Buying vehicles at car auctions, then selling them for a profit may be a good way of supplementing your income. It’s all about buying the car 50-70 percent below the trade in value, then selling it a little bit lower than the market price. That way, you can enjoy a nice profit, and the buyer also gets a car for a lower price than others are willing to sell.
It’s a win-win situation for both parties, a key element to being successful at any type of business venture.
Why use Auctions?
Obviously, there are other ways to buy cars besides going to a vehicle auction. For example, you could hunt for desperate owners on classified ads, but there’s a lot of added risk that comes with that. For one, thieves sometimes target potential car buyers on classified ads since they know you’ll have cash on you.
Buying cars off classified ads is also more time consuming. Unlike an auction, where there are a lot of cars you can browse at once, you might end up traveling a long distance just to see one vehicle when buying off your local Craigslist.
Car auctions aren’t just a more convenient way to purchase vehicles, they can also provide you with significantly better deals. That’s because a large number of the vehicles here are insurance write-offs, i.e. vehicles that have been ‘totaled’. Of course, that also means you need to be careful when shopping around since some of these cars may be more trouble than they are worth.
How the Auctions Work
For starters, you need to set aside the money you plan to use for your new business venture. Then you need to browse the web for auctions in your area.
You can go to the websites of the major car auctions like Copart or IAA-Insurance Auto Auction. These large auction houses have locations all over the U.S., so you should be able to find one close to you.
Then, find out what the requirements are to gain admission into their facilities. Some auctions are open to the general public, while others are reserved for dealers only.
Getting a used car dealer license is normally out of the question for those getting into the world of car flipping for the first time, since the requirements to get these are rather steep. They vary from state to state, but typically require you to have a lot with a minimum number of cars, insurance for your business, and a real office, among other requirements.
However, getting a salvage dealer license is a lot easier in most states, and you can get these for around $100 and a trip to the nearest courthouse. A salvage license grants you limited access to some of the auctions reserved for dealers, like the IAA Insurance Auto Auction, and you won’t have to pay sales tax when you buy a vehicle.
Some car auctions, like Copart, grant you entry into their facilities for free, while others require paid membership for access. Obviously, when starting off a new business venture, you are probably better off going with the auctions that don’t require a fee. It’s one less expense you have to worry about, reducing your total risk as you dive into the world of car flipping.
Sort through the auctions around you and figure out which one gives you the best deal. While you’re at it, go through their buyer’s fees so you can budget appropriately when you start bidding on cars.
Finding the Best Deals
Once you have access to a vehicle auction, it’s time to find cars you will be able to purchase for a lot less than the market price.
There are many strategies when it comes to this. Some prefer sticking to low mileage, newer model cars with minimal damage, while others prefer to buy damaged cars (which are typically the cheapest at auctions), fix them up, then sell them for a profit. Obviously, you need to know a lot about car repairs and accurately estimating costs to go the latter route.
A good strategy for newbies is to go for low mileage cars that you can purchase for around $3,000-$10,000 range. Stick with respected makes and models for starters like the Honda Accord or Toyota Camry. These are vehicles with solid reputations for reliability, meaning you can sell them easily as long as they are in good condition.
Once you locate a few cars that meet your criteria, it’s time to take a look at them. Most auctions have specific days and times buyers are allowed to view vehicles, so make sure you go within the specified period.
Knowledge of cars can be helpful while you are inspecting vehicles, but being detailed and observant is even more important.
Check for signs of damage inside the car, outside the car, under the car, inside the trunk, and under the hood. Check for signs of engine damage like a blown gasket. Look for possible signs of overheating, make sure there isn’t any grease inside the coolant.
Look for dents and cracks on the exterior of the car, make sure all the electronics inside work, the stereo, the A/C, the heater, pretty much check the status of everything inside the car. It’s all about making sure you know exactly what you are getting into. If possible, drive the car.
Finding a fault doesn’t mean you shouldn’t buy that particular vehicle. You just want to know whatever issues it has so you can factor repair costs into your budget before making a bid.
You don’t want to get stuck with a car you end up spending thousands more than you budgeted to fix.
Once you’ve calculated how much you’re willing to spend on the car, it’s time to place your bid. Knowledge of the different types of sellers at auctions can be very helpful here.
For example, insurance companies tend to be less concerned about selling a car below the market price, since they’re simply trying to recuperate some money. The same can be said about repossessed cars being sold by banks, while private sellers are generally looking to get fair market value for their vehicles.
Most auctions indicate who the buyer is on vehicle listings, and some even scribble that information down on the vehicle’s exterior.
Bidding on Vehicles
Auction formats vary depending on which company you decide to go with. Some auctions allow you to place bids online, while others require you to be there in person during auction times.
There are many strategies that can be implemented when it comes to bidding. These include:
- Pre-Auction Bids: If your schedule won’t allow you to place bids during the auction, you can enter an early bid. You simply enter the maximum you’re willing to spend on the vehicle, and then the auction’s software automatically places a bid for you every time you’re outbid until your maximum bid is reached.
- Aggressive Bids: At times, you can scare away the competition on a particular vehicle you are interested in by placing aggressive bids, while sticking to your budget. A large jump in price will catch some bidders off guard, and since they don’t know what your maximum bid is, they might just make a run for it.
- Incremental Bids: This is arguably the most common type of bid utilized by people who flip cars. You bid the minimum amount that makes you the highest bidder, and you repeat the process anytime you are outbid until you are the winning bidder or your maximum bid is reached.
Do not go into auctions expecting to win every vehicle you bid on. There are many other buyers out there, so patience is a key virtue here. Consistently search for good value cars at auctions, set realistic maximum bids (50-70 percent of trade-in value), and you will eventually land a car you can flip for a respectable profit.
Don’t just rely on the Kelley Blue Book value or NADA price when estimating value. Browse sites like eBay, Autotrader.com, and Craigslist and calculate the average price the vehicle sells for, as well as the demand for it.
Now that you have a car you purchased for significantly less than the market value, it’s time to pay for it and all the applicable fees. Next, get it off the auction yard before you start accruing storage fees.
Transporting your New Vehicle
Once you have purchased a car from the auction, you need to get it to your residence or a mechanic’s shop. If you happen to live in an apartment complex or condominium, keeping the car at your residence can be tricky since auctions cars often do not come with valid registration, plates, or inspections.
Many apartments and similar facilities will tow cars that do not have the proper stickers and plates, so make sure you check with the management at your residence to find out their rules.
Most auctions have shippers listed on their websites, and some offer one-click shipping. These auctions use the services of the major transporters, so their prices tend to be on the high side. You can save some money by going with smaller shipping companies in your area, or, even better, get a tow dolly and truck, and pick it up yourself.
Using Proxy Bidders
If you are unwilling to go to all this trouble yourself, or unsure if you can handle it, there is another option for you. You can hire a company that, for a fee, can guide you through the process of finding the cars you want, and will bid for you at auction, keeping within the budget you have set.
Using a proxy bidder will save you a lot of trouble and eliminate the risk of overbidding. They may also be able to help you arrange transportation for the vehicles you have bought at auction.
Fixing Her Up
Now that your car has been picked up from the auction, it’s time to take care of any necessary repairs. If you can fix it yourself, go ahead and do it. You will be saving a lot of money on mechanic labor costs.
As for parts, there are many options here:
- Dealerships: If you want the best quality parts possible, this is the way to go. The prices aren’t always the best, but you won’t have to worry about getting defective parts. If you end up not needing a part, most dealerships have reasonable return policies.
- Junk Yard: This is often the cheapest option, but it does require the most effort since you might have to visit a few junk yards before getting all the parts you need. The best way to narrow down which junk yards have the parts you need is by using sites like Car-part.com, which allow you to search the inventory of all the junk yards in a specific area for parts. There is some risk involved when purchasing from junkyards, since these parts are generally pulled off cars that have been in major wrecks. Most junk yards have a no-return policy for electronic parts, and a very small window for other parts – after paying a 30 percent restocking fee.
- Aftermarket retailers: This is somewhere in between getting parts from a dealer or junkyard. Like junk yards, you can get some cheap parts by buying aftermarket parts from retailers like Autoquest. There are also many online aftermarket retailers. Simply put the part and car information into a search engine and click the “Shopping” tab.
Once you have purchased all the parts you need, it’s time to get the car repaired. Even if you end up taking the car to a mechanic, you’ll still save money simply because you went out and purchased the parts for yourself, rather than leaving it up to the repair shop.
Once your car is roadworthy, it’s time to prepare it for potential buyers. Spend $50 and get the car detailed, then take as many pictures as you can with the best camera you have.
Pictures sell cars, so take as many as possible.
Now create a listing for the car on a popular classifieds site like Craigslist or an online auction website like eBay. Since you purchased your car below its market price, you can undercut your competitors by selling yours for a couple hundred dollars less than the average price of the other vehicles listed.
Be as detailed as possible when listing your vehicle. Failing to list issues the buyer will notice anyway when inspecting the car only makes you look untrustworthy. Don’t forget to put down your contact information – preferably a phone number – and clearly indicate when the car will be available for test drives. Also indicate in what part of town the vehicle is located so potential buyers know how close – or far – you are.
Be friendly and open when dealing with potential buyers, and never appear to be desperate to sell since that can lead to low-ball offers. If possible, list the car a few hundred dollars more than you are willing to take for it, so that way the buyer feels like he/she is getting a deal if you have to give up a couple of hundred dollars during negotiations.
Obviously, some cars you purchase from auctions will be more profitable than others, and you might even lose money on a few, but if you stick to the tips listed above, you will have a lot more positive experiences than negative ones.