Stephen Hobbs, author of The Lazy Way to Buy and Sell Cars for Profit, shares his thoughts about how to profit from buying used cars and trucks. He shares important tips about buying cars way below value, getting the most for your cars, avoiding lemons and scams, buying at used car auctions, and more. [26 min.]
To learn more about his book, click here.
Steve, how did you get into the business of buying and selling cars? Talk a little bit about what your background is.
I used to be in construction for many, many years. I was a custom cabinet maker, had my own little shop, did really nice work. But the problem is, I was really, really burned out on it. Now, the money was good, but without getting into a long depressing story here, I was literally holding my mom’s hand as she took her last breath. I just decided right then and there that this passion I have for wind surfing, I needed to really go for it. So, within six months I had moved my wife and two little kids to Hawaii.
What happened is, I was looking for a car for my wife. I came across this one, and I was able to buy it really inexpensively. It only had something like 40,000-something miles on it. She didn’t like the car it turned out and so I fixed it up and cleaned it up and sold it. If I recall correctly, I made $1,200, $1,400 profit. Boom, just like that.
Even though I had shipped all my machinery over and all that stuff to ultimately do cabinets even on my own in Hawaii, I didn’t really want to. But, again, it was my skill. It was my trade. I ended up buying and selling cars for profit and wind surfing. I remember going quite a while wondering if I could still make a profit with the car thing.
I certainly made mistakes because I didn’t have a mentor, or I didn’t have any information on, “Don’t do this. Do this.” So, that’s what happened. I ended up living quite well and supporting my family, and living in one of the most beautiful places on Earth and really fulfilling this passion I had at the time, which was to wind surf. So, that’s how I got started, Matt.
How much money do need to get started buying and selling used cars?
That first car I bought only cost me, I think it was $400 or $450. It doesn’t cost much to start. There are cheap cars out there that are not as common as cars that cost more. When they are available, you have to know what to do and how to jump on them and all kinds of those little techniques I go through in the book, so that you can be first in line. It is realistic you could start for $500 to $1,000.
How much can you expect to make in the first month or two doing this?
I don’t like to make income promises. I look at this as we’re all very different people. Let’s say you asked me this, I’d say, “Well, I don’t know you well enough Matt. I don’t know your work ethic.” So, everybody is different. Some people can really know how to put their nose to the grindstone.
To answer the question, starting out on a very part-time basis, make profit of a couple thousand dollars a month, and I’m talking extremely part-time basis, yeah, it’s possible. But disclaimer, disclaimer. It’s kind of tough because we’re all so different.
That’s the honest answer, Matt. I don’t believe in get rich quick. I have one guy on my website I feature. His name is Nick Roy. He’s out of the business now only because he’s in college to be a financial planner. But this guy was making many, many thousands of dollars buying and selling cars. He was obviously an extraordinary person.
Is this is a job that you can do part-time well? Can you keep your full-time job at least for a while and get the business going?
That really is the beauty of buying and selling cars for profit, in that it is scalable to whatever your needs are. I have people that are retired. They’re doing their thing, and they only care about selling a car or two a month and that’s it. Then I have people with full-time jobs that they have no intention of ever quitting. They like their jobs, whatever. I don’t know. The benefits are good.
Their attitude is, sell a car or two a month. It helps pay bills. They might put it in their vacation funds. Then, I have other people that just go into it full-time. It’s great that you can ratchet it up and you can ratchet it down if, let’s say, you want to take it easy for a while. That’s kind of one of the beauties of this business.
Talk a little bit about what areas are best for this kind of business. Is it better to be in a more rural area or a city? Or what’s the best area to start this kind of business?
I started on an island with a finite supply of cars to choose from. It was a tough environment, but I still did it and made a go of it and lived quite nicely. I would say a bigger city, obviously, there are more choices. But I started - not only was it a small rural area, but it wasn’t like as far a low population. But it wasn’t like I couldn’t jump in my car and drive 45 minutes or an hour north to another city. I think it can work anywhere. I really do.
Let’s get into the nitty-gritty a little bit. Obviously, you have to buy a car for less than market value. What kind of profit margin do you have to have to make the whole thing worthwhile?
For the average person, it’s just whatever deal makes sense. I’m thinking of a car I bought once many years ago. I bought it for $150, and I sold it within 15 minutes for a $200 profit and it was this cheap car. I’ve had other cars where I’ve bought, and I’ve sold them within an hour for a substantial profit.
To answer your question Matt, I never look at it as, okay, I need to make, whatever, 35%. I’m not that kind of guy. I look at the car, and based on my price research that I’ve done, I look at it like, “Okay, I need to negotiate the hell out of this,” or whatever the case is.
Or sometimes people sell cars for just ridiculously low prices because they just are clueless. It happens. I kind of look at what I think I can get and what I think I can buy it for, and if it makes sense, great. I go for it.
What kind of car should you focus on buying in order to maximize your profit and your chance of selling quickly? Should you be looking for Toyota Corollas and Honda Civics and that sort of vehicle? Or what’s your thought on that?
Yeah. You kind of nailed it there. When you learn how to buy properly, which I teach, Toyotas, Hondas, and Nissans, it’s like shooting fish in a barrel. All three of those manufactures are recognized as good quality cars, in other words, a bit of a hiccup with the Toyotas a few years ago. Most of it was media hyped. But the bottom line is, people still recognize those three cars as being really good.
Again, once you learn how to buy right, and you learn what to do and what not to do when preparing the car for selling, and you learn how to advertise, your phone, seriously, can ring off the hook with Toyota, Honda, and Nissans.
Then again, they’re not the only cars. They’re a pretty good safe way starting out. There will be more competition to buy them, of course, because they’re very in demand cars. They do tend to have very good resale value, which also can shut you down if you don’t know how to negotiate and know how to price, know what a car is worth. But I’d day those three are a good safe way to get started.
There must be a certain sweet spot when picking the model years of the cars you buy. Should you look for cars that are maybe just a few years old or can you also make money with older vehicles?
There is a sweet spot, and the sweet spot isn’t so much, year along with those three, Honda, Toyota and Nissan. I would also say a good safe range, as far as price goes, is any cars up to $5,000. I’m talking anything, $300 to $5,000. There is not low-end figure there obviously. The reason I say that is because there’s a huge segment of the population out there that only buys used cars. Regardless of what the economy is doing, they only buy used cars.
There’s also a huge segment of the population that only buys relatively inexpensive or even cheap used cars. That’s just all they can afford. Well, the advantage to up to the $5,000 plus or minus figure is because people either have that money in savings, they can borrow from friends or family to get a car, it might be easy for them to even get a personal loan from their bank, transfer out of a credit card.
Bottom line is, it is just a lot easier for people to get their hands on the money for cars up to $5,000. So, I always tell my readers to kind of stay in there, at least starting out. It doesn’t mean you can’t do other things later, but it kind of, again, it minimizes their risk because they are just a lot easier to sell.
What if you are not a mechanic and you’re not that great at recognizing which car problems are minor inexpensive fixes versus major expensive types of repairs, transmission problems and that sort of thing? What are the red flags you should look for?
Transmissions are just as simple as shifting in each gear and making sure you check that the thing goes in reverse. Amazing sometimes I’ve gotten people who they bought the car and found later that it didn’t go in reverse because in their test drive and inspection, they never checked.
So, that’s simple. There’s a thing called “flaring” transmissions do where, like an automatic for example, when as they shift, they kind of hang up a little bit between, let’s say, shifting from second to third. Sometimes the problems could seem significant, but they aren’t because they just require some transmission fluid.
I really do go into that stuff because, again, I’m not a mechanic, don’t want to be one. I have a car inspection checklist and I’ve really gone through that and really refined it to go down the list, “Okay, check this. Now check this.” You’re not going to be doing that a year or six months from now. But at the beginning, it’s a huge confidence booster for anyone that knows nothing about cars, because it’s kind of a no-brainer the way I have it set up, even for people that aren’t fairly knowledgeable about cars.
So, the nice thing about this, it’s very systematic. Step one, step two, step three, and it all fits on one page the way I have it. You can print it out and take it with you. The red flags, is smoke coming out of the tail pipe, but then it depends on the color of the smoke. I talk about the difference between what I call inexpensive noises and expensive noises, lower-end noises like a rod knocking or a very specific sound. I discuss that because that means the engine is shot, and you’ve got to get a new engine.
I don’t want to go into all the details because it would be boring. But I have it covered because again, I don’t come from a mechanical background. I have learned how to very intuitively know what’s going on. I guarantee you everybody that does this for a while, even within a few months, you start to get a really good feel on whether the car is mechanically sound or not.
Have you ever bought an as-is, where-is car that might not start and have it fixed and brought back into service? Or is that just kind of a recipe for going broke?
Yeah. It can be. One of the very important things I discussed in “The Lazy Way to Buy and Sell Cars for Profit” is assembling a team. These are not people that are paid employees in the sense that you got this fixed overhead. But it’s always to have a mechanic in your back pocket, so to speak. Try to find a guy that maybe just likes to do it in his free time and charges a heck of a lot less, but he’s good.
I’ve had people like that before, that just like to fool around with cars. This guy would come home from work at night from a very different job, and he liked to tinker with my cars. He was very inexpensive and he was good and he was honest. He never jacked me with the price, ever. So, yeah, to answer your question, I’ve had a couple of dogs I’ve bought. But my mechanic was able to turn it around.
Do I recommend that to beginners? Not really. Not unless you have somebody that’s really cheap, and you’ve bought the car just ridiculously cheap. I recommend beginners start with cars that run decent. It’ll make your life a lot easier.
I didn’t know what the hell I was doing when I started. I lucked out with that first deal I told you about. But sadly, I get emails and calls from people from time to time who didn’t know what they were doing and didn’t luck out, and unfortunately invested a lot more into the cars.
Sometimes you can even arrange in the beginning if you want to take that guy with you. There are different ways you pay him. You could pay him by his hourly time or you could even cut him in on the profit if you’d like. At the beginning, I don’t recommend you rely on that. You want to be as self-sufficient as possible.
How do you know if a car is stolen? Do you always do a VIN number check? Is there an easy way to find out?
Yes, there is an easy way to find out. Do I always? No. I should. There are ways to cross check the VIN, Vehicle Identification Number, and there are things like Carfax. But there are very simple ways that you can within just a minute check to make sure. I know a lot of people are concerned about that, and it’s a good question. Maybe I’m just naive and I trust people too much.
So, you’ve bought the car, you’ve got a great deal on it, and now you need to sell it in order to realize your profit. So what are some of the best ways to advertise a used car for sale? Do you want to use Craigslist, the newspaper classifieds, put up flyers? What do you recommend?
All of the above. A lot of people kind of think that the old school stuff, flyers, putting up brightly colored 3×5 cards or whatever, or big flyers with pull-off numbers, which, by the way, I include as bonuses, they’re all editable. It may work really well in your area. For example, I lived in an area once that had this little health food store, but they had a community bulletin board outside. Everybody walked by that and looked at it. I discovered after a little while that it was a great place to put a flyer.
Again, in some areas, it’s not going to work. Craigslist is great. I would say find whatever online source is really good in your area. In the United States, that tends to be Craigslist. There’s Auto Trader. You’ll have to pay money for that.
Do you just list the car once or do you do it once a week? If it doesn’t sell, what’s your listing scheme that seems to work best with Craigslist?
I suggest you write one ad, and I talk about exactly how to write your ad and how to construct the title and all this stuff. It’s important stuff too. It’s easy, but it’s important. By the way, Craigslist now offers, I think, eight photographs. They’ve bumped it up from four to eight, which is really cool. Put as many photographs as you can and place the ad, and then do another ad. It’s going to have to be different text and a different title, and then place that ad like two days after.
So, now you could have two ads running consecutively. Craigslist has a relatively new thing now. They’ve had the repost thing for quite a while. They have something newer now called Renew, and I think it’s only two days now. So, the thing is, if you have two ads running for same vehicle, as long as they’re not identical - if you go in every, whatever it is, I think it’s 48 hours, and hit the Renew button. It only takes a second so you can always have one of your ads up relatively close to the top.
There’s a thing too, in some countries, Kijiji is still big. eBay bought Kijiji. Now they call it eBay Local Classifieds. In some countries, it’s still called Kijiji. It’s worthwhile to maybe check backpage.com. I can tell you in San Diego, Backpage is junk now. It’s just spam. They’re not moderating it at all. It was a pretty big competitor to Craigslist, but maybe it’s still working in your area.
It might be good to check these lesser publications, by the way, to buy cars. I wouldn’t waste my time posting an ad in a publication that gets very little traffic when you have other alternatives to get a lot more, like Craigslist. But for buying, because there are still people out there that they just don’t know any better. Now, they may place an ad on Kijiji or eBay Local Classifieds just because they don’t know any better. Meanwhile, nobody is calling them. Yet that same car on Craigslist might get sold the first day. It’s worthwhile to check these lesser publications to buy.
So it might not be selling just for lack of exposure?
Yeah, exactly. Sure.
Have you ever sold a used car on eBay? Is that something you’ve tried or can recommend?
I have, and I recommend it. The advantage to eBay is you get massive exposure, if you’ve got some kind of collectible or potential collectible car then definitely, eBay, and do it worldwide. Millions and millions of people a day go for eBay. You can also narrow it down just in your own town. You can do your state or entire country.
By the way, let me interject something here. This buying and selling cars for profit thing will work in pretty much any country on Earth. Wherever you’re allowed to buy and sell things, you can do this. I would say that if you are ever thinking about buying or selling on eBay for that matter, open a free account now and start selling stuff around your house, even it it’s a hassle.
You want to get your feedback, and it better be positive feedback because that’s the beauty of eBay. It works on this feedback system. You rip somebody off, you get negative feedback. You want to have nice, 100% feedback for your eBay account. It’s just a good idea to start doing that now because, first of all, eBay is awesome to use.
I’m clearing out a storage room right now that I have, and I’m using eBay for some stuff that I know won’t sell on Craigslist locally. But you can also use it, of course, for selling cars. One of things about eBay that is important is to get your account going and start building up as much positive feedback as you can.
We’ve talked about where to sell the cars, but what tips do you have to get the cars sold quickly?
Having two ads running consecutively for the same vehicle and being good about going in every other day and hitting the Renew button. If there is a place where you live relatively close where you can park your car with for sale signs plastered all over it. That can be a really good way to sell a car fast.
Obviously, don’t do it in an area where it’ll get towed away. But if you’ve got an area like that that can be great. Some people don’t even advertise their cars. They just park them with for sale signs.
Has anyone responded to any of your ads and tried to scam you or anything like that?
Oh, yeah, the online stuff. It’s actually in one of the free reports. I think it’s called “Anatomy of a Used Car Scam“, and I go through exactly how with screen captures and everything of the typical used car scam. It’s entertaining and it’s informative because if you haven’t experienced it yet, it can really take you by surprise. You may think it’s real, so it’s good to read this.
Once you read the report and you figure out what to look for, it’s a total no brainer, and you’ll just delete them. Let’s say, you’ve got a car on Craigslist, for example, and it’s $4,000. So, what they do is, they’ll tell you, “Well, we want to buy your car.” Then what they do is they’ll send you a check, and they always send a cashier’s check substantially more than what the vehicle is worth.
Then they’ll contact you and say, “Oh, gee, my bookkeeper made a mistake. Could you please send us that overage? Wire it to us. We’ll pay the wire charges or whatever.” So, poor people that don’t know any better will do it. Meanwhile, they’ve deposited the check, and because it is always somewhere offshore, Nigeria is one of the biggies, it may take two to three weeks, even in this day of instant communications and all, for your bank to finally come back and say, “Oh, this is phony.” Meanwhile, you’ve sent $2,000 because they sent you a check for $6,000 for your $4,000 car. In a nutshell, that’s the scam.
What about motor homes and campers and boats, and those sort of recreational vehicles? Are there other types of vehicles that are easy to profit on?
Absolutely. I had a guy email me. He wanted to specialize in Porsches, for example and because he loves Porsches. Then absolutely, you should focus on that. That’s your passion. He was going to be retiring soon. If your passion, like me, is sailboats and you know the market, I would say that anything you know the market well. I had one guy that was going to specialize in wheelchair vans.
But yes, snow mobiles, boats, motorcycles, because there’s a market for all of that stuff. The reason I pretty much stuck with the cars is just because that’s the way I started, and I figured it is the broader market. That’s all. But if you have specialized knowledge in certain types of vehicles, then by all means.
See, that’s the beauty. When you have specialized knowledge of a certain market, you already know. When you spot down ads either, “Ooh, that looks like a really, really good deal.” You’ve already got one of the biggest aspects of the market wired, which is huge. So, yeah, if you have specialized knowledge of certain other kinds of vehicles, then I would definitely look into it as a way to make a profit for sure.
You’ve written the definitive guide on the subject of buying and selling cars for profit, but are there any other resources, forums, blogs, that sort of thing that can be useful for someone just starting out?
Not that I’m aware of, but I do offer a six month free email consultation for anybody that purchases “The Lazy Way To Buy and Sell Cars for Profit“, and I’m real good about getting back to people. That gives you plenty of time to really get into this. Also, I am going to be starting a membership club soon. It will be very inexpensive, and it’ll be a way to communicate with others, share ideas, war stories, stuff like that. You’re covered either way.
What are the biggest mistakes that you see people making when starting out buying and selling cars?
One of the biggest is paying too much because you don’t know how to negotiate, when to start negotiating, how to overcome the fear of offering a ridiculously low offer. The worse the thing somebody can say is “no.” That’s a big hurdle for a lot of people.
I would say spending too much time and money preparing the cars for sale just because you don’t know what you should do and what you shouldn’t do. Depending on the price range, there are certain things you have to do to a car. Then there are other things that are a complete and total waste of time and money that you don’t need to do.
Some beginners think auctions are the Holy Grail and I’m here to tell you they’re not. Beginners should not attend auctions. That probably even includes eBay auctions, too. You should be very careful about auctions as a beginner. I’m not saying don’t get into auctions down the road when you’ve gained some experience, gotten a good number of good successful deals under your belt. You’ve really learned how to inspect cars and you get that gut feeling you were talking earlier, Matt, that intuitive feeling.
But auctions can chew you up and spit you out if you don’t what you are doing. You’ve got to be very careful, and it’s a very intense environment. It’s not the auction houses like Manheim, for instance. They don’t do this. But some of the sellers have people in the audience, bird dogs or whatever you want to call them, that know how to focus on people that they think are beginners.
They will kind of get up next to you, and they’ll, “That looks like a really good deal and I know the guy that’s selling that. He’s a good guy and always sells good cars.” They do this to screw you. I had one guy a few years ago, he hadn’t read my stuff, and got into auctions because he thought that was the only way to do this. He ended up buying ten Suburbans when gas prices had spiked. I don’t know. It was like 2008 or something.
He couldn’t pay for them. He couldn’t sell them. They were stuck in the Manheim lot. He was paying a bunch of money to store them. I don’t even know what happened. I contacted the guy later to see what was the final outcome. But it was very sad. The point is, that he had a guy there who was encouraging him to buy these, and he didn’t know any better. He just didn’t know.
So, those are some of the mistakes. Fortunately, you don’t need to make any of those mistakes. The thing about this is there’s no need to reinvent the wheel. You can learn from my mistakes.