Though technically not part of the buying process, cleaning the car is a non-negotiable step for anyone looking to maximize their post-flip profit. Since they’re sold as-is, auction cars require special attention. You’ll want to:
Once you’ve done thorough due diligence, cut to the chase. If you’re buying at auction, bid on the car when it comes up. Remain unemotional: The quickest way to destroy your margins is to get into a bidding war that pushes the sale price past your top dollar. If other bidders want the car more, let them have it. There are plenty more on the lot, no doubt. In a private party sale, try to drive the seller down to their bottom dollar (or below). This is where knowing how to spot motivated sellers comes in handy, even without a clear giveaway like “OBO” in the listing. Ask the seller why they’re parting with the car. If you’re lucky, they’ll reveal (probably indirectly) that they’re trying to raise money or need to sell fast in advance of a long-distance move – sure signs that they’re willing to budge on price. While it’s harder to walk away from a private deal when you’re face to face with the seller, the same “unemotional” logic applies here: It’s better to abandon a transaction in progress than to get stuck with a bad deal. You’ll find a better flip.
If you’re buying in a private party sale, run its Vehicle Identification Number (VIN) with the National Insurance Crime Bureau and SaferCar.gov. Both are free. The former has accurate, up-to-date information about car theft, and can tell you whether the car was legally obtained by the current owner. The latter, a service of the National Highway Transportation Safety Administration, can tell you whether “a specific vehicle [e.g., the car you’re trying to buy] has not been repaired as part of a safety recall in the last 15 years.” You can also pay for a vehicle history report at Carfax, which shows changes in ownership or title, and any previous accidents.
This is another question that can help you avoid a value trap. “I’ve found that when a car sits for too long, things tend to break shortly after it gets running again,” says Jones. “Be prepared to fix more than you might have expected,” especially if you’re buying older, underused cars. In other words, low mileage doesn’t mean low maintenance.
After you’ve looked inside and out, pop the hood. According to Jones, the engine compartment’s general appearance is a key tell. “Cars with dirtier engine compartments tend to need more work,” he says. In other words, dirty engine compartments don’t bode well for your margins. At a private party sale, you’ll have plenty of time to check the car’s vitals. (Let the seller know you plan to do this beforehand. If they get antsy on the day of, that’s a potential red flag.) At an auction, you’ll be much more rushed and face much more competition. Still, you’ll want to check as much as possible of the following for any used car warning signs:
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Next, visually inspect the exterior. Is the car dirty? Wet your finger and run it along the side of the car. If you’re able to wipe off dirt with a single pass or a more vigorous scrub, the vehicle will likely look a lot better once it’s washed. Dirty isn’t necessarily bad – and it may scare off less savvy auction buyers. Thoroughly inspect for more serious imperfections: deep scratches, dings, dents, and rust (which usually appears along the wheel wells unless the car is in an advanced state of disrepair). Depending on the car’s resale value and your ideal buyer, you may need to invest substantial sums to repair these issues before you sell.
If you don’t know how to play, don’t get in the sandbox. Before you hit the auction lot, thoroughly review its rules and procedures. These can be pretty detailed – my local impound lot in Minneapolis has a 14-point rulebook that includes a slew of conditions and bureaucratic niceties, including the “when” and “how” of pre-auction car inspections. If you’re not familiar with the process, you’ll be steamrolled by more experienced auction-goers or, worse, unwittingly disqualified from the event. You also need to know how to legally transfer title and register your car. If you buy at auction, the lot will take care of this, but it’s a critical consideration for private party sales. Transfer and registration procedures vary somewhat by state. When in doubt, consult your local motor vehicle registry before proceeding.
The key to finding great deals on undervalued cars is preparation – and lots of it. Before you hit the auction, use KBB or Edmunds to ascertain fair market private party sales figures for common make, model, trim, and year combinations. This isn’t as overwhelming as it sounds: Most public auctions make inventory public in advance of the big day, so you’ll have time to do your homework, zero in on promising deals, and figure out what they’re worth in a private party sale. (By way of example, here’s what Manheim’s public auction listings look like.) If you’re using Craigslist or another online source, you can research at your leisure, pausing to look up the resale value whenever you see a car that strikes your fancy. You’ll use this fair market value information to find undervalued cars that promise healthy profits – though you’ll need to follow the rest of these tips to avoid selecting a flip that only seems undervalued.
Before you start buying, you probably need to scrounge up cash to match your budget. I say “probably” because many public auctions accept major credit cards. Still, unless you’re running a balance on a low APR credit card, you’ll need the cash soon enough to pay your bill. If this is your first flip, consider setting aside some extra cash – perhaps half your buying budget. That’ll come in handy on your second flip, after you’ve learned the ropes on a burner car and you’re ready to spend more for a healthier profit margin.