What will your vehicle be worth when you go to sell it?
On the day you purchase a vehicle it has an immediate assessed value, but as time goes on that value will decrease, or depreciate. Depreciation is the loss of value in the vehicle over time. The rate of depreciation will vary for different vehicles. When planning to flip a vehicle this is definitely something you have to be aware of and factor into your assessment of costs for the vehicle.
Navigator
A vehicle I bought where depreciation became extremely apparent was the 2010 Lincoln Navigator L. The day the hammer struck sold at auction the KBB value of the Navigator was about $18k. I’d bid $9k, Copart collected $1,488 in fees, taxes title and license was another $930. All-in to get the vehicle home and drive it on a daily basis was about $11,875. This is a decent sum of money in my eyes but compared to the KBB value of $18k I still had a $6k margin to play with. Over the course of a year I had various repairs & maintenance to do on the Navigator like tires, paint touch up and other odds and ends that eroded that margin a bit. The big surprise to me is that over that year the value of the Navigator just kept dropping. I would check the value periodically and each time it was assessed lower, and lower, and lower. Ahh! After about 14 mo. of ownership, and accumulating about 14,000 miles, the KBB value had dropped to about $13k, which was exactly what I had invested in it up to that point. I’d been trying to find a buyer for about the last 4mo. of ownership and when I finally did he was only willing to pay $12k. I decided accepting the $12k was the best decision. Sure, I’d lose a grand on the vehicle but if I held onto it I figured depreciation would take much more than that. Just like playing card, you’ve got to know when to hold them and when to fold.
Miata’s and Motorcycles
What I’ve found with Miata’s and motorcycles is that the best purchase deals are had during mid to late fall of the year. My take is that people either don’t want to, or can’t, store them and so they sell them cheaper in order to off load them. As you’d expect, the best time to sell the Miata’s and motorcycles is spring/summer. Enter depreciation. There are two components in this scenario: minimum of 3-4 mo. time from purchase til’ they can be sold, and also a change in calendar year. I’ve owned and flipped three Miata’s and I think each one of them dropped $400-500 from fall to spring. This is the nature of the beast, you simply have to account for this reality in your cost factors of the vehicle.
Of the four different motorcycles I’ve flipped I don’t recall the range of value reduction but it was also noticeable. Again, you simply have to account for this anticipated loss in value when you do your figuring for the purchase of the motorcycle. This again is why the American Pickers method of buying things at 50% market value comes in so handy (Quantify the Cost Blog link). It is a simply way to enable you to account for cost without necessarily needing to be able to perfectly compensate or quantify them. However, the better you do compensate and quantify the associated costs you’ll effectively reduce your risk and enhance your chance of success.
Fully Depreciated
A 2010 Ford Expedition EL Limited with 273,230 miles on it is pretty well depreciated and yet KBB said it still had a value of $7,900; so I bought it at auction for $3,650. Fully knowing I’d need to put money into it over time, but also fully knowing that depreciation is no longer a factor. We’ve owned it for a year now, put another 15k miles on it, and it’s still running. I figure that even if it does eventually die it will still be worth $2-3k. My goal here is to simply minimize my loss in operating our family vehicle.
Compare that to buying a brand new Ford Expedition MAX Limited. <-Link The average depreciation over the first two years is almost $11k per year!!! I could buy a used 9-10 year old Expedition each year, run it for a year and then throw it away, and it would still be cheaper than a new one in depreciation alone. Crazy numbers. Or maybe crazy people? Both?… Yeah, I think it’s both.
Summary
Time is not your friend when you’re trying to make money off a car or guarding against loss on a car. It possesses its greatest value now, not later. Depreciation will take effect. I think holding a vehicle for 3-6 months is a decent amount of time to correct any issues, get some day-to-day use out of it once it’s fixed, and then send it down the road with someone else and still make a profit. Holding a vehicle for year or longer puts you into the category of trying to simply not lose money, which is very doable. You’ve also got to remember that the miles you drive the vehicle are also removing value from the vehicle because it has now incurred more where and tear. The whole game is to strike a balance of your initial investment, your use of the vehicle, the impending depreciation, and your desired financial outcome. To me it’s a game, a game I enjoy, a game I’ve been fairly successful at playing.
Give it a shot. Find yourself a vehicle you’d like to drive for a while. Buy it, fix it, drive it, and flip it. If you do it right, it shouldn’t cost you a dime.