Why Car Flipping Isn’t the Side Hustle People Think It Is

Sometimes it seems like everything just keeps getting more expensive, from rent to groceries, which might serve to inspire creative money-making ideas. One money-making scheme that seems like a brilliant idea on paper is car flipping-buying a used or even a new car and then selling it at a higher price for a profit. After all, car prices have been soaring in recent years, with the average used car selling for $25,670 just a few months ago, so flipping a car seems like a straightforward path to profits. But when you dig into it, there's way too much risk in this side hustle to make it worth your time.

What is car flipping?

Car flipping can involve either used cars or new cars:

• For used cars, it's similar to house flipping: You buy an older car, you put some sweat equity into it doing repairs and some aesthetic upgrades, and then you sell it for a price that recoups your repair costs and gives you a profit.

• For new cars, the game works a little differently: You order an in-demand model that takes weeks or months to be delivered (for example, some versions of the Ford F-150 truck can take 6 months to be delivered). This locks in the price, so when prices invariably rise over the course of those months, you can sell it for a profit when you finally take delivery on the vehicle.

Either way, it's the same basic concept: Buy low, sell high. Except it's not that simple-and flipping cars can get you into a lot of trouble if you're not careful.

Price volatility

Just like housing prices, car prices fluxuate constantly, and they're not guaranteed to keep going up-in fact, after months of headlines about how expensive cars were getting, car prices are starting to trend downward slightly. If you ordered a new car six months ago, that means you might not be making the profit you assumed you would. The same thing is happening with used cars right now, so that beater you bought a few months ago and poured money and time into fixing up might sell for significantly less than you anticipated. There's simply no way to predict how quickly the market will shift on you-and in what direction.

The unknowns

When flipping new cars, you're relying entirely on market forces to give you an edge. But when you flip used cars, it's closer to house flipping in that you usually have to improve the vehicle somewhat to make a profit. But as anyone who has ever bought a used car knows all too well, there can be a lot of hidden problems in even the most well-loved used cars. And every extra hour of work and extra part you have to order increases your investment-and decreases your profits. Even if you wind up making a profit, once you calculate your hourly wage for fixing that car up, you might discover it wasn't worth the time and effort.

Restrictions

Car flipping is generally legal, but it's not legal everywhere. While the difference between flipping a car and simply selling a vehicle you don't want anymore is often murky, most states have some kind of restriction on selling cars for profit. Often this comes in the form of having a maximum number of vehicles you can sell before you're considered a car dealer and need to get a dealer's license-in Vermont, for example, you can sell up to 11 cars before the state will come for you. But in New Jersey or Oklahoma? You're not legally allowed to flip a single car without a license. You might get away with a few sales anyway, of course, but if you try to turn car flipping into a business, you could get on the authorities' radar.

When it comes to the new car flip, there are manufacturer restrictions to worry about, too. While not overly common, sometimes car makers add restrictions to their sales agreements that prohibit you from selling the vehicle for a period of time-typically a year. Tesla added a clause like this to their Cybertruck sales, for example (then later removed the clause), and the F-150 Lightning had a similar clause for a while. If you plan to make bank flipping a new car, you should make sure your timeline to profit won't be skewed by such a restriction, and that you're not opening yourself up to a lawsuit if you go through with the sale anyway.