In 2002 I had no money but needed a new car badly. I spent months researching car auctions and eventually found a few in my area. I bought a 1997 Jeep Cherokee with 90k miles for $ 4500. There was an almost identical model on eBay with a starting bid of $ 10k. Then I saw the opportunity to make some money from this venture … So a month later I bought a 1999 Impala with 40k miles for $ 4,300 and sold it 2 weeks later on Craigslist for $ 7,900. After that I was hooked. Now I'm flipping over 10 cars a month for about $ 1500 profit each.
Of late I have been receiving numerous phone calls and even emails from everyone wanting to know how earn some extra money by buying and selling cars, so I've put together this guide on how to get started …
Just like any other business, making money buying and selling cars is not necessarily as easy as one would think and it can not be explained through a phone call or even by an email. I could fill 1000 pages with tips, tricks and methods for successfully buying at car auctions and I some point I might … but for now I can offer some key points for getting started and answer some of the bigger questions out there.
I've bought a lot of the ebooks out there and they all have good tips on how to purchase at car auctions but that was all. I was paying $ 19- $ 30 for a guide that did not actually list any of the auctions that I should be buying at. So I started compiling a list of list of every single car auction by state and agency … (on my site).
What made me to choose this business:
The main and important reason I chose this business I was looking for a way to generate sustainable passive income. There are so many fantastic deals at so many auctions but the vast majority of the population will never know.
I also know that car market is HUGE. Almost everyone who owns a car these days buys a different car every 5 years or so. There is absolutely no question on the size of the car market and demand for consumers. There is always demand for a good deal on a good car – even if it's not one that you would drive, just remember, someone will pay for it. One good thing about a tough economy is that a lot of people will be looking someone who can give them a good deal on a car.
The first step is to find a list of auctions in your area. A lot of counties have police auctions every month. Note – some of these auctions require a dealer's license so you'll want to check for that ahead of time.
Once you find an auction, get a bid-list of the vehicles up for auction. For example, at a recent auction in my area there were 3 cars that got my interest:
A 2001 black Honda Accord with a little over 37k miles on it.
A 2003 white Chevy Impala with 90k miles on it.
A 2003 gray Ford F-150 pickup with 67k miles on it.
All three of these cars are popular models with under 100k miles and good colors (although I'm not crazy about the white Impala, it's actually a fairly popular color).
There's very little info other than the picture. The Impala and the F150 were likely government vehicles and the Honda was probably a seizure (in the photo it also looks like there were some 'ground effects' models – probably a drug dealer).
The Impala has almost 100k miles on it but the good news is that government vehicles are generally very well maintained which should help them sell quicker. These are all prime examples of good cars to try and buy at auction.
Now, we need to figure out how much to bid on each of these. At this point it's worth it to discuss some of the different auction formats. Many government auctions are 'sealed bid' which means you submit a bid along with other people without seeing what their bids are. Then, the highest bid wins. These auctions are tougher for obvious reasons.
The other type of auction are what's known as the standard 'dutch auction' in which the bid starts out at a certain price and various bidders offer higher prices until the car is sold. Unfortunately, this auction is a 'sealed bid' auction so I'll have to really do my homework.
The trick with 'sealed bid' auctions is that you have to submit a bid that's low enough to make a profit but high enough to win the car. In recent years, certain auctions have become more popular with what I call the 'amateur buyer'. These are the people that bid more than the car is really worth. They win the car but they take a perfectly good money making opportunity away from you in the process.
Typically, for a 'sealed bid' auction I start with the Kelley Blue Book value to get a general idea of the price. Keep in mind – this is really just a quick starting point. What you really want to know is what the dealers are paying for these vehicles. Dealers are paying a price to make a profit – and that's what you want to be paying … because that means you'll be making a decent profit.
How do you find this out? Call the loan department of a local bank and ask for the Manheim Market Report (MMR) price. Most banks have subscriptions to this data which will tell you the average prices that similar vehicles have been selling for at auctions.
So for the 3 cars that I'm interested in I get the following MMR prices:
2001 black Honda Accord EX with 37k miles: $ 7,630
2003 white Chevy Impala with 90k miles: $ 1,950
2003 gray Ford F-150 pickup with 67k: $ 4,100
Now since the Honda Accord is such a popular model and this one is not a 'public' vehicle and looks like it's had some upgrades (ground effects) – this car will probably receive bids in the $ 8000 range. A quick look at eBay motors, cars.com or craigslist tells me that at that price I will not be making a profit. I submit a bid of $ 7000 anyway.
The Impala looks like my best bet at making a profit. While it does have 90k miles on it, that's still under the important 100k threshold and because this is a 'public' vehicle it's probably in very good condition and will not be getting as much interest as the Honda Accord. And – there is always demand for Impalas believe it or not. These are great 'functional' vehicles for people looking for cheap – reliable transportation. I do not find any similar comps on Craigslist but a quick check on eBay motors and autotrader.com shows several comps selling between 2.5k-4k. This is great news. I put in a bid of $ 1,500. If I can get my bid filled and then sell it for 3k then I've made an easy $ 1,400 (There's a buyers premium of between 6% -10% at all these auctions).
The 2003 F-150 also looks like a decent money-maker if I can get it for a good price. Autotrader and eBay show comps between 6k-10k. I put in a bid of 4k for this one.
The one good thing about 'sealed bid' auctions is that I know emotion will not force me to bid more than I want to. I've already determined my ideal acquisition price and submitted the bid. Now all I have to do is wait and see if I get 'lucky'.
One thing I did not go over is on site inspection. The auction site is required to tell you if they know of any problems with the vehicle (ie transmission was replaced, etc.). Also, they generally set aside a day on a weekend to visit the cars and visually inspect them – you can not turn on the engine or get inside but you can look for any exterior indicators of damage. Also, the auction site will have each vehicles VIN number. Because the auction prices for these three are relatively low and the Impala and F150 are 'government' vehicles, I'm traveling the inspection process. Note: I do not recommend doing no due diligence … especially when you're getting started. But, once you're comfortable with the process and have bought and sold a few cars you'll know the level of due diligence that should be done.
One last issue is whether or not you need a Dealer's license to resell these cars. The rules differ by state. For example, in Florida it's 3, in New York it's 6, in Ohio it's 5, etc. A lot of people get around this by selling some in a spouse's name or a brother's, parent's, whatever.
The bottom line is you can easily sell a dozen or so cars before you're forced to get a dealer's license, if at all.
Well, hopefully this has helped learn a little bit about how to make a few thousand dollars at your local car auctions. For me it started as a search for a new car and now it's replaced my day job. All it takes is a little time and research.