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Garage Love: Five Things About Flipping Cars

by Per Schroeder

Before there were car dealers, there were horse traders. Find a horse, brush it down, put new shoes on its feet and send it on the way to a new owner. Repeat as often as necessary to make ends meet. Of course, there are a lot of shades of grey between horse thief and glue salesman.

Here are five tips that can help you make some extra income buying and selling cars.

Get Straight With The Tax Man

From the starting line, you have to decide how you’re going to handle whatever profit you make on flipping cars. Your federal and state governments will consider any net profit you make after expenses a taxable income. That said, there are a lot of potential deductible expenses to declare on your taxes.

 

Their website might look friendly and warm, but don't kid yourself—if you start making money on cars, you'll need to declare that income.  

Your state government will also be concerned with whether or not you qualify for dealer status. If you buy and sell more than a certain amount of cars during the year, you might be required to have a dealer license and insurance. A bonus of this is that you could then qualify for dealer or transporter tags to help you move cars around without registering them. Get it right or run the risk of the consequences. 

Yes, we know you can probably get away with it at smaller profit levels, but money is very easy to track in your bank account.   If you want to keep it on the sly—cash is king.  

Specialize

Have you ever noticed that small car lots specialize in a certain make or type of car? They do this because it is helpful to focus energy on finding and fixing cars that you are familiar with. Do you know the ins and outs of Hondas Civics? Start by looking for those first. Other appliance cars like Accords, Camrys or minivans are especially good to start with—they are well liked and often searched for. The only downside of popular cars like that is they are harder to find cheaply.

 

You can even specialize in just finding donor cars for racers.  This NB Miata is a decent starting point for a Spec Miata project—that hardtop alone is worth $1k.  Get the car for a few bucks less and you're in the money.  

It is especially helpful to go one step further and hone in on one specific generation of car that’s got good resale. You can spot common problem areas or issues and know how to fix them before you get in over your head. As tempting as it may be, specializing in sports cars can be a gamble. Your business will be highly seasonal and easily dampened by market downturns. On the upside, come Spring, everyone wants a convertible! 

 

911s are increasing in value rapidly—even Sportomatic versions are selling for real money these days. A sale can be as easy as putting a piece of paper under your wiper at a Cars&Coffee event. 

It’s In The Buy

The profit of a car flip is often in the buy. That is, the skill and luck that is involved in the used car business is in finding a car that you can make a profit on, rather than the work or money you put into it once it’s in your driveway. You’ll need to obsessively hunt for potential projects online and around town, but don’t fall in love with any one particular car. If you can’t get that gem for a good price that gives you some meat in the sale, walk away. There’s a reason that car dealerships will skin you alive using the Black Book (which uses the very low wholesale auction values for trade value.) The trade-in buy is where the much of the money is made at a dealership.

You can use your location in the country to your advantage. If you live in the rust belt where cars become sacrificial anodes in a few short years, look at rust-free cars from the South as that’s a great selling point. Down South, all-wheel-drive cars won't fetch the same premium as up North.

 

 
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Comments
Protodad
Protodadlink
Friday, May 30, 2014 5:16 AM
Cool article. It used to always be a dream of mine to purchase a car cheap and sell on the side to make some quick cash. However, living in Southern California has helped to quickly destroy those dreams. I have had a few gems that I pick up here and there not running and can sell them once they serve their function, but most have been beaters to begin with. Once you start searching for cars with no issues to simply flip, things go downhill fast.

Not that KBB is the authority anymore, but it is quite clear that the entire market I am familiar with (compacts and imports) is completely flooded with people who don't understand economics. Instead of undercutting the next guy when going to sell a car, it seems that most of these people think to themselves "well, since this guy has a similar car listed for $4000, and mine is in the same condition, Ill list it for $5000!". And so on and so on until the entire LA area craigslist is flooded with 200k mi, salvage Honda civics that need some work for $5000.

BMWs are just as bad. Sure there are a few 328i's out there with 200k miles on them that the owners are letting go cheap (usually autos) but there are many more tired old bavarians made in the late 90's that KBB for $1500 and people want $6000.

Sorry to rant, in the last 30 days I just went through buying and selling an RX8 (very cheap these days) and buying a Fit and the process was pretty trying. I think anywhere but CA flipping cars could be a dream job.
Dusty Duster
Dusty Dusterlink
Friday, May 30, 2014 5:37 AM
I like the idea of rebuilding just parts and selling them. Less overhead, less storage required, and far fewer fees and taxes involved. Being unable to "flip" a vehicle in a reasonable timeframe can cause problems with insurance, taxes, and space to store it. I can just store parts in my basement/garage.
Per Schroeder
Per Schroederlink
Friday, May 30, 2014 6:53 AM
The sport compacts everywhere are hard to find unmolested--so typically, I wouldn't recommend them as modified is rarely as sellable as stock. That said, if you *do* find a stock Civic EK hatch--jump on that :-)

Hasbro
Hasbrolink
Friday, May 30, 2014 7:40 AM
Ahhh, when I saw Per Schroeder was the author, I signed up and put MotoIQ on my bookmarks bar. All of his stuff is worth reading. Consider me a regular!
Per Schroeder
Per Schroederlink
Friday, May 30, 2014 8:07 AM
Thanks Hasbro! Now go out and spread the word!

Hasbro
Hasbrolink
Friday, May 30, 2014 12:06 PM
You, of course, have a large following with the GrassRootsMotorsports.com people. As Andy Samberg would say," That's high praise".

(your first week at GRM, you came out of the office to check out my Elva Courier on a trailer. Nice chat, been a fan ever since)
OverZealous
OverZealouslink
Sunday, June 01, 2014 7:37 AM
One thing I quickly recognized trying to flip a new Beetle in pristine condition was how off setting registration is. To be able to legally drive a car it needs insurance, to have insurance the car needs to be registered, to be registered you pay a hefty registration fee and sales tax. Maybe this can be avoided if you've got a dealer's license but at the time I didn't have one and in the end I broke even. :(
destrux
destruxlink
Monday, June 23, 2014 10:43 AM
I paid my bills through college buying used turbos and DSM parts at the junkyard, rebuilding them, and selling them on eBay (back when eBay fees were reasonable, the used parts market wasn't flooded, and there were lots of DSMs in the junk yards). I was making more money doing that then I was at my full time job delivering for the local NAPA.
Spectre
Spectrelink
Friday, November 20, 2015 11:00 AM
New to the site, so I have been going through a lot of the older posts here. I have to say, trying to just sell a car here in coastal South Carolina is hard enough. Well, given that most don't seem to know much about the 93 Spirit and its Mitsubishi 6G7. I try to do all I can for the vehicles I have, but when one comes up I need to sell, never seems to be any kind of a market for it.
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