but if you can do the job yourself you can probably replace the transmission for $300-$600 in a day and save a ton of money in the process.
Stay Away From Cars That Are “Too Cheap”
My first flip (if you could call it that), I would probably call it an “attempted flip”, was an interesting experience. At the time I was pretty close to broke but I had like $600 bucks in the bank and I was confident in my mechanical skill at that point. So I surfed the Craigslist for-sale ads until I found a beat up 1996 BMW 328i with 130k miles on it and a blown head gasket. I figured I could get the car for $500, fix up the car for an additional $300-$400 and sell the car for at least $2500.
Well it did not work out that way, first off the car ended up needing significantly more work than I had assumed it would and to make matters worse I did not check the status of the title as diligently as I should have and I later discovered that the title was bad. I also discovered that remedying the title defect was going to cost me a significant amount of time and money.
The general lesson I try and give people from this situation is to stay away from cars that are too cheap. $500 cars are listed at $500 because they are the very bottom of the barrel, many of them do not run, and the ones that do run usually have a serious problem like my 328i with the blown head gasket, mismatched paint job and defective title. $500 vehicles will almost always need more repairs than you expected, and it always takes significantly more of your time to get these cars into sellable condition.
But There is a Caveat
Something ironic about my years of car flipping is that my first big mistake with that $500 car also ended up being my most profitable. So what did I end up doing with that junkbox? Well the vehicle only had 130,000 miles on it so many of the components were in relatively good working order. So instead of selling the vehicle I ended up parting it out. This became my first part out car and it was a lengthy learning experience, but it was also quite profitable.
I ended up making more than $3000 off of that vehicle by selling off the working parts, you can check out how to make money parting out cars here. If you are parting out cars than my advice is completely different and I would strongly advise that you focus on vehicles in the $500 range.
Stay Away From Cars That Are Too Expensive
How many people do you know walking around with $30,000 in cash that they can blow on a used car? Not many and if you do there is a solid chance they are dealing drugs. As I mentioned above you want to stay away from vehicles that are too cheap because of the numerous problems you are likely to face in making a profit. On the flip side, you don’t want to be buying cars that price out a significant portion of private buyers. With car flips I personally stay in the range of $1500-$5000 and I very rarely veer from that range. I suggest that you find a similar range because higher priced vehicles become far more difficult to sell.
Inspecting the Car
You will never make any money flipping cars if you cannot tell a dud from a diamond in the dirt. I inspect all of the vehicles that I purchase, I do not use a mechanic for pre-purchase inspections. I strongly recommend that if you are comfortable with automotive repair that you perform the inspection yourself because you will save quite a bit of money. Check out my YouTube video on pre-purchase inspecting used cars.
Getting the Best Price for Your Vehicle
There are a number of things you should be doing to speed up your turnover rate and maximize the price that you get for each vehicle. I am going to list a few quick tips, but if you are interested in a more detailed article on getting the best price for your vehicle click here.
1) List in multiple places – Craigslist, Facebook Marketplace, Letgo, etc.
2) Clean and wax the outside and clean the interior.
3) DO NOT TRUST KELLYBLUEBOOK. KBBs recommended price can be so far off your market it’s not even funny! I know this, I have experienced this. The price for E36 BMWs and E46 BMWs frequently sells for at least $1,500-$2,500 more than what KBB says it should. You can check what KBBs recommended price is but do not rely on it.
Final Words on Flipping
I enjoy flipping cars from time to time when the opportunity arises. However I realized early on that my bread and butter was going to be parting out vehicles instead of flipping them. Luckily there are various avenues that you can take in the automotive business and hopefully this article has helped you toward your first successful flip!