How to Buy Cars Cheaply and Sell Them at a Profit
Many people have created an at-home business of buying and selling cars. You don't need a huge capital outlay to start this business or even great mechanical knowledge, although naturally this would give you an advantage.
However, if you are interested enough in cars, you will generally pick up a grasp of what goes wrong mechanically with cars along the way. There are plenty of books to help you learn all about this, too.
Buying a cheap car is actually fairly easy. There are plenty of sources, including:
- Local car auctions
- Newspaper classified ads
- Supermarket community boards
You just need know what to look for.
What to Look for at Car Auctions
Car auctions are my favorite place to find cars, as they are fast and the cars can be very cheap. They also often offer repossessions or dealer trade-ins.
What I look out for at car auctions are dirty-looking cars. Everyone avoids a dirty car because they think it's an old wreck. It sure might be, but it could also have belonged to an older person who left it outside under the trees and couldn't be bothered to clean it.
I bought a ten-year-old Volvo a few months ago for $250 at auction. I was the only bidder even though there was another hundred or more possible bidders in the room. The Volvo was sitting amongst the other cars, but had a flat rear tire and its dark blue paint looked incredibly dull, flat, and tired.
When I opened the passenger door, the inside was full of old McDonald's wrappers and a ton of other rubbish, but there wasn't any smell. It turned out to be a repossession. The dealer must have taken one look at it and been so disgusted that he sent it straight to the auction.
I started the car up and went through my checklist (see below). I couldn't find any fault with it. I couldn't drive it because of the flat tire, although I could have had it changed, but I knew that if this car was cheap enough, it was going to turn a great profit. One final check was wetting one of my fingers and running it across the paint. The shine came back.
So, I got the Volvo towed to my garage at home and got to work. First, I cleaned the inside right out, vacuumed, and cleaned it thoroughly.
I then started on the outside, which I had to buff and polish. Then I cleaned the engine, door shuts, boot, rims, and tires. I had a fantastic-looking car.
Volvos at this age sell for between $6,000 and $8,000. I can never be bothered to hold out for the higher range, so I sold it quickly for $6,500 by advertising in our local newspaper.
A middle-aged couple bought it and were totally happy. They wanted a Volvo for its safety record and reliability. Frankly I didn't really care. I just wanted to get on with the next one.
What to Look for on Craigslist, eBay, and Newspapers
Some great buys can be had from all of these sources. My preference is local newspapers and supermarket boards however, because I can easily contact the seller and start negotiating.
Also, it's easy once you've met the person face-to-face to really work out the reason for the sale. Are they elderly and can't drive it any longer? Do they need the money?
I very rarely buy on the spot unless it's a bargain. What I tend to do is go away and say I'll think about it. I leave my number with them and hope they'll call me first and then I'll know their desperation level.
If I don't hear back from them, I back three days later. If the car's gone, I don't care. Rule one here is don't get emotionally involved. Remember you don't want a car. This is just a money-making tool.
There's a bit of luck and a lot of pushiness involved in buying a cheap car through these sources. If you don't like the idea of confronting and negotiating with someone, then stick with car auctions.
What to Look for When Buying a Cheap Car to Sell
1. Check the oil level.
If it low, start the engine and check the exhaust for oily smoke. This is a bad sign.
2. Check the oil color.
The lighter, the better.
3. Check the radiator.
Remove the cap and rev the engine. If the water bubbles up with air, it's got a blown head gasket.
4. Check water temperature.
Let the car idle for 20 minutes and check the water temperature gauge. If it reaches the 3/4 mark, you need to check a few things (see below).
5. Check water hoses and engine belts.
If they need replacing, ask the owner to deduct that cost from the sale price.
6. Listen to the engine.
There shouldn't be any loud ticking or stuttering.
7. Is it leaking oil?
Reverse the car and look at the ground where it was before. Oil drips mean expensive repair.
8. Check the transmission.
Look for any delay in going into drive and for smooth reverse-to-drive.
9. Test the steering.
On an open road, check for play in the steering wheel.
10. Test the brakes.
On the open road, try coming to a fast stop. It should stop in a straight line.
11. Check for rust.
Look under the car and check the trunk floor.
Do I Need a Dealer's License to Buy and Sell Cars?
In many U.S. states, the Department of Motor Vehicles allows individuals to buy and sell three cars a year. Find out for sure if this is the case in your particular state.
But there are two ways to get around this restriction.
Sell your first three in your name. After that, ask a family member or very good friend if you can buy and sell cars in their name. They should get part of the profit. Do this only as an intermediately step, though.
After you’ve bought and sold six or seven cars, then you’ll have a nice little business on your hands. I can tell you from my own experience that when you involve others, they’ll want a piece of the pie. So, you might have started off offering them 20% of the profit to your sister, but after she sees a few successful, easy sales go through, she’ll want 50% for sure.
So, once you've sold six or seven cars and built up your confidence, become a licensed dealer.
This doesn’t cost a massive amount of money and is fairly straight forward. It gives you independence to operate freely and legally to buy and sell as many cars as you like throughout the year.
You can still operate from your home or wherever you like, and you don’t have any overhead like a general car dealer does. What you do is buy into a dealer organization on a Co-Op basis. In fact there are some real benefits. It will cost you about $500 per month, but for that you get an LLC (Limited Liability Company) plus insurance (if your car is stolen or prospective buyer crashes it). You also get a dealer plate (if you happened to buy an unlicensed car, then this plate gives you the right to legally travel on the road with it until registered). Plus you get an auction pass to attend the Dealer Only Auctions.
How Much Should I Spend on a Car I Plan to Sell?
I would suggest that the first time out, you set yourself a budget of $1,000 to $1,500. Try to make a smaller profit of $500 to $1,000. This will give you lots of experience and will not be a huge risk.
If it goes badly due to a mechanical issue that you didn't pick up, as long as you've bought the car cheaply enough you should at least be able to get your money back.
Should I Insure a Car I Plan to Sell?
Yes, I always take out insurance. It might only be for a couple of weeks, so it won't be expensive. It's best to cover your asset. You just don't know what's around the corner. What if a test driver has an accident. Shop around for cheap insurance quotes.
What to Check Before Buying a Car to Sell
1. The Oil Level
- If it's low, don't be too worried until you start the engine. When the car's warm, get the owner or a friend of yours to operate the accelerator peddle.
- Go around the back of the car and monitor the exhaust while the accelerator operator stabs the accelerator from idle to full about eight times.
- They should hold the accelerator about halfway (mid revs) twice or three times. What you are watching for is oily smoke. If the exhaust is blowing excessive smoke out while under power, just say thanks to the owner and walk away. This means it's burning oil through the piston rings. It's an old worn out engine. Don't buy.
2. The Oil Color
- The lighter color it is, the better.
- If it's dark, that may just mean it hasn't being changed in some time. That can still be fine.
- If the oil has some water in it, walk away and don't buy. This means it's got a blown head gasket and is going to cost a fortune to repair.
3. The Radiator
- Take the cap off the radiator or cooling tank and get someone to rev the car in bursts.
- If water bubbles up with air, walk away and don't buy. It's got a blown head gasket. Buying a cheap car is one thing, but it's still got to be trouble-free.
4. Water Temperature
- Leave the car idling for 15 to 20 minutes. During this time, follow the water temperature gauge inside the car. If it gets to about 3/4 hot on the gauge, you don't necessarily have to walk away this time.
- If the radiator isn't bubbling with air and there isn't water in the oil, the reason for the high temperature may be something reasonably easy to fix, like a leaky hose in the engine compartment.
- Have a look under the engine. Be careful. Remember this is boiling water you're trying to find. If you see water dripping and you can spot where it's coming from, then this could be bargain time.
- You should be able to convince the owner that the engine's about to blow, so offer him a fraction of what he wants.
- If you don't see any drips under the engine, walk away. The problem is probably serious. The owner probably knows that and he's actually trying to get the better of you.
5. Water Hoses and Engine Belts
- With the engine off and cooled down, go over all the water hoses and engine belts. Have a look at their overall condition.
- If they all need replacing, that can be expensive and take any profit you could have made out of buying anyway.
6. Listen to the Engine
- Turn the engine on and have a listen to the motor while it's idling. There shouldn't be any loud ticking noises.
- Get someone to rev it up halfway and listen again.
- Make sure it was running on all cylinders while being revved. If it was stuttering on the way up the revs, that could mean that one of the spark plugs or spark plug leads is failing.
- This isn't necessarily a bad sign. If this is the case, the owner may be selling the car cheaply because he thinks the problem is worse.
- At this point get a mechanic to check the problem out, if you are keen on the car.
7. Is it Leaking Oil?
- Make sure there are no horrendous oil leaks.
- Reverse the car out from where it normally sits, whether it be in the owner's garage or driveway. If there are lots of fresh oil drops on the concrete surface, don't buy it. Oil drips can be expensive to repair.
8. Check the Transmission
- For a car with automatic transmission, turn the car on and put it into drive. See if there is any delay before it engages.
- Do the same for reverse.
- Shifting into reverse or drive should be totally smooth and instant. If there is any hesitation or the car literally jumps when you shift the lever, then it's not a great transmission.
- This is just a worn transmission, and depending on the hesitation time (shouldn't be longer than say one and a half seconds) the car may still be worth buying if it's cheap enough.
9. Test the Steering
- With the engine turned on, check for play in the steering when you turn the wheel from side to side.
- On a test drive on the open road, test to be sure you don't have to correct the wheel all the time. The car should travel straight.
10. Test the Brakes
- While on the open road, make sure you haven't got a car riding on your tail at the time, and if the owner's next to you, give him a warning before you brake.
- Check how good the brakes are by coming to a fast stop.
- The car should stop absolutely in a straight line, especially if it's equipped with ABS brakes.
- If it comes to a stop on a big scary angle this can be remedied reasonably cheaply. It could be still worth buying.
11. Check for Rust
- If you live in a dry state, rust shouldn't be an issue. In a state that sees all four seasons, you'll want to check this out carefully. Some states put salt on the road to combat snow and you bet that this rots a car quicker than anything else.
- Have a good look underneath and around the inner guards on the car. The trunk floor can be a target, so check that and the car sills. The sills run down the sides of the car beneath the doors. If they have rust, don't buy the car.
- Rust can get into all sorts of areas that you won't even see, like the bulkhead. A car with rusted sills may be rotting from the inside out.
So these are my tips for buying cheap cars and hopefully developing a nice home business from it.
Use the comment section if you've got any questions. Best of luck.