It is important for any investor to be well aware the pros and cons of flipping cars before deciding whether or not it’s a business they want to pursue. Dealing in cars is relatively low a risk endeavour as investments go, and the rewards can be great if everything goes according to plan.
Before deciding to flip a car you need to be sure that if things don’t work out that you will be able to take a loss, on the investment and be able to move forward. TV programs making flipping cars look incredibly easy but the fact is that it can be very challenging and costly when you get it wrong. Below are some of the pros and cons to flipping cars and are details you should consider.
Pros of flipping cars
Flipping a modern or classic car can be extremely financially rewarding and it may be one of the best investments you could ever make but it’s not all upside. Below are some of the rewards you can look forward to when you flip cars.
Quick profits
The main intention of most car flippers is to make a quick profit. If done correctly flipping cars can provide very large profits, often ranging from £500 to £2000 if successful. Profit will depend on demand, price, rarity, etc. These returns can usually be achieved in a very short period of time, and sometimes in only a few hours.
Gaining mechanical knowledge
Through repairing and fixing up a car, you will gain knowledge and insights into all aspects of cars. You will start to understand the costs of mechanical, body and electrical repairs. You will also learn how to spot big issues such as gearbox and electrical issues. This knowledge and experience will help you make more money on future flips because you’ll know how or where to get a car fixed.
Being your own Boss
One of the biggest pros is working for yourself and being in that management position. You may even have a team and others you working with you in the future, but at the end of the day you will be in charge. This is a business that requires a lot of work in order to see a good constant return, there’s some satisfaction at the end of the day all the profits are yours and you are in control or your wealth and future.
General Car Knowledge
Flipping a car will help increase your knowledge of the motor trade in general. Plus there’s no better way to gain experience and educate yourself than by getting stuck and putting your neck on the line. While flipping a car, you stand to learn about general trade, your local market, and car buyer. With the valuable insights you’ll learn, you may not need to rely so much on third parties in the future, saving you money.
Expanding your Network
While undertaking a flip – you will create many new contacts in the motor industry, including other business owners, mechanics, electricians, auctioneers, panel beaters, paint sprayers, insurance brokers, detailers and other car flippers. These contacts can come in handy for a future investment, so you must always remain professional during your dealings with these individuals.
A Potentially safer investment
Unlike the stock market which can be very volatile over short period of time. Car prices are much steadier and more predictable. Cars are also much more liquid than investing in property. It also lacks risks inherent in holding real estate, not to mention the hassles of finding tenants, collecting rents, and maintaining a property. In a sense, flipping cars could be considered a safe investment. Your capital is at risk, but the chances or losing lots of money is minimal.
Job Satisfaction
Knowing that you have the vision to create value with a car is a source of great personal pride, along with the ability to achieve financial returns that are much greater to most other investments available. Once you have a few successful flips under your belt the process becomes much less scary and you begin to understand what it takes to make a profit instead of taking a loss.
Cons of flipping cars
Along with the advantages of flipping a car, there are also some potential drawbacks. Below are some of the downsides that can come with flipping a car. Remember, any investment has an up and a downside.
Losing Money
The main problem with flipping a car is when a flip becomes a flop and you lose money. There are many factors which can contribute to this loss, some of which are listed below.
Unanticipated Expenses
This includes everything from an undiagnosed electrical fault, missed dents, MOT advisories… the list goes on. These expenses can quickly add up and eat into any potential profit.
Over Committing
Over estimating your abilities will likely cause issues with your flip, for instance many people believe they can handle any mechanical issue. But given how complicated car are these day, some franchised dealers even struggle with their own product. These complications not only delay the flip but will throw off your budget as well. You need to be realistic when it comes to doing things yourself and outsource the work when you need to.
Holding Costs
These costs take a large chunk out of the profit, the longer you own the car, the more money you are losing. You may also have additional maintenance costs and the car will still need to be cleaned. Depreciation is also a big factor when selling newer car.
Difficulty Selling
You are losing money every day you are unable to find a buyer for your vehicle. The longer the car sits on the market, the greater the likelihood that you will have to reduce the price or take a low offer. Which will eat into any anticipated profit.
Stress
Stress is big drawback when flipping cars or anything else for that matter. From chasing down the right car in the right colour and spec, missing a fault or pricing a repair incorrectly, dealing with potential buyers and sellers. Trying to meet your get the cars prepared and sold means stress is your constant when flipping cars.
It might not work
In such a complicated market, any car purchase is a risk. Many things can go wrong, which can cause you to lose money rather than make a profit. So it’s important that you do your homework when you are first starting out. Want to learn which cars flip the fastest? Take a look at our buyers guide – which cars should you buy to flip.
It’s Time Consuming
Even if you hire people to carry out the majority of the work, you’ll still need to be fairly hands-on. Many small things are will, so take all these factors into careful consideration before making a decision.
Key takeaways
Knowing the pros and cons of a flip will help you make an informed investment decision. The positives and negatives listed above should give you a good idea of what comes along with flipping a property. If you do your due diligence, you will be fine as you will know which cars to pursue and which ones to pass on.
Do not get discouraged if you are having a difficult time finding a car, most successful investors will turn down a large proportion of the deals that they come across. The keys to this business are to know what you are looking for, be certain that your numbers work, to never chase a deal and to be patient.
