New Year 2020- Flipping Cars legally but not enough volume to justify getting a dealers license

So with the New Year upon us and my wife out of town two weeks each month, I find myself with more free time. Kids are out of the house and I think I want to start flipping cars for fun and small profit. Not generic junk, but fun stuff. My normal path is to buy a used fun car shrewdly and then modify it to my liking.  So I am normally into the car for more than I can sell it for, but I also consider the wear and tear as well as the entertainment value. So I am considering starting a side business in early 2020 to flip a few cars per year and also part out cars for some additional $$$. Here in Maryland, we can only sell up to 3 cars per year or we have to get a dealers license. I would be happy to get a dealers license as part of the business, but that requires a place of business, dealer lot, business inspection, zoning, etc.... So hard to justify that just to sell a few cars. So I am thinking of starting small and keep it to 2-3 per year but picking cars where I will make a decent profit (i.e. the MR2 I just found that comes with everything needed to finish the project, V6 engine swap, SC transmission, rust free, new seats, rebuilt engine, new brakes, struts, springs, wheels, tires, etc.... for $2,500 I will assemble it, play with it over the summer and sell it for a nice profit and keep looking for the next one. I figure I will also part out a few cars with good resale values for parts, as I have some experience with this over the years.

Has anyone ever worked with an existing dealer? I have read about finding a dealer that is looking to bring in individuals under their dealer license as a buyer agent for their company. I understand that this would allow me to use their dealer license to purchase at the local auctions as well as use them to process the paperwork for any cars I want to sell (minus their fees of course). Anyone done this and have any advice?

Here in AZ the number is 4 before you run afoul of the MVD. Not that I would EVER consider it but, I heard somewhere, people put the car to be flipped in the name of a close person (wife, grandparent, etc). Just one of them gets you to 6 per year. Did I mention that was just a rumor?

I'm just curious what happens if you sell 4 cars in Maryland? You still do not qualify as being a dealer.  Like Ohio, to be a dealer requires a physical presence, license, etc. 

I have not done flips under a dealer. Sure would be nice if it is that easy. My guess is that it is not that easy. 

Is it possible for you to sell 3 and your wife to sell 3, or does the state consider a married couple to be one entity? Under this system, I guess your kids could assist as well, for a little slice of the pie of course.

I think California has similiar laws, but my friend exceeded their limits by a lot and never heard a word about it.

When she was flipping cars, she would try to keep the title out of her name, the paperwork shows they bought the car from the previous owner.

However, a competitor can report you to the state, that is the real risk, if you are big enough for people to notice what your doing and have it impact them.

I flip cars under a dealer.  He charges me a flat fee per vehicle.  It is definitely the way to go if you only sell a few vehicles per year.  The issue preventing others from doing this is his liability.

If I go crazy at the auction and bid on some super expensive vehicle, he is responsible to pay for it or he could lose his auction access.  If I crash one of my cars it's his insurance that would pay for it.  If I sell a car and it blows up his reputation is the one that suffers.  Its alot of risk for a small reward.

I owned a car dealership for 10 years and kind of know the process which alleviated some of his concerns.  I have been flipping cars for about 8 years since then and he knows that I will do the right thing if an issue arises.  I don't drive on the dealer tag unless I have too, all these things help lower his risk but it certainly is still there.

I guess my point is finding someone willing to take the risk would be difficult...

nimblemotorsports said:

 

When she was flipping cars, she would try to keep the title out of her name, the paperwork shows they bought the car from the previous owner.

 

This is called curbstoning and is specifically illegal in Maryland (if not everywhere.) 

I know in NC we're not allowed to hold an open title without being a dealer. 

But dherr seems to be only interested in doing 3 cars per year so that won't be an issue.

nimblemotorsports said:

When she was flipping cars, she would try to keep the title out of her name, the paperwork shows they bought the car from the previous owner.

This is illegal in most states (form of tax evasion). I got caught doing this by the state of WI when I was 19 years old. I'm still not sure exactly how they put it together but I got a bill & fine to the tune of $3000 from the state revenue department.

I was guilty of what they claimed (resold many vehicles with open titles) so I paid the fine off and now I don't skate open titles anymore. Lesson learned.

I have a buddy that still does it and has never been caught but you only need to have an example made of you once to play by the rules...

In MI you can sell 5 per year as a privateer, but a lady at the Secretary of State told me they don’t really care as long as you title / register each one because they’re getting that tax money.  

buzzboy said:

I know in NC we're not allowed to hold an open title without being a dealer. 

But dherr seems to be only interested in doing 3 cars per year so that won't be an issue.

Well I would do more cars per year, but don't want the investment required for the dealer license. I'll keep it small for the first year and also explore the dealer avenue.

nimblemotorsports said:

I think California has similiar laws, but my friend exceeded their limits by a lot and never heard a word about it.

 

We can do 5 cars per year. Took DMV 3 years, to send me a letter that my 10-11 a year isn't ok. Dealer license (super easy), last 10 years here. Now no issues 

AngryCorvair said:

In MI you can sell 5 per year as a privateer, but a lady at the Secretary of State told me they don’t really care as long as you title / register each one because they’re getting that tax money.  

It's 5 per year here also, but no one checks as long as the tax is paid. Use your wife's name if you're concerned, that will double the number of cars you can flip.

So what happens when a person buys junk cars in the first place and ends up going through 6 or 7 in a year because they were all cheap needed repairs that never got done? Clearly they met the amount to have a dealers license, but never had intentions on selling until it broke.

Most of the time the dmv is looking at buying and selling in a short time frame. I mean I could have bought my challenge Miata with the broke trans, replaced it, then sold it immediately because well, I hate Miatas. This was all in 6mo time. Time is on your side in most transactions. As long as it's not a "quick flip", I'd say something under 2-3mo time, nobody will care. But if your buying and selling a car per day, aka Keith Szabo and the state of Michigan, you're going to get caught.

This is called curbstoning and is specifically illegal in Maryland (if not everywhere.) 

Glad to know government took the time to slap a name on the monster they created. Technically any form of tax evasion is illegal but we're gonna have to find a lot more terms and associations to stick to it before i start to feel remotely bad. 

When they make title transfer and sales tax an online process that's cost-capped to a percentage of the car's value, the value can actually be tied to the condition of the car, and has an appeals/alternative appraisal process that doesn't cost more than the original amount of tax they wanted, I'll even TIP them! 

Plus, then dealers will make even better profit off the 200-500$ documents fee they try to charge to fill out approximately two forms.

Just by watching a few copart auctions online, I noticed that if you want to make more money flipping, you should focus on more expensive cars.

Note that more expensive /= more cars.

It seems that cars go for about 60% of their retail value at auction, condition dependent (I bet someone has a much better number on this but I'm just going from the couple auctions I watched). And it's about the same work to fix a $1000 car as it is to fix a $10k car. But would you rather make $400 or 4k?

What I'm trying to say is maybe increase the value of the cars you flip, rather than increasing the volume of cars you flip.

mr2s2000elise said:

 Dealer license (super easy), last 10 years here. Now no issues 

Just curious, what state are you in where the dealer license is super easy?

When I owned the car dealership I sold about 300 cars a year on average.  Most were in the $5,000.00 price range.  I averaged $750 a car profit.  You will make more money on more expensive cars but percentage wise the $3000 to $5000 cars were a good price point to work in.

In reply to pimpm3 :

How many employees / how much fixed and variable cost?  On the surface, $225k profit seems pretty juicy. It’s certainly more than I make as a brake systems engineer with 27 years in the industry.

AngryCorvair said:

In reply to pimpm3 :

How many employees / how much fixed and variable cost?  On the surface, $225k profit seems pretty juicy. It’s certainly more than I make as a brake systems engineer with 27 years in the industry.

I had one porter / detailer, my partner sold the cars and I bought them.  There was rent and insurance obviously plus electric / cable etc...

I bring home more as a detective now than I did when i had the car lot if that helps...

Honestly the real money is in financing which we never did back then.  My partner from the car lot still does the car thing but he pretty much just does by here pay here stuff now.  It's far more lucrative, but is a real pain from talking with him.

In reply to pimpm3 :

BHPH sounds like it would suck.

L5wolvesf said:

mr2s2000elise said:

 Dealer license (super easy), last 10 years here. Now no issues 

Just curious, what state are you in where the dealer license is super easy?

 

I am in CA. I meant it's super easy for me having a dealer license than dealing with DMV and getting noticed for selling more than 5 

I pay $450 for surety bond. Test and fees cost me about $300. Not sure if prices have increased since I got mine in 2008 

Vermont here. Keep it under 12 cars and you're good.

Robbie said:

Just by watching a few copart auctions online, I noticed that if you want to make more money flipping, you should focus on more expensive cars.

Note that more expensive /= more cars.

It seems that cars go for about 60% of their retail value at auction, condition dependent (I bet someone has a much better number on this but I'm just going from the couple auctions I watched). And it's about the same work to fix a $1000 car as it is to fix a $10k car. But would you rather make $400 or 4k?

What I'm trying to say is maybe increase the value of the cars you flip, rather than increasing the volume of cars you flip.

Yes, that is my plan. I will finish project cars that have some return not just flip inexpensive cars for a quick $$. Not really looking to make a ton of money, but finance my car hobby, enjoy some fun rides and perhaps get some tax breaks new tools along the way.

mr2s2000elise said:

L5wolvesf said:

mr2s2000elise said:

 Dealer license (super easy), last 10 years here. Now no issues 

Just curious, what state are you in where the dealer license is super easy?

I am in CA. I meant it's super easy for me having a dealer license than dealing with DMV and getting noticed for selling more than 5 

I pay $450 for surety bond. Test and fees cost me about $300. Not sure if prices have increased since I got mine in 2008 

Doesn't CA require a place of business, dealer lot, zoning, etc..which costs money too?