This article is reprinted by permission from NerdWallet.
Flipping cars has been a side hustle for years as a way to make a little extra cash. But in an era of rising used car prices and online vehicle ordering, the game has changed — and the profits are much higher.
Here’s how car flipping works: A person orders an in-demand vehicle from the factory at a fixed price. When it arrives months later, the vehicle’s value rises; because of the current car market, it can be sold at a profit.
Yes, there are related fees — sales tax and registration — and it can be risky, as you can’t guarantee the price will increase after you have the car. But it’s become so popular that it’s caught the attention of carmakers, which are trying to clamp down on the practice.
For instance, the Ford
F-150 Lightning, a truck that sold out before production started, comes with an agreement stating that the buyer won’t resell the truck for at least a year (this additional agreement is included at the dealer’s discretion), as reported by car news website Carscoops. And, GM
will cancel the warranty on the popular Chevrolet Corvette Z06 if it’s resold in less than a year, according to auto site Jalopnik.
See: Ford hikes price on all-electric F-150 Lightning due to shortages, inflation — here’s how much the pickup truck will cost
A modern way to buy new cars
The trend these days is for highly anticipated models to be ordered online and built to the buyer’s specifications. Buyers will have to put down a deposit, usually only a few hundred dollars, and they can decline the car later if they change their mind.
Electric cars and hot new models, such as the Corvette Z06 or Cadillac Escalade-V, are the prime target of flippers because the rollout is slow and inventories are limited.
More: Used cars cost more than new ones? Here’s what’s going on
While some buy a car with the intention of reselling it, that’s not the case for all car buyers. Sometimes the idea of flipping a vehicle occurs to an owner because they see car prices climbing and figure, well, why not?
Kirk Dunn, a Long Beach, California, contractor took advantage of both kinds of flipping. He saw the value of his Chevrolet Silverado pickup increase so much he sold it to Carvana
for a $3,500 profit. Over the following months, the market stayed hot, allowing him to purchase two new trucks, then flip them at a profit and enjoy driving newer and better models.
“I can’t even tell you how many hours I spent negotiating and researching,” he says. “But it was a game and kind of fun.”
Similarly, I was driving a 2014 Volkswagen
Jetta SportWagen, which cost me $13,000 out the door. I had no intention of selling it — until I realized Carvana would give me $16,800 for it, even after I’d added 30,000 miles to the odometer.
Read: Used car prices crept up again, but there’s some good news
While the current car market is still hot, with electric vehicle prices rising five times faster than gas car prices, according to a study by iSeeCars, the fun might be coming to an end. In fact, used-car prices have begun to soften recently.
According to car research site Edmunds, the average transaction price for 3-year-old vehicles was $31,302 in July, a 4.6% decrease, or $1,526, compared to their peak of $32,828 in January.
“There’s a gamble that prices could settle down between when you buy it and when you flip it,” says Richard Arca, director of vehicle evaluation and analytics for Edmunds.
“This situation won’t last forever,” says Karl Brauer, iSeeCars executive analyst. “Time it poorly, and you’ll be stuck with that new car, or have to sell it for a loss.”
And then there’s the sales tax and registration fees that will cut into your profits. In California, for instance, those fees come to $5,745 for a $50,000 vehicle. That’s a big nut to crack.
Before you flip
Successfully flipping a car starts with having a good eye for the market so you can buy low and — hopefully — sell high.
Start by looking up the value of the car you want to flip in pricing guides such as Kelley Blue Book and Edmunds. Here are a few additional tips from the experts to help you decide whether flipping is worth the risk.
Get estimates from online car retailers, such as Carvana, Shift , Vroom
Estimate all fees and the cost of any work that has to be done to the car.
Look for a well-maintained model, with low miles and few owners, if you want to flip a used car.
Make sure there isn’t a penalty or restriction on selling the car you’re considering buying.
Consider whether the amount of money you’re expecting to make is worth your time and effort.
And finally, choose a car to flip that you wouldn’t mind owning in case the music suddenly stops and the market finally cools off.
More From NerdWallet
The High Cost of Smoking in Your Car
Buying a New Car? Prepare for Over $10K in Yearly Ownership Costs
How Big Wheels Cost You Big Time at the Pump
Philip Reed writes for NerdWallet. Email: firstname.lastname@example.org. Twitter: @AutoReed.