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If you’re seeking a new side hustle, flipping cars may be exactly what you’re looking for. If you possess a blend of negotiation skills, salesmanship, and an eye for bargains, car flipping can be a highly lucrative gig.
Keep reading to find out what “flipping cars” is and how to go about finding bargains, avoiding lemons, and making sales.
How to Get Started Flipping Cars
The truth is that you don’t need to be a professional mechanic to make money flipping cars, all you need is a system that will allow you to generate income doing the thing you love.
What You Need and What You Need to Know
First, you’ll need a little bit of cash — typically, between $500 and $4,000 of liquid capital. We’ve found that this is the price range for vehicles that can be flipped at reasonably high margins.
Second, you’ll need access to Craigslist, eBay Motors, a private buyer’s auction near you, or any other source of used cars.
Third, it helps to have solid knowledge of automotive technology. You don’t need to be a licensed mechanic, but if you know the basics of diagnosing or even repairing minor issues with vehicles, that’s a good starting point. If you don’t already have this knowledge, it may be worth it to check out YouTube for some tutorials on automotive maintenance. You can also likely find people in your local area with experience restoring vehicles, either as a hobby or professionally. Building a network of people who are passionate about restoring vehicles can be invaluable in your work — and you’ll make some new friends, too.
Fourth, you should have some experience in negotiation. We’ll discuss the basics of negotiation later in this article. — Negotiation skills go a long way in the car flipping business.
Where You Can Find Used Cars
There are a number of reliable sources of quality used cars. In the US alone, almost everyone drives almost everywhere, and there’s no shortage of used cars that people are trying to get off their hands. The trick is to find those cars that have either been undervalued by the seller or are currently owned by a person who is especially motivated to sell and will lower the price in exchange for a quick sale.
Craigslist is the holy grail of used car listings. While not the most organized of marketplaces, Craigslist boasts free listings and a huge readership. Those two features create an excellent incentive for motivated sellers to list with them. But you’ll need to be careful. Since Craigslist doesn’t take a cut of the sale, they also won’t provide you with any protection from a predatory buyer or seller looking to profit from a scam offer.
Though the site charges fees for sellers of vehicles, eBay Motors provides a much fuller feature set than Craigslist. In exchange for those fees (the details of which are beyond the scope of this article), sellers get access to a wide range of options (including new artificial intelligence functionality).
The increased fees mean you’ll see fewer motivated sellers. And because the site is global, you might see less of a focus on your local market. Nevertheless, don’t overlook eBay Motors when you’re looking for a used car to flip.
Local public auctions are one of the best places to find quality used cars to flip. Unlike private or dealer auctions, public auctions are open to people without a dealer’s license. Public auctions are held by local governments to get rid of property that has been lawfully seized from, or abandoned by, the original owner(s).
One important note: Before you head to one of these auctions, make sure you familiarize yourself with the rules governing the auction you choose to attend. Every state has its own procedural rules for its public auctions, and you’ll want to know them well before you head to an auction with money in hand. We recommend attending one or two just to observe them and gain some familiarity with the rhythm of the auction.
If You’re Really Into Cars: Tap Into a Network of Car Restorers
Your restorer network can also be a great resource. If you’re skilled enough to look at a rusty shell and visualize the car rehabilitated and running, talk to the car friends in your network. (Don’t know anyone? Connect with people who are interested in the same car or cars that you are, and you’ll find that word spreads — car people know each other.) There is usually someone with a car just sitting in a garage (or sitting outside) waiting for repair, and that well-meaning person is “going to get around to it” (but they’ve been saying that for a few years). There is leverage in “I’ll get around to it” if you have a pleasantly persistent personality. With negotiation, you may be able to score a car at a great price and assure the seller that the car will be on the road again.
Friends, Family and Other Acquaintances and Sources: Proceed with Caution
There are, of course, other sources of used cars besides what we’ve mentioned above. Newspaper classifieds, signs on the side of the road, and family and friends are all perfectly legitimate ways to find leads. We don’t list them here as a primary source because they are not a steady source of used cars — and unfortunately, they’re not always reliable. While you may have a friend or two-part with a used car from time to time, there’s no guarantee there will be a steady stream of them.
Buying the Car
The secret behind flipping cars is straightforward: There is no secret. Just buy low and sell high. If that sounds deceptively simplistic, it is. There’s a lot you need to do in order to make sure your purchase price is genuinely low and your sale price is genuinely high. But in principle, if you keep an eye on what you pay for each vehicle you buy and make reasonable efforts to increase the price you sell each of them for, you should make a decent profit from your first car if you have some experience repairing and/or restoring cars.
Setting a Budget
After finding a candidate for a car flip, the first step in buying one is to set a budget. This step is intertwined with the next one (assessing the fair market value of the car). We suggest taking the following steps to make sure you have a document to refer to (and keep your thinking clear in the midst of negotiations).
Get a piece of paper, or open up a word processor or spreadsheet, and create three fields:
- Highest price I’ll pay upon purchase
- Lowest price I’ll get upon sale
- Price I will most likely get upon sale
You should fill in these numbers in a specific order. The first and easiest to enter is the third field. This number is the private party fair market value of the car (see the next section below for how to determine this).
The second number is the amount that you’re absolutely sure you can sell the car for. It doesn’t matter who would buy the car (it could be CarFax, a scrapyard, or another car flipper), but it does matter that a sale would be virtually guaranteed at this price.
The first number is the highest price you’ll pay when buying the car. Ideally, this will be lower than the lowest price you could conceivably get for the car. This would be a theoretically risk-free transaction for you. In business, it’s called an “arbitrage opportunity.”
Unfortunately, things don’t frequently work out that way. Much like finding money in the street, arbitrage opportunities are quite rare. Very often, you’ll need to set the first number at somewhere between the lowest price you could conceivably get and the price you’re most likely to get upon sale.
You should set the first number based on the risk of not getting what you hope to get for the car when you sell it. For example, if there’s a significant chance that you could get less than the private party fair market value, you should set the first number much closer to the second number.
In other words, don’t pay much more for the car than the lowest amount you can get for it in a sale. If there’s virtually no chance you won’t get at least the private party fair market value for the car, you can afford to pay significantly more for the car than your “rock bottom” price.
Under no circumstances should you pay more for a vehicle than what you expect to be able to sell it for, which will usually be the private party fair market value. We hope that goes without saying.
Assess the Fair Market Value (FMV) of the Car
The Fair Market Value (FMV) of any product can be difficult to determine. With personal property, It’s usually done by collecting and pooling data in order to establish an average (or mean) purchase price for a particular product. (Presumably, you don’t have the time, money, means or patience to flip thousands of each make and model of car and find out the average selling price).
Luckily, there are a number of services that do this for you. Before we get to them, though, you need to know (if you don’t already) that Fair Market Value actually encompasses a number of different values, depending on your circumstances. The FMV will be affected by whether you’re selling to a dealer, buying from a dealer, or buying at a public or private auction.
While there are more values potentially involved in car flipping, the three values most important to car flippers are the trade-in value, the private party value, and the dealer retail value. The trade-in value identifies the amount of money you’re likely to receive for your car if you trade or sell it to a car dealer. The retail value is the amount at which that same dealer is likely to sell your car. The private party value is the amount likely to be paid for the car in a private sale (one not including a car dealer).
Kelley Blue Book
Kelley Blue Book (KBB) offers a free lookup service that allows you to see the average fair market values of your vehicle. KBB provides the trade-in value and a private party value.
Edmunds also offers a very similar lookup service that allows you to see the three metrics you want to focus on: the trade-in, private party, and dealer retail values.
National Automobile Dealers Association
The National Automobile Dealers Association, or NADA for short, also offers a car valuing service on its website. This site offers four different sets of values: rough trade-in, average trade-in, clean trade-in, and clean retail. The first three categories refer to different conditions a vehicle might be in. For example, a “rough trade-in” refers to a car in rough condition being sold or traded to a dealer. A “clean trade-in” refers to a car in near-mint condition being sold or traded to a dealer. “Clean retail” refers to a near-mint vehicle being sold to a private buyer who is not a dealer.
We strongly advise considering the prices suggested by all three of these services when you’re first starting out. They should all be similar, but you might encounter an outlier or two. For your pocketbook’s sake, it’s worth double-checking the values you find with each service.
One extremely valuable service you can find online is called Carfax. When you provide the VIN of a used car, Carfax will present you with the service history and many of the service records of the vehicle. You’ll be able to see what aspects of its previous life have reduced its value and get a better idea of what the vehicle is worth.
Thoroughly Inspect the Car
The next step is to thoroughly inspect the car. By thorough, we mean “as thorough as possible.” A detailed inspection of each component of the vehicle won’t be possible in the timeframes or circumstances we’re talking about. However, it is possible to check carefully for the most common problems that crop up in used cars and reduce the chances you’re buying a lemon.
The interior is the easy part. Here, you’re looking for any major, irreparable damage to interior surfaces or upholstery. Obvious, large stains should cause you to pause, as should any nasty smells and odors. Use your judgment on this. If there’s a large stain under the floor mat in front of the passenger seat, that may not be a big deal. If, however, there’s a huge crack in the console and the interior reeks of skunk or tobacco, you may want to reconsider the purchase.
Temporary issues that can be easily addressed, like large amounts of garbage or dusty surfaces, should not deter you from purchasing.
Look for rust. Excessive rust can be a value killer, especially on older model cars where it has eaten through the floorboards. It typically first appears on or near the bottom of the car, so check there initially. Don’t be discouraged by small amounts of rust, though. A little bit is usually okay unless it has affected a safety feature of the vehicle.
Aside from rust, you’re looking for the usual suspects. Dents, scratches, scrapes, cracks, and the overall quality of the paint job are important to watch out for. The appearance of a vehicle can (unsurprisingly) have a large effect on its eventual purchase price.
As with the interior inspection, don’t concern yourself too much with things that can either be easily addressed or easily disregarded. A tiny scratch at the foot of the passenger door and a spot of rust on the wheel well will probably not destroy the resale value.
Instead, keep an eye on the bigger picture and ask, “Will this flaw, in combination with all the other flaws, prevent me from being paid what I hope to be paid for this car?”
Under the Hood
This is the most difficult part of the inspection, and also the most important. Under the time pressure of a used car sale you’ll likely have, at most, an hour or two to locate and diagnose any major problems with the car.
So how do you go about conducting a half-decent inspection in these circumstances? By keeping it simple. Try and complete at least the following tasks:
- Check the oil and transmission fluid. If either are low or dirty, ask if the car has been driven this way for a while. Be cautious about buying a car that has accrued a lot of mileage in these circumstances.
- Listen to the engine (while the car is running, of course). If you hear any shrill whines or knocking sounds, be ready for mechanical trouble.
- Check all of the powered features in the car itself. Steering, wipers, headlights, blinkers, windows, instrument panels, etc.
- Take the car for a test drive if at all possible. Listen again to the engine and try to feel/hear when the transmission shifts into a new gear. Does everything sound alright? Or are there mysterious noises or vibrations?
- Ask the seller why he or she is selling. Does the reason make sense? Or does it seem like the seller is trying to hide something?
- Ask the seller if he or she has the service records of the vehicle. Inspect them, and note any recurring maintenance issues.
Negotiating a Price
Negotiation is a lengthy process that spans from your first contact with the seller to signing the transfer of title. Ideally, you’ll have a little bit of practice in negotiation. But in case you don’t, we’ll introduce a few key concepts.
Haggling is Not Negotiating
The most common mistake people make in negotiations is to mistake haggling for proper negotiation. In haggling, two parties go back and forth trading dollar amounts until a mutually agreeable amount is reached. In negotiation, two parties work together to reach a mutually and maximally beneficial arrangement.
The differences couldn’t be more stark. In haggling, you only talk about money. In negotiation, you can bring in any subject you like that might be of interest to both parties. Haggling is a one-sided, win-lose game. Negotiation is a win-win arrangement.
Discover The Seller’s Interests
Before you can effectively negotiate with a seller, you need to know what he or she wants. You may think that the answer is obvious: money — and as much of it as possible. But this isn’t always the case. For example, many sellers are more interested in a fast sale than a lucrative one. Other sellers are worried about being ripped off, so they’re interested in a guaranteed form of payment, like cash or certified check. A few sellers have a lingering emotional attachment to the car and want it to find “a good home” (so to speak.)
Whatever your seller’s desires are, the key to finding them is to discover their motivations. Why is this person selling rather than keeping or donating the car?
This is why it’s best to ask a lot of questions about the seller and the car before you start talking about the price. How long have they had the car? What did they use it for? Why are they selling now? The list goes on and on.
The questions should reveal not just a lot of information about the car itself, but also the kind of seller you’re dealing with. Is this person trying to make a quick buck before they move out of state? Or do you have a patient profit-maximizer on your hands who’s trying to get the highest price possible and doesn’t care how long it takes?
Have a BATNA
A BATNA, or “best alternative to negotiated agreement” is the next best thing you can do with your money if the negotiation fails. This may be another car deal you have in the works. It may be a stock or bond purchase. It could even be a savings account that provides 1.5% interest. Whatever it is, it’s important that you identify it before you enter into the negotiation.
The reason for this is that your BATNA will serve as your “walk away” point. Why, after all, would you enter into an agreement that will net you less than your next alternative?
Your BATNA is related to the budget we had you create a few sections ago. Remember the first field, the one labelled “Highest price I’ll pay upon purchase?” Under no circumstances should this number be higher than your BATNA.
Repairing the Car
So you’ve purchased a car with some noted or apparent service issues. They may have made themselves apparent when you drove the car home or you may have noticed them when you were inspecting the car. Whatever happened, you’ll need to get the car fixed.
Estimate Repair Costs
The first thing you’ll need to do is estimate repair costs, both labor and parts. You can do this by going to a mechanic and getting an estimate — or if you’re doing the work yourself, by crafting your own estimate. Keep in mind to value your time appropriately. Your man or woman-hours are worth money, just like anyone else’s.
Decide If It’s Worth Repairing
Here, we need to introduce the concept of a “sunk cost” — which is basically money you’ve already spent and can’t be refunded. For example, say you spent $1,000 on a car which is worth $500 at a salvage yard. You find out repairs are going to cost $1,000. The private party fair market value you expect to be able to sell it for is $1,400. Should you repair the car in order to sell it and “make back” your $1,000?
The (hopefully) obvious answer is no. If you simply sell it for parts, you lose $500. But if you repair and sell it to a buyer, you’ve spent $2,000 and earned $1,400 — a loss of $600.
Don’t invest in expensive tools unless you have significant experience with serious repairs or restoration. And never spend so much money on repairing a vehicle that your total costs increase overall without raising your expected profit.
Cleaning the Car
On a related note, always completely clean the car, from top to bottom. This will almost always increase the sale price and ensures you’ll get some good photos to post if you’re selling online.
If the car is extremely messy or dirty, and you expect to make a healthy margin on it, consider hiring a detailing service to really make it sparkle.
Selling the Car
So you’ve bought a car for a good price, had it repaired, and it’s sparkling clean. What do you do next?
Pricing the Car
If you’ve been following our guide, this part is already done. The services listed in the Fair Market Value section should give you a reasonably accurate picture of what your car, in the condition that it’s in, will sell for in your area.
You will want to use your discretion, though. If you’ve noticed other variables that could increase or decrease the price of the car, make sure to take those into account. For example, if your buyer has posted an ad saying he’s “desperate” for a used Honda Civic, and you just happen to have one on hand, make sure to account for the buyer’s increased motivation.
Listing the Car
Unsurprisingly, the best places to list cars for sale are the places you’ve been looking for cars to buy.
As far as we’re concerned, Craigslist is the best place to list your car for sale. There are no fees, it’s easy to use, and it has a massive readership. But there are certainly other options available, some of which we already mentioned above:
- eBay Motors
- At auction
- Roadside with a “For Sale” sign
- Classifieds in the newspaper
- Facebook Marketplace
The options are endless, and you should choose the one that best suits your circumstances. However, we would recommend Craigslist for most people in most cases.
Negotiating a Good Deal for your Car
The same principles that apply to buying a car apply to selling a car. Keep in mind the concepts that we discussed in the chapter above on negotiations, and remember: Never enter a negotiation without a best alternative to a negotiated agreement (BATNA)!
How Much Money Can You Make Flipping Cars?
So you’re probably wondering whether all this work is actually worth it. After all, you need to spend time and energy locating bargains, negotiating with sellers, inspecting, storing, and repairing vehicles, listing those vehicles for sale, and negotiating with buyers. You want to know “How much money am I going to make at the end of this whole process?”
The truth is, there’s no way we can tell you that. It’s simply impossible to foresee how much each individual person will make flipping cars. There are too many variables in play. However, what we can do is explain the habits and characteristics that tend to make people more successful at this side gig than others.
Characteristics of Highly Successful Car Flippers
- Have a working (or better) knowledge of vehicles
- Have a working (or better) knowledge of vehicle maintenance
- Have experience negotiating, especially under time pressure and with limited information
- Have basic math skills (in order to calculate price points, BATNAs, etc.)
- Willingness to keep an eye out for bargains at virtually all hours of the day
- Have some sales experience or training
Can this Side Hustle be Scaled into a Large Business?
In a word, no. Because so much of the profit in this hustle is generated by the legwork of the person selling the vehicle, it’s difficult to reach the level of automation and delegation that would allow the owner to step back and let the business run itself.
Now, that doesn’t mean that there aren’t practices which allow someone to flip cars much more efficiently or quickly. There are a few strategies that can take your car flipping to the next level and boost your profits considerably.
Rather than check Craigslist every five minutes to see if the Next Good Car has been listed, you can set up automated alerts to notify you when a new product meeting your criteria has been posted.
You can use the built-in functionality provided on the website, or use one of the many tools available on the Web to set up your alerts. Then, just wait for your phone to buzz.
Pay Finders’ Fees
Since you can’t be everywhere at all times, it can help to incentivize those around you to notify you about good cars on the market. If you pay them for their trouble, your friends and family will frequently be willing to keep an eye out for a good deal and let you know when there’s a car for sale.
You can structure this arrangement similar to an affiliate marketing deal. When someone brings you word of a prospect that you actually act upon (and make a profit on), that person makes a cut of your profit. Or you could pay a flat fee for information about cars you wind up purchasing.
However you structure the deal, as long as you ensure that you’re not paying more to the finder than you’re making from the car, you’ll come out ahead.
Outsource the Cleaning and Repairs
This may sound counterintuitive, but you may make more money by paying other people to clean and repair your cars. Once you factor in the time it takes to do these tasks yourself, it can actually start to seem very expensive. Outsourcing these jobs means you have more time to scour for bargains and find buyers (which is how you make your money, after all).
Sidenote: The Dreaded Dealer Designation
In each state, a person is allowed to sell a certain number of cars that are not registered to him or her before they are designated a dealer. In some states that number is as low as two cars, while others allow six or more. Whatever your situation happens to be, you’ll need to apply (and pay) for a dealer’s license if you exceed that number.
While this isn’t the end of the world, it’s a significant added cost that a private seller doesn’t have to deal with. Flipping cars as a business will require you to comply with any local and state regulations that may exist with respect to that industry. So keep that in mind.
Flipping cars can be a fantastic side hustle. It can also be a huge money sink if you don’t do it right. But if you keep the fundamentals in mind at all times, there is money to be made and profit to be had. It can also be an exciting and fun pastime for the right personality.
So if you’re sales- and negotiation-minded, love to make and close deals, and know a thing or two about cars, you may want to try your hand at flipping one or two cars this year.
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Ricardo is an entrepreneur, investor and personal finance nerd who enjoys spending time with his family and friends, travelling and helping others achieve their financial goals. Ricardo has been quoted as a personal finance expert in several online publications including Healthline, Bankrate, GOBankingRates, MSN Money, Yahoo Finance, U.S. News & World Report, Forbes and USA Today.