The Bidding Process Does NOT Start With Buying a Car
Many people think the rebuilding process starts at bidding or winning a car. This is completely wrong. Before you even consider placing a bid, you need to be aware of your budget and profit margins. If you don’t know these key factors, you could easily end up losing money instead of making a profit, which goes against the whole purpose of fixing and flipping. The bidding process is just one step in a much larger chain, and understanding the financial side of things is crucial to succeeding in the car rebuilding business.
Understand The Value of Your Car
When you’re bidding on a car to rebuild, it’s important to know exactly how much you can afford to spend. If you overbid on a car, thinking it will be worth more once it’s repaired, you might end up paying too much. This mistake is something that many newcomers to the car rebuilding industry make. They get caught up in the excitement of the auction, thinking they can fix any car and make a profit. Trust me, we’ve all done it before. However, the reality is that if you don’t have a solid understanding of your budget, you could lose money quickly.
I have another blog post covering common ways to accurately value your car quickly and easily. I also cover it in my video linked below.
Accurately Estimate the Repairs
So, how do you accurately estimate the repairs on a car before bidding? Accurately assessing the condition of a car is one of the most challenging parts of the whole rebuilding process. If you make an inaccurate estimate, it could cost you thousands of dollars. That’s why it’s crucial to have a reliable method for evaluating a car before you make any decisions. Whether you’re a beginner or an experienced rebuilder, knowing how to assess the car’s condition is essential to making smart bids.
One of the most common mistakes new rebuilders make is bidding on a car that isn’t worth repairing for the amount they’re willing to spend. They get excited about a car’s potential and place a bid without properly considering how much it will cost to repair it. This is where many new rebuilders end up losing money. It’s easy to get caught up in the idea of fixing a car and making a profit, but without careful consideration of the costs involved, you’re setting yourself up for failure.
To avoid this mistake, I personally use an estimation method that helps me determine the maximum amount I’m willing to pay for a car. My method involves calculating the value of the car once it’s fixed and then dividing that value in half. The remaining amount is my budget for buying, towing, and repairing the car. This method is simple but effective. It helps me establish a clear financial limit before I start bidding on a car.
My Bidding Method
- Accurately estimate the value of the car with a rebuilt title.
- Estimate worst case scenario price for the repair.
- Find your bidding price.
The Formula For Finding Bidding Price:
(V/2)-(R)=(B)
V= Value of the car (if wrecked, assume it has a rebuilt title)
R= Repair estimate (give a higher estimate to account for hidden damage)
B= Bidding price (the price you bid on auction day)
Let me break it down further. When I see a car that I’m interested in, the first thing I do is estimate what the car will be worth once it’s fully repaired. This is the key number in the whole process because it gives me an idea of what I can sell the car for once I’ve finished the repairs. Once I have that number, I divide it in half. The reasoning behind this is that I want to leave enough room for profit after covering all the costs of repairing and restoring the car. The amount left after dividing the value in half is the maximum I’m willing to spend on purchasing the car and covering all the associated costs, like towing and repairs. Of course this is not an absolute rule for buying off Copart, but is a number I try to stay true to on fix and flips.
For example, let’s say I see a car that I estimate will be worth $20,000 once it’s fully repaired. If I divide that value in half, I get $10,000. This means that my budget for purchasing, towing, and repairing the car is $10,000. If the bidding goes higher than that, I won’t place a bid because I know that it will no longer be profitable for me. By using this method, I ensure that I only bid on cars that will allow me to make a profit.
This method works for almost every car I fix and flip, and it’s helped me avoid costly mistakes. In fact, I am yet to lose money on a single rebuild using this approach. The key to success is knowing your budget and sticking to it. If you go into the bidding process without a clear understanding of your financial limits, you could end up paying too much for a car that’s not worth the investment. Trust me I have seen it happen many times before
Real Life Example:
Now, let me show you some examples of this method working in the past. One of my favorite cars I’ve rebuilt was the 2019 Toyota Corolla I purchased for $4,000 ($5,000 after taxes and fees). I estimated that once it was fully repaired, it would be worth $13,500. Using my method, I divided the value in half, which gave me a budget of $6750 for buying, towing, and repairing the car. The repairs were estimated to be about $3,000, which left me with bidding limit of $3,750 which I broke slightly due to my confidence in saving money in the repairs. By sticking to my budget and using my estimation method, I was able to ensure that I made money on this rebuild. I ended up doubling my initial investment on this rebuild due to this method.
My estimation method helps me stay on track and avoid overbidding. By understanding the value of the car after repairs, dividing that value in half, and setting my budget accordingly, I was able to ensure that I would make a profit. This method has proven to be reliable time and time again, and it’s one that I recommend to anyone looking to succeed in the car rebuilding business.
Keep In Mind
The rebuilding process doesn’t start at bidding. It starts with knowing your budget and understanding how to estimate the cost of repairs accurately. Without this knowledge, you risk overbidding on cars that aren’t worth the investment. By using a simple estimation method, such as dividing the fixed value of a car in half, you can set a clear budget for purchasing, towing, and repairing the car. This approach will help you avoid costly mistakes and ensure that you make a profit on every rebuild. Whether you’re just starting out or have been in the business for years, having a reliable method for estimating repairs and setting a budget is key to your success.
