Most people are familiar with the concept of house flipping but what about car flipping? Despite the vast differences between housing properties and motor vehicles, the principles of flipping these two different kinds of assets are relatively the same. As such, if you’re the kind of person who is always looking for a side hustle or if you’re already in the business of flipping houses, adding car flipping to your repertoire can help you maximize gains in both markets. You can also simply focus on car flipping as an entry-level investment and move toward flipping both houses and cars once you’ve gained more experience.
House Flipping vs. Car Flipping
Flipping is traditionally a term reserved for referencing the real estate strategy of purchasing a property, fixing it up, and then selling it for more money. Some people also like to refer to these as investment properties because you are investing your money with the hopes that you will later see a return on your investment with gains — meaning you make more than you initially spent when you first invested.
With investment properties, however, the goal isn’t always to turn around and sell the property after fixing it up. In some cases, the investor might maintain ownership and turn the property into a rental. Flipping, on the other hand, is when someone invests in a property specifically intending to turn around and sell it as quickly as possible after fixing it up to make more money before the property depreciates in value.
In a very similar fashion, car flipping is the process of purchasing a car — typically a used one — performing upgrades, and then selling it for a higher price. This is not to be confused with someone who simply sells used cars. Generally, someone who is selling a used car (other than a dealership) is doing so to make way for a new car they want to purchase and keep for themselves. In contrast, flipping a car is when a used car is purchased with the sole intention of reselling it quickly to make more money than what was initially paid.
The Laws of House and Car Flipping
Before diving into house or car flipping, there are some important things to keep in mind. Both house flippers and car flippers must abide by certain laws if they want to avoid any legal issues or fines.
For house flipping, the Federal Housing Administration requires buyers who are planning to flip the property to abide by a 90-day flipping rule. The rule states that, after purchasing a home, the seller must wait 90 days before turning around and selling it. There is also a 180-day flip rule. If the house is being sold between 91 and 180 days after purchase, the rule requires a second appraisal if the property is being sold for 100% more than what the seller initially paid for it.
As for car flipping, the specific laws can vary by state, so you will need to check your local guidelines. Generally speaking, the laws typically pertain to how many cars you are allowed to flip before you register for an official dealer license. And in some states, like Kentucky, you can’t sell even one car to turn a profit without a dealer’s license.
Things to Keep in Mind Before You Flip
The tips for a cost-effective property flip are nearly identical to car flipping. In both situations, it’s important to take your time and plan before diving right in. Investing in property and car flipping can be very lucrative but it’s also an easy way to lose a lot of money if you aren’t smart about it.
Research Your Market
First, research the market and then research some more. Before you can resell a house or a car, you need to know what the market is like in your area, what the property or car is worth, and what other buyers are paying for similar assets.
Know What to Look For
When determining whether a car or house will be a good flip, you should look for certain things. With cars, you want to read the listings carefully and look for minimal damage, low mileage, a clean interior, a clean engine, and functioning operating systems. Also, look at how many previous owners the car has had and how long it has been sitting on the market. Make sure you inspect the car in person and test-drive it before deciding to purchase.
For houses, you want to look for homes that have good local amenities nearby, such as parks, schools, grocery stores, shopping, and restaurants. Also, look at outdoor square footage, as homes with a lot of outdoor space can give you an edge on the market. If necessary, have the house inspected to get a better idea of the kind of repairs it might need. If too many renovations and repairs are required, it might not be a good investment.
Create a Budget and Timeline for Repairs and Upgrades
It’s important to be realistic about budgeting when it comes to the upgrades you plan to make to either a house or a car when flipping. If you have to make too many improvements then you might end up spending more money than you will end up making once you sell. So be smart about costs and set a strict budget. It’s also important to stick to as short a timeline as possible. Markets can change fast, so you want to buy, perform the upgrades, and sell as quickly as possible to make sure you are still able to sell while the property or car still has good resale value.
Get the Right Loan
The last thing to keep in mind is the loan, if you need one. If you have the money, you might not need a loan when flipping a car, but you will likely need a loan for a house flip unless you’re rolling in extra cash. There are many different kinds of loans you can get, such as conventional, government-backed, fixed-rate, etc. So make sure you do your research to get the right loan for your situation and needs. If you plan on turning flipping into a full-time career, for example, you may want to consider a business loan to help you get started.
Avoid These Common Flipping Mistakes
Again, before you get started, you must take your time and do your research. When investing in properties or cars, it’s easy to make mistakes that can end up costing you a lot of money. Some of the most common flipping mistakes include failing to make a plan, investing without doing adequate research, and not defining your exit strategy. If you do avoid these mistakes, it can save you time and money and can set you on a path for more successful flips.
