You’ve probably heard about flipping houses. But what about flipping cars? The formula is basically the same: find a car that’s not in the best shape, buy it for a great deal, fix it up, sell it once it’s back in tip-top shape, and make a healthy profit in the process. With a little automotive know-how and a good eye for finding vehicles with lots of potential, flipping cars is a great way to make a fairly significant income.
In This Article
- Dealer License Requirements
- Title Hopping
- Limits by State
- What is an “Established Place of Business”?
- Dealer’s License Requirements Example
How to Flip a Car
Step 1: Deciding What Kind of Car to Flip
You don’t need to have a wealth of mechanical knowledge to flip a car, but it certainly wouldn’t hurt! If you are a decent negotiator you should be able to make a profit on your cars, and just like all sales, the more you do it, the better you’ll get. It’s said that when flipping cars for profit, the money is made on the purchase, not the sale. So buy low.
You have a couple of options to consider when flipping cars for money. If you are a good mechanic with access to tools, you may want to consider operating in a niche market of cars. One idea with this is selecting a make like BMW. Once BMW’s start to get old, the maintenance can be expensive, pushing people to sell their car instead of taking on the cost of repairs. If you know your way around an engine, it could be quite profitable for you to operate in this niche.
If you are not so mechanically inclined, you still have options. Many consumers buy small commuter cars to use until they can afford to upgrade. At this point the car is still fine, but they want to change vehicles. Depending on what area you’re in, it could be profitable for you to buy these commuters and sell them at a profit to people who maybe have a regular commute.
Step 2: Find a Car
So once you decide what cars you are aiming to buy, you need to find your first car. Fortunately, in this age of technology, you aren’t just limited to the “Classifieds” section of the newspaper. Craigslist and eBay are great options to check out what kinds of deals you can get for a car.
Once you have your car, you need to decide whether you want to do anything to increase the value of the car. If you found a great deal on a vehicle that someone had to dump quickly because of a move or another reason, you may not even need to get the oil changed before you resell it at a profit. If you are mechanically inclined, you may have great luck purchasing cars with some issues that you can fix on the cheap, and reselling for more than the purchase price plus the costs of your parts and labor.
Step 3: Find a Buyer
Once you are ready to sell the car, you have a few options of how you want to unload it.
- You can list the car on sites such as AutoTrader, CarGurus, or eBay. These sites will advertise your car, walk you through all the necessary paperwork for selling your car, as well as offer fraud protection, all for some kind of a fee. These sites are an easy option, but the fees will usually outweigh the ease of use.
- The best option to make the most money is to list the car on sites such as Craigslist, your social media outlets, or word-of-mouth. With these options, you will be entirely responsible for filing all involved paperwork.
You Have a Buyer, Now What: The Paperwork
The paperwork processes are different for each state. Most states just require a bill of sale (or a vehicle transfer form), a release of liability (or a notice of transfer), and an official title transfer.
States have slightly varied requirements on what must be included in a bill of sale. Usually you can write the bill of sale yourself, but there are online templates available to help you out. Usually the bill of sale needs to include the vehicle’s VIN number, vehicle description, date of transaction, amount paid, and buyer and seller name and address. This will need to be signed by both the buyer and the seller. As usual, check the DMV website in your state so you don’t miss important information.
The release of liability is there to protect you if anything happens to the car between the point of sale/title transfer and the time that the buyer finishes their registration of the vehicle. It usually includes all of the same information as the bill of sale, plus the odometer reading at the point of sale. Again, each state has its own requirements. Your state’s DMV website will have the answers.
The title transfer is the easiest part. Usually there is a title assignment section on the back of your current title. You just sign as the seller and have the buyer sign as the buyer, and that’s done. It is recommended you accompany the buyer to the local county tax office to ensure that your buyer has officially filed for a new title.
How Much Money Can You Make Flipping Cars?
You can make anywhere from a few hundred dollars to thousands per car, depending on your skill level with cars and your luck with finding low buys and high sells. If you are going to make less than $700 on the car, then it’s not really worth your time.
Let’s say you are a smooth talker, and you don’t fix up the cars at all — you just negotiate the buying price of the car down, and sell it for a $700 profit. If you live in a state like Indiana, you can do this once a month before being considered a dealer, giving you $8,400 extra dollars in your pocket annually, before taxes (because you will need to list this as extra income on your taxes). Once you have a few sales under your belt, you could easily start making even more per sale. Not too bad!
You can make a living flipping vehicles, but depending on what state you live in you may have to get your dealer’s license just to be able to sell enough to make it cover all your bills with a little leftover. Once you get good at flipping cars, there is no reason why you shouldn’t be able to flip four to five cars per week. At this point you would need your dealer’s license. With you dealer’s license you could, for example, make $700 per car, and average four cars per week. That makes $8,400 per month if you took one week off per month. This gives you over $100,000 per year in income, before taxes, while still taking 12 weeks off per year. You could make almost $150,000 per year if you only took two weeks.
How Many Cars Can You Sell in a Year?
Some websites will tell you that flipping cars, in and of itself, is illegal. This isn’t true if you follow your state’s rules regarding flipping cars for profit. Many states will allow you to sell a handful of cars per year without a dealer’s license. But, it’s important to be aware of state laws about car dealers and title registration, which both have important implications for your ability to flip cars for profit.
Dealer License Requirements
The number of cars you can legally sell without a license per year depends on how your state defines “dealer.” Typically, dealer is defined by a minimum number of car sales per year. Indiana and Vermont are the laxest states, allowing you to sell up to 11 cars in a calendar year without a dealer’s license. Several states, including California, Kentucky, Minnesota, and Mississippi consider you an automotive dealer as soon as you sell one car, used or new, if the sole purpose was to make a profit. Most states allow you to sell around five cars per year before being classified as a dealer (see for example, Wisconsin (five cars) and Washington (four cars)).
Regardless of the basic limit, you should check with your local DMV to make sure you aren’t violating dealer licensing laws. Many states define the limits differently. For example a five car limit could be phrased such that “the sale of five cars is evidence of operating a dealership,” or, a state could define “dealer” as “one who sells more than five cars in any 12 month period.” It’s important to find out the nuances and make sure you’re within the law.
Title hopping refers to buying and reselling a car without ever registering it in your name. Most states give a grace period for how long you have to register your car once you buy it. This can range anywhere from two business days (Wisconsin) up to 60 days. If your state has a longer grace period for registration, technically you could purchase a car and resell it within the grace period without ever registering it under your name. You would still owe taxes on any proceeds from the sale of the car, and some state laws will consider the practice of title hopping to be fraud and evasion of dealership laws.
Another type of title hopping is known as an “open title sale” and is typically illegal and considered fraud. An open title sale is where the seller fills out the title, usually leaving the date, buyer information, and sometimes the price, all blank. The buyer can then go sell the car to a third party at any time and retain the profit. This is not recommended, especially for the seller, who is legally responsible for the car until the title has been transferred to another person or entity.
So what could go wrong with an open title sale? Let’s say you sell your car in an open title arrangement. The buyer of your car (who is not on your title) has a wreck where he/she is injured, or even injures other people. Since you are still technically the title holder, this is completely your liability. Also, since the car is still in your name, you will be the one to receive registration renewals, traffic violations, and parking tickets. Many things could go wrong in between the time that you hand the keys and title over to the first buyer and the time that your buyer sells it to someone else.
Limits by State
There are limits on how many cars you can sell without a dealership license, limits on selling cars for someone else, and limits on why you’re selling a car. Most states put a limit on how many you can sell per 12 month period (that’s not the same as a calendar year), and many restrict your intent — you can’t buy and sell with the intent to make profit. That means if you’re just selling your own old car or the occasional fixer upper, it’s fine, but if you’re actively flipping cars and buying with the intent only to re-sell, it’s not fine. To find out more details about your specific state, see dmv.org’s dealership laws page.
Here is what you can do without a dealership license in each state:
- Alabama: Anyone who sells used or new vehicles must have a dealership license.
- Alaska: You can sell up to four vehicles per 12 month period.
- Arizona: You can sell or trade up to six used cars in a 12 month period. You cannot sell or trade new cars, and you also can’t be a car broker, manufacturer, distributor, or other related occupations.
- Arkansas: You can sell or attempt to sell up to five vehicles per 12 month period.
- California: You cannot sell any cars without a dealership license.
- Colorado: You can sell or lease two vehicles per calendar year.
- Connecticut: You cannot engage in the business of selling or repairing vehicles.
- Delaware: You can sell up to four vehicles per 12 month period.
- Florida: You can sell and display up to two vehicles in a 12 month period.
- Georgia: You can sell your own personal vehicle. You cannot sell a car for a profit.
- Hawaii: You can sell up to two vehicles per calendar year.
- Idaho: You can exchange or sell up to four vehicles per calendar year.
- Illinois: You can sell up to four vehicles in one calendar year.
- Indiana: You can sell up to 11 vehicles a 12 month period.
- Iowa: You can sell up to six vehicles in a 12 month period. You cannot buy and sell cars for the sole purpose of making a profit.
- Kansas: You can sell up to four vehicles in a calendar year.
- Kentucky: There is no set limit, but you can’t buy and sell a vehicle with the sole intent of making a profit. The license requirement is not excused when vehicles are registered (and taxes paid) by the person who buys and sells them.
- Louisiana: You can sell four vehicles in a 12 month period.
- Maine: You can sell four vehicles in a 12 month period.
- Maryland: You can sell two vehicles in a 12 month period.
- Massachusetts: You can sell five cars in a calendar year.
- Michigan: You can sell four cars in a 12 month period.
- Minnesota: You can sell up to five cars per 12 month period. You can’t be a broker, do consignment sales, or sell used car parts. You can’t buy and sell the car solely with the intent to make a profit.
- Mississippi: You cannot buy and sell cars with the intent to make a profit.
- Missouri: You can sell five cars per calendar year.
- Montana: You can sell your own car to a third party. You cannot sell any cars that are not registered in your name.
- Nebraska: You can sell up to seven vehicles in a 12 month period. You cannot consistently (meaning regularly over a period of 30 days) sell or exchange vehicles. (So, your up to seven should be spread out — don’t sell them all in a month or two.)
- Nevada: You can sell up to three personally owned vehicles per calendar year.
- New Hampshire: You can sell four vehicles per 12 month period.
- New Jersey: You can sell three cars per calendar year.
- New Mexico: You can buy, sell, or exchange up to four cars per year.
- New York: You can sell five cars in a calendar year. You cannot display more than two vehicles in a single month (i.e., you can’t have those five cars out on display in your driveway or lawn at the same time).
- North Carolina: You can sell four cars in a 12 month period.
- North Dakota: You can occasionally sell a car you own to a third party buyer. You cannot be in the business of selling cars.
- Ohio: You can sell five of your own vehicles in a 12 month period.
- Oklahoma: You can sell up to six cars per year.
- Oregon: You can sell, display, offer for sale, trade, or exchange up to five cars per calendar year.
- Pennsylvania: You can sell four vehicles in a calendar year.
- Rhode Island: You can sell four vehicles in a calendar year.
- South Carolina: You can sell five vehicles in a calendar year.
- South Dakota: You can sell up to four vehicles in a 12 month period. You can not be wholly or partly into the business of selling vehicles.
- Tennessee: You can sell five vehicles in a calendar year.
- Texas: You can sell up to four cars you own per calendar year.
- Utah: You can sell your privately owned car to a third party buyer. You cannot be in the business of selling, exchanging, trading, manufacturing, or distributing vehicles.
- Vermont: You can sell 11 cars in a year.
- Virginia: You can sell four vehicles in a 12 month period.
- Washington: You can sell four vehicles that are registered to you per 12 month period; you cannot sell vehicles that aren’t registered to you. You can’t buy and sell vehicles for a profit.
- West Virginia: You cannot engage in the business of sell or exchanging cars.
- Wisconsin: You can sell up to five vehicles per 12 month period as long as they’re your own and you didn’t buy them for the purpose of selling them.
- Wyoming: You can sell up to two vehicles in a 12 month period.
Beyond these dealership license requirements, many states have specific rules for how to transfer a title, and have specific time limits for notifying the state of the sale or registering the car. You should learn about these before you try to flip a car. Many states also have insurance requirements to deal with.
How to Get a Dealer’s License
Because every state has different laws regarding dealer’s licenses, you need to read your particular state’s license application to know the exact requirements. Most states avoid the verbiage “car lot,” and instead require that you have an “established place of business” in order to get a dealership license.
What Is an “Established Place of Business”?
Each state may vary in the details of what exactly an “established place of business” is, but the overarching theme similar. You usually need to have a separate business address that is not your residential, permanent address. This location will need its own registered phone number as well as have signs for your business. Some states (like Colorado) require a certain number of bathrooms and/or parking spaces, and may require that your address only be used for dealer business.
Dealer’s License Requirements Example
Each individual state’s DMV website has applications as well as rules regarding your dealer’s license, and every state has its own level of difficulty that goes along with acquiring your dealer’s license.
For example, Georgia requires you to get a Used Motor Vehicles Dealer’s License. To do this, you need to:
- Fill out an application
- Have an “established place of business” (with pictures to prove you have met this requirement; may be subject to inspection)
- Purchase a surety bond of at least $35,000 (talk to your insurance company)
- Procure insurance on your business
- Attend a qualified pre-licensing seminar with a board-approved education provider
- Submit fingerprints
It’s best to find someone who has already done this locally and ask how the experience was. As you’ll quickly find out, flipping cars for profit has much to do with relationships.
Flipping a few cars a year is doable in most states, and if you’ve got a knack for sales or mechanics, you can make some decent money. If you are serious about flipping cars as your main source of income, you’ll have to get a dealership license. Requirements vary by state, but usually that means you’ll need a place of business with a separate address, phone, and other requirements.