The number of cars one can sell from home highly depends on why the cars are being sold in the first place. If you are selling cars solely for profit, you usually have a fixed maximum amount of cars you can sell without a dealer’s license, if you go over it, you are susceptible to criminal charges.
However, if you are purely buying cars for your personal use, and you decide to sell them afterward, usually you are not limited to a certain amount of cars per year. It’s crucial to know the state laws you reside in order not to end up in trouble with the law.
These vary greatly from one state to the other, but most of them enable you to sell 5 to 15 cars per year. If you go above this threshold you are considered a dealer/trader which means that you ought to acquire a dedicated dealer’s/trader’s license.
To acquire a dealer’s/trader’s license, you have to contact the Department of Licensing (DOL) and follow the guidelines. You also have to register with the Department of Revenue (DOR). Once you do all of this, you are eligible for a dealer’s/trader’s license.
Purchasing vehicles
To kick off the entire process, you need to buy the cars. This seems easy enough when you are buying cars for personal use, but if you are buying them only to sell them for profit, you need to follow these steps listed by the Department of Revenue.
If you plan to buy a car without paying sales tax or use tax, registration with the DOR is necessary. The DOR is a government organization tasked with administering tax laws fairly and equally to gain and promote public confidence and secure business finance.
This means that you need to register for a dealer’s license with the DOR, and these also vary from one state to the other. Furthermore, it also means that you can’t title the cars in your name if you want to sell them for profit.
Trying to go around these rules is not recommended as it can sometimes end up in costly court filings and tax fraud charges.
Selling vehicles
To be classified as a trader/dealer, all you have to do is to regularly engage in the business of selling cars for profit. This means that the state identifies you as a car dealer no matter if you restore or don’t restore the cars, no matter if you modify or repair them before you eventually sell them.
At this stage, you must obtain a valid tax registration endorsement regardless of the dealer’s/trader’s license. You also have to report, collect and eventually pay these taxes through specific tax returns such as Retail Sales Tax, B&0 Tax, Motor vehicle sales tax.
These Washington State guidelines should be enough to paint a rough picture about what you can and can not do, but states vary greatly when it comes to car flipping/car dealing. The best course of action would be to contact the DOR, the IRS, or the DOL for further instructions.
The profitability of car dealing/car flipping
The difference between a traditional car dealer and a car flipper is that a car flipper tends to buy cars that are undervalued. A traditional car dealership works with either new cars or used cars, but those cars are always more or less in retail condition.
The profitability of both of these depends on which cars are being sold, and how often are they being sold. There is a huge difference between a regular Porsche dealership which tends to achieve a significant profit margin through various mark-ups and a licensed 3rd party dealership of regular consumer cars.
In the very same way, a car flipper that flips cars made by Ferrari, Porsche, McLaren, Bugatti, Pagani, or Koenigsegg are sometimes making lots of money, while others who just trade with regular affordable consumer-grade cars are nowhere near those margins.
It can be a stressful business at times because the competition is fierce and you always have to be at the top of your game.
FAQ Section
Is car flipping a legitimate career option?
Car flipping is mostly a hobby for those who love to buy, restore and sell cars, but Car flipping can be a legitimate career if you are able to do everything right. It’s’ recommended that you start with something small and safe, and after you build your necessary contacts you can start doing it more seriously.
The most obvious requirement is a deep understanding of the car market, and which cars are undervalued, and which ones are overpriced. This way you will always be able to make a profitable decision, but you should always keep in mind that the market can change at any given moment.
Should I start a car dealership?
To open a fully-fledged car dealership you need a safe and sizeable financing source. Many online sites estimate that it costs between $100k and $200k to just set up a dealership. These costs tend to vary between various states and the type of cars you want to sell.
Supercar and hypercar dealerships are the priciest ones primarily because of the insurance costs which can sometimes be exorbitantly expensive. After you gather all the necessary pieces of information needed, and you still think you are up to the task, then you’ve just answered your question.
Are car dealerships slowly dying?
If you want to open up a car dealership, you also need to understand that car dealerships might actually become obsolete in the next decade or two. Thanks to many market disruptors and the ability to cut out the middleman thanks to the internet, many brands are starting to consider direct sales models.
You only need to look at Tesla to see what the future might bring as far as car dealing is concerned. Currently, Tesla is the only manufacturer that sells cars without the need for 3rd party independent dealerships, and if this business plan works, which it is, 3rd party car dealerships might even become the remnants of the past.
