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How to Buy Cars Cheaply and Sell Them at a Profit

Car Auction
Car Auction

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's plenty of books to learn all about this too.

Buying a cheap car is actually fairly easy. There's plenty of sources such as your local auctions, craigslist, Ebay, your local newspaper classified ads, and supermarket community boards. You just need know what to look for.

Car Auctions

Car auctions are my favorite place to find cars as they are fast and can be very cheap buying. They can be loaded with 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 be an older person's car that was left outside under the trees or someone's who couldn't be bothered cleaning it.

I bought a ten-year-old Volvo a few months ago for $250 at auction. I was the only bidder even though there were 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 and the dealer took one look at it and was so disgusted he sent it straight to the auction.

I started the car up and went through my checklist (see below) and couldn't fault it. I couldn't drive it because of the flat tire, although I could have had it changed, but I knew if this car was cheap enough, it was going to make some great profit for me. 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 put a final coat of polish on. Then I cleaned the engine, door shuts and boot, and the rims and the tires. I had a fantastic-looking car.

Volvos at this age go between $6,000 to $8,000. I can never be bothered to hold out for the higher range, so I sold it quickly by advertising it in our local newspaper classified ad block for $6,500.

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.

Seriously Great Car Cleaning Kit

Craigslist, Ebay, and Local 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'll call them 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. If you don't like the idea of confronting and negotiating with someone, then stick with car auctions.

Buying Checklist

Here's my list of what I look for.

1. Check 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.

You 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.

Two or three times, they should hold the accelerator about halfway (mid revs). 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.

You don't want this car no matter how cheap it is. This means it's burning oil through the piston rings. It's an old worn out engine. Don't buy.

2. Check the Color of the Oil

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, once again, 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. Check the Radiator

Take the cap off the radiator or cooling tank and get someone once again 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. Check Water Temperature

Leave the car idling for 15 to 20 minutes, all the time checking the water temperature gauge in 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 though. 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.

However, 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. Check 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 a bad sign, and if this is correct, the owner may be selling the car cheaply because he thinks the problem is worse. It may be. 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's no horrendous oil leaks. Reverse the car out from where it normally sits, whether it be in the owner's garage or driveway.

If its got 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, after turning the car on, put it into drive and see if there's any delay before it engages. Do the same for reverse.

When shifting into reverse or drive, it should be totally smooth and instant. If there's 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 Steering

With the engine turned on, check for play in the steering when you turn the wheel from side to side.

Best to do this on a straight open road. While you're traveling straight you shouldn't have to correct the wheel all the time. It should just sit in a straight-ahead position.

10. Test the Brakes

While you are out on the open road, check how good the brakes are by coming to a fast stop. 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.

It's never a great time for friendly negotiation later if you've just buried the owner's head through the front windscreen. 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 a buy.

11. Check for Rust

If you live in a dry state, rust shouldn't be an issue but 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 it's got rust, don't buy it.

The reason is that rust can go into all sorts of areas that you won't even see, like the bulkhead. So the car can be rotting from the inside out.

Good Luck

So these are my tips for buying cheap cars and hopefully developing a nice home business from it.

I would suggest that the first time out, you set yourself a budget of $1,000 to $1,500 and 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.

Use the comment section if you've got any questions. Best of luck.

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Comments 26 comments

Zach 7 months ago

Where do you usually meet the person when going to look at the car? And how long does it take for you to check everything?

Thanks


Jerry Fisher 7 months ago

Hi Zach,

I normally meet them in the evening or weekends. Just a convenient time for them. Once you get used to that checklist it will only take you about ten minutes at most to go through and a 15/20 minute drive will sort the rest out.


Eric 7 months ago

Hi, I was just wondering if you have a dealers license when doing this sort of thing? I'm interested in doing something similar, but I'm worried about all the legal processes and insurance adding up fast and eating my profits right up. Thanks for a good read!


Karen 7 months ago

Question???? When buying a car for selling purposes do I need to buy an insurance or how does it work???? Thank you


Jerry Fisher 7 months ago

Hi Karen,

Yes, I always take out insurance. It might only be for a couple of weeks so it's not expensive. But best to cover your asset. You just don't know what's around the corner - could be your test pilot has an accident, or, the guys at your local garage. Shop around for cheap quotes.


Jose 6 months ago

Hey jerry thanks for a great article i was wondering if you need a dealer's license for doing this? i am interested in doing the same for profit but i havent done it before. And what kind of auctions do you go to?


Jerry Fisher 6 months ago

Hi Jose,

In the States under the DMV, or, Department of Motor Vehicles, the law is generally only three. You’d have to find out what it is in your particular State.

But there’s two ways to get around this. The first, and this is definitely the way you’ll want to start is to sell your first three, then with either your mother or father or brother or sister or very good friend, buy and sell them under their name for part of the profit. Use 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 and I can tell you by my own experience that when you involve others, you’ll bring out the greed in anyone when they see you making money and relaxing in your new business they’ll want a piece of the pie. So, you might have started off offering 20% of the profit to your sister and then after she sees a few successful easy sales go through, she’ll want 50% for sure.

So, just use the first six or seven cars to build your confidence up and get a handle on how all this works. Then 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 buy and sell as many cars as you like throughout the year.

So, you still operate from your home or wherever you like and you don’t need any overheads like a general Dealer does. What you do is buy into a dealer organization on a Co-Op basis. In fact there’s some real benefits. It will cost you about $500 per month, but for that you get an LLC (Limited Liability Company) plus insurance (that’s if your car is stolen, or, one of your test drive buyers 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 an auction pass. An auction pass is for the Dealer Only Auctions.

You still have to pay as you normally would for title fees. It takes about two to three weeks to set up.

The guys in charge of all this and we’ll get to them shortly organize all the paperwork overnight for the transaction and coordinate with the DMV but you will get charged $100 for this. They also file a 1099 on your behalf to the IRS, so they’re basically doing all your accountancy work for you too but each time you sell a car, make sure you keep 30% in a savings account for when that’s due with the IRS. On the other hand, if you have to spend any money on the car for repairs, tires, petrol, car detailing costs, you can claim all these expenses back against the profit you make.

Here are a couple of programs on the net that offer this service:

http://www.autoincome.com/

http://www.easyautoservices.com/

There are more if you take a look through Google but these are the two with the biggest reputation. Personally I use easyautoservices.com and haven’t had any issues. Autoincome.com is in a lot more States and has a big reputation for great customer (dealer) service. Over to you if you want to choose any other one but if you do I wouldn’t be choosing them because of a lower price. When you become an independent dealer you’ve got a whole lot of responsibilities suddenly with the IRS and just being legal, so I don’t mind paying the $500 each month and extra for the bookwork as I know that both these companies take that part very seriously on my behalf.

I go to dealer auctions.


Carlos 6 months ago

Is it true you need a GDN to get into a car auction???


Jerry Fisher 6 months ago

Yes that's basically correct. You can use a Broker though:

http://www.copart.com/us/Services/Brokers?intcmp=f...


Will 6 months ago

You said you insure for a couple of weeks. What happens if you don't make the sale before then ?


Jerry Fisher 6 months ago

Hi Will - Just renew.


Rj 5 months ago

Awesome article. Thanks for the knowledge


Jerry 5 months ago

Thanks very much!


Raj 5 months ago

Hi Jerry,

Awesome article, thanks for the share! I have a quick question. I recently bought an out of state car from an auction and have a 30 days temp tags on it but will be selling it within this period in my state. The title has my current state address; do I need to get the car registered in my current state and get the license plates or is it okay to sell the car without this process? Also, if I can bypass this process then how can I just pay taxes for my purchase?


Kindall 5 months ago

This may be a stupid question, do you have to get the title put into your name from auction before you sell it?


Jerry Fisher 5 months ago

Hi Raj,

Yes you should register the car in your current state.


Jerry Fisher 5 months ago

Hi Kindall,

Yes you should have the title in your name before selling.


blythe 5 months ago

you should make a guide like this for cannons


Brady 5 months ago

Thank you so much Jerry I have been interested in this for a while. Your article helped so much!


Jerry Fisher 5 months ago

No problem Brady - Best of luck. Jerry


ksjoseph profile image

ksjoseph 5 months ago

Hi Jerry,

Great stuff here. I am looking to start my own dealership and would love to message you with some questions. Do you do private message or email? Thanks!


RogerJensen 4 months ago

Hi Jerry,

Great article, thanks for the quality information. Just wondering:

1) Is mileage a consideration for you, as in, do you tend to stay away from cars with really high mileage, or does it matter?

2) Do you stay away from cars showing accidents on the Carfax, salvage cars, rebuilt titles, etc.?

3) Lastly, Carlos asked about the GDN license, but isn't that what you would get by signing up with www.autoincome.com or the like? Is the broker option if you do not want to sign up to become a dealer and pay monthly, thereby paying a broker per car buy transaction? Or is a broker also necessary to use in addition to a service provider like autoincome.com ?

Much thanks for your help. - Roger


HI JERRY, 7 weeks ago

WELL DONE,THANK YOU FOR SHARING ALL EXPERIENCE WITH US.

I HAVE QUESTION FOR YOU ARE YOU IN STATE OF ILLINOIS OR DO YOU KNOW ANY COMPANY IN IL THAT THAY HAVE DEALER SHARING PROGRAM BECAUSE IN STATE OF YOU CAN NOT SALE OR SHOW THE CAR IF YOU HAVE OUT OF STATE DEALER LICENCE.PLEASE IF YOU HAVE ANY INFO PLEASE EMAIL ME .

DARIUSMARVI@AOL.COM SINCERELY DARIUS


Dahmari 3 weeks ago

Hey Jerry, I was wondering where did you purchase first car? Or how did you go about finding you first car to flip? I know you said that actions are you favorite, but that's when you are licensed. I just decided to jump into this with about 7k. Trying to figure out my first move.


JerryFisher profile image

JerryFisher 3 weeks ago from Wellington Author

Hi there - The first car I bought was off an estate. I was lucky that they didn't know the value of it but also had so much other stuff to sell that they didn't really care.


Hannah 8 days ago

Hi Jerry!

Do you have any tips regarding high mileage? Or experiences having to do with car fax reports? What's your opinion on auctions that are open to the public?

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