Making A Profit From Cars

For a while now, I’ve been meaning to write a blog about how to get a great deal when buying a car.

 

I have bought and sold dozens of cars in the past 15 years. It even became a joke among my friends that everytime they see me, I have a new car. Flipping cars helped me get out of debt and start saving money. I think the reason I flip cars is not only because I know cars very well (which makes me good at it) but also because when I was growing up, my family could never afford a nice car. So it made me feel good to be able to buy many cars.

 

I learned a lot from those dozens of transactions. I made some good deals, some great deals, and of course some bad deals. I made mistakes along the way and I learned from them. If you want to flip cars to make a profit, there’s certain things you can do in order to get the best deal. To make a profit, it’s best to deal with used cars and not new cars. But I will also give you some tips if you just want to get a great deal on a new car.

 

Personally, I was buying these cars to flip and make a profit. Or at the very least, drive them for a few years for free. What do I mean by that? I mean, if you can negotiate and get enough money off of the blue book value, you can drive the car for a few years and then sell it for the blue book value when you’re done. Essentially paying nothing to drive the car for a few years, except the cost of gas and maintenance, of course.

 

Whether you are buying a new car or a used car, research is your best friend. There are many online tools that allow you to search prices and availability. These sites can also help you gauge what you might be able to sell it for. Anytime I am planning to buy a used car, I spend at least 2 weeks doing extensive research on that car.

 

I check online to see how much they are selling for and if there are many of them for sale or are there only a few for sale currently. Simple supply and demand. After my research, I will have a number in mind that is the most I will pay for the car. I usually base that number on what I can sell the car for tomorrow, if I had to. KBB.com and Autotrader.com are two of my favorite sites to use when researching cars.

 

I usually find used cars locally on Craigslist.com. As soon as I meet the seller, before I even start looking over the car or negotiating, I ask them what is the best price they can do. Usually they will drop a few hundred dollars right off the bat. Now, that’s the point where I actually start negotiating.

 

I look for every possible flaw that I can find and ask for a price reduction because of that  that flaw. I know roughly how much certain things cost to fix and repair so I can ask for a set amount deducted based on what the flaw is. If you don’t know this info, add it to your research before going to meet the seller.

 

If it is a higher end car, I will always try to get a full inspection by a 3rd party mechanic/dealership. Common practice is to pay that fee on your own or you can negotiate with the seller to split the fee and agree to buy the car as long as no problems arise from the inspection.

 

There are a few other things I try to do for every used car purchase. Things like calling the DMV and asking them to run the VIN number through their database just to make sure it’s not stolen and the title is clear. I also call my insurance company with the VIN number to see how much my insurance would go up if I added that car to my policy. I don’t want any surprises there. Even if you don’t have the exact VIN number of the car that you are thinking of buying, most insurance companies will give you a rough price quote based on the year, make, and model.

 

I broke my rule once because I was impatient. I had driven 2 hours to buy a car. Everything looked good and I was able to get a good deal on it but I didn’t do a full inspection with a mechanic or dealership before buying it. It turns out the engine needed to have a lot of work done. I did eventually sell the car but I had the car (and that money) tied up for much longer than I wanted to since I had to repair the engine before selling it.

 

Buying a brand new car usually isn’t a smart idea if you are trying to flip it and make a profit. Generally speaking, once you buy a car and drive off the dealership lot, it immediately loses its value. The sweet spot is a car that’s 1-3 years old. That way you let the original owner take the depreciation loss and it’s still under factory warranty, just in case. That’s where the best savings are.

 

Even If you are thinking about buying a brand new car you still need to do your research. If I’m buying a new car, I always look online and do my research on sites like Truecar.com  to see what the car is selling for nationally and locally. Then what I do is email all of my local dealerships and begin negotiating via email. I will also use one dealers best price as leverage against another dealer to see if they will lower their price even more.

 

Once I choose the car and we agree on a price via email,  I will go into the dealership to sign and finalize the deal. I never set foot on the dealership property unless it’s just to sign the paperwork and pick up the keys.

 

A side note: everything at a dealership is negotiable. Including a lease. Many people don’t know that leases are negotiable. They absolutely are. You can negotiate on down payment, monthly payment, lease terms, annual miles, and so on. I believe the only thing set in stone on a lease is the residual value because that’s set by corporate.

 

For those of you that don’t know – when you lease a car you are essentially paying the difference between the cap cost (the price of the car) and the residual value (the expected value of the car at the end of the lease) spread across the lease term (most common is 36 months). There are even interest rates on a lease that the financial arm of the dealership charges you as a sort of carrying cost. That is referred to as the  money factor in a lease and yes you can negotiate that as well.

 

When buying, I also recommend to secure your own financing through a bank or credit union. While dealers do have many banks in their network, they also make money off of you this way. For example, if you apply for a car loan at a dealership and one of their banks approve you for a 2% interest rate, they will tell you that you qualified for a 2.5% interest rate and they make profit from that extra interest on your loan.

 

So it’s always cheaper for you to get your own financing. When you get your own financing, you will know the total amount being financed, the term of the loan, and the interest rate. There are even online calculators to help you estimate your loan amount and monthly payments. You also need to know your credit score to determine the interest rate that you qualify for.

 

Here’s the site that I like to use to estimate payments. Bankrate.com. If you do decide to try your luck and finance through the dealer (which I don’t recommend) you should at least go online first and estimate roughly how much your monthly payment should be based on the price of the car and the loan term.

 

Dealers will always try to negotiate with you on the monthly payment. For example, they will ask you if you can afford to pay $350 per month. Focusing on the monthly payment is a tactic that they use. In order to get the monthly payment down, they are not lowering the price of the car, they are increasing the term of your loan. For example, a $20,000 loan at 3% interest for 48 months would be $443 per month.

If you tell the dealer you can’t afford those payments, they will often come back and say “great news, we got your payment down to only $359 per month !“ The way they did this is not by reducing the price of the car but by increasing your loan term to 60 months. So, never focus on the monthly payment. Always focus on the total price of the car, the interest rate, and the loan term. The monthly payment is just the result of those 3 factors being calculated.

 

Lastly, If you have a car to trade in, you can check the value on KBB.com. I recommend you try to sell it privately first because the dealer will often give you much less than what it is worth in a private party transaction.  If you can’t sell it privately or don’t want to deal with the hassle, you should at least bring up the trade in to your dealer last. Once you’ve already agreed on everything.

 

There are absolutely ways to make money off of flipping used cars and ways to save money when buying a new car. Even though these tips are about buying cars, they can be applied to many other things. Because just like everything else in life, you need to do your research and use all of the information available to you in order to make the best decision possible.