Property flipping is a viable business idea that involves taking properties and selling them for profit. Everyone is familiar with this concept; you make improvements to the properties to increase their market value, thus creating a profit margin. The intriguing thing about this idea is that you can apply it to other things. Instead of flipping properties, why don’t you start an auto business that flips cars?
It’s the same concept - the only difference is that you’re buying and selling cars for profit. However, there are many considerations before starting a business like this, and we’ll go through the key steps involved to maximize profits. Before that, let’s look at the possible pros and cons of car flipping.
Benefits & Drawbacks of Starting a Car Flipping Business
Many of the benefits and drawbacks of setting up this automotive business will compare with a property flipping business. Why? Because the two approaches are extremely similar, you’re just dealing with a different type of asset.
With that in mind, here are some key points to know about flipping cars - and we’ll explain if these are positives or negatives:
- Cars are relatively affordable to purchase
- Cars tend to depreciate in value
- There are lots of ways to upgrade a car
- There’s always a hot market for buying cars
Cars are relatively affordable to purchase
Investopedia reports that the average new car costs $48,397, while the average used car costs $25,361. Those figures seem a bit high; you’ll easily find many used cars for under $10,000 or less.
Regardless, compare this to the average cost of a house. Median sales prices are currently sitting at just over $420,000. A 10% downpayment on a home loan means you’re still spending double what you’d spend on a used car - and you have to repay the loan!
All in all, the affordability of cars is beneficial for this business idea. It gives you a chance to go in with fairly low upfront investments, which can open the door to some decent profits.
Cars tend to depreciate in value
Most cars will lose 15% of their value every year. Initially, this sounds like a huge drawback - and it can be. If you buy the wrong car, you’ll immediately suffer a loss and struggle to get all of the money back.
Nevertheless, car depreciation tends to stagnate after the five-year mark. In other words, if you buy a five-year-old vehicle, it’s likely to depreciate less and less over the coming years. Car depreciation also opens the door to finding some amazing bargains for you to upgrade and sell for a profit.
So, yes, depreciation is a slight drawback in some senses, but it’s more about learning what types of vehicles to invest in - and we’ll talk about this later in the guide.
There are lots of ways to upgrade a car
Vehicles are easier to upgrade than houses. People will sell their cars for an extremely cheap price because there’s one lingering issue that they don’t want to pay to fix. For someone with the right knowledge, this fix requires a few hours of work to create an improved and upgraded car that’s immediately ready for resale at a higher price.
The same goes for general car upgrades; you’ll find loads of ways to upgrade and improve used cars.
Spend a few hundred dollars on improved exhaust tips to help the car generate more power and make a nicer noise. Swap out the air filter to improve engine performance, or simply clean the car from inside to out so it looks showroom-ready again. These upgrades add serious value to your used car because they make it better than it was when you bought it.
You can take a car and change almost every element of it to boost its value and make a profit, or you can swap out one or two small things. The fact there are so many ways to upgrade a car is highly beneficial for this business idea.
There’s always a hot market for buying cars
People and businesses will always need to buy cars and vehicles. It’s still the number one way to get around - and the used car market always thrives. We see many trends in auto retail, but people will always want to buy used cars for affordable prices because it’s the most cost-effective way of obtaining transportation.
Therefore, you can make an argument that the demand for cars makes this an even more profitable business idea. You’re sure to find people willing to buy your vehicles, but there’s a big caveat! The demand also means you deal with lots of competition, so you must keep this in mind and figure out ways to set your cars apart from the rest.
How To Make Money Flipping Cars
Making money from car flipping is a simple case of following these principles:
- Find the right cars to buy
- Make cost-effective improvements
- Sell your cars in the right places
Find the right cars to buy
We touched on this earlier, but what are the “right” cars to buy for flipping? You can pursue two approaches here:
- Find great-value used cars—This relates to any used car being sold for way below its worth yet easily restored to its former glory with a few improvements.
- Look for iconic cars people want - Here, you’re focusing on cars that some people find special. This includes iconic classic cars like a Mini Cooper or some of the very old Mercedes saloons.
You could even throw old supercars into this category; you want vehicles that are so iconic they almost never depreciate. If anything, they go up as fewer of these cars appear on the market.
The first approach is likely the most affordable for a small startup business. It won’t cost too much to find used cars for cheap and then do them up with some great upgrades. The second idea works whenever you find a car that falls into the category.
If you manage to locate a classic car for a decent price, it’s worth buying it and then either making a few improvements for a quick sale or holding onto it so it grows in value and rarity.
Make cost-effective improvements
Realistically, the key to this business idea’s success lies in the improvements. You can’t flip cars for a profit if you either:
- Don’t make the right improvements or;
- Spend too much money on improvements
We noted a few good improvement ideas already: changing exhausts, swapping air filters, cleaning the car, etc. You need to make some calculations before buying the car to work out (roughly) how much the upgrades cost.
If you buy a car for $5,000 - but it would only cost you $1,000 to make it worth $7,000 - then you’re getting a $1,000 profit overall.
How do you know what improvements to make? Look at the current market and see the going rates for the car you’re interested in. If yours is the same model and year as another - with roughly the same mileage - yet the one you’re buying is $3,000 cheaper than the other, then you know there’s room for profit, especially if people are buying the same car for the more expensive price.
One pro tip is to try and do as much of the work as possible without involving outside help. That’s why this business idea is excellent for experienced mechanics or car hobbyists who know how to fix vehicles and install upgrades. You don’t have to pay people for the labor work; all you worry about are the costs of new parts.
Sell your cars in the right places
Lastly, make sure you’re selling your upgraded cars in the right places. Here are two places you should never try to sell a car for profit:
- Auctions
- Car-buying websites
Auctions leave things up to chance - ironically, they’re the best place to buy your used cars and snag serious deals. Genuinely, you can purchase great cars for thousands of dollars below their market rate at auctions.
Car-buying websites give you instant cash valuations and quick sales, though usually for well under what your car is worth. So, what’s the best way to sell your car for a profit? List it online and go direct to the consumers. This puts you in control of the asking price and leaves room for negotiations.
Pro tip: always list your car for more than you’re willing to sell it. On the off chance someone takes this offer, you’ll get a huge profit. The goal is to list high and haggle down to the price you’d realistically be happy with.
It makes the buyer think they’ve knocked a grand off your vehicle, so they walk away telling everyone how great the deal is. In reality, you were always willing to take $7,000 for the car instead of $8,000, as it means you make a huge profit anyway.
To conclude, setting up an auto business and flipping cars for profit can be a viable startup idea. It’s particularly smart if you know a lot about cars and have worked on them before. Find the right used cars for the right prices, make cost-effective improvements, and then sell them for some big earnings!