The word Depreciation has a negative stigma attached to it, people usually associate the word with losing out.
Whilst this can be true in a lot on instances Depreciation can be used a tool to work in your favour, over years of trial and error we have perfected a system here at car flipping 101 which we are going to share with you today.
How Can Car Depreciation Benefit You?
It allows us to buy cars which were once £50,000 + cars for a fraction of the cost of what they once were.
We drive them for the short term and flip them for a profit.
The big Depreciation hit has already happened and we are literally picking them up for pennies on the pound.
Our philosophy here at car flipping 101 is to be able to drive the best possible cars for a fraction of the cost and this is all possible through understanding Depreciation.
Would you rather lease a brand new base model Ford Mondeo for £300 per month or being able to drive a beautiful 5-year-old top of the range Audi S4 once worth £50,000 for the same price?
What is Depreciation?
Depreciation is basically the difference between the value of a car when you buy it and when you come to sell it.
Depreciation varies between makes and models and some cars only drop so much and never drop any lower.
When’s the last time you saw a Lamborghini for £500?
However, some cars fall all the way to virtually nothing and the value depends on what someone is willing to pay for it based on condition and mileage.
A typical car loses somewhere in the region f 15-35% of its value in the first year and then over 50% + over three years
So just to put this into perspective a car you may have purchased for £30,000 brand new from the showroom will only be worth around £15,000 after just three years old!
What Causes Depreciation in Cars?
Car manufacturers want to sell you as many cars as possible; they produce newer refreshed models yearly in a bid to entice new buyers and are then under pressure to sell these newer models.
But what happens to last year’s fleet still sat on the forecourt?
Well, the most likely scenario would be to drop the price on them to get this stock shifted ASAP.
Once the dealers begin to shift the prices on the forecourt this has a direct correlation to used car prices and knocks down the value on your car.
Car dealerships usually provide 3-year lease options on new cars with a warranty covering the same period, once cars start returning back to the dealerships with higher miles and no warranty left they are keen to shift them on quick.
Again this is usually done by reducing the price of the cars which again has a knock on effect in the used market.
Can Anything be Done to Stop Depreciation in Cars?
Cars are a generally a depreciating asset, however, certain cars do hit a low point and begin to rise again in value when models tend to become rare and most models available are heavily modified or have been abused.
A few examples of recent cars that have shot through the roof are the Toyota Supra, Ford Escort Cosworth and one car that might be worth picking up whilst values are still relatively low is the BMW E46 M3.
However, these few cars are an exception to the rule and the general trend is for most cars to continue to drop
So How Can Depreciation Benefit Us?
The idea we put forward is simple.
We look for clean, well-maintained cars in near pristine condition which are no newer than around 5 years old in most cases.
The reason for this is that Depreciation has already taken its biggest hit and we are able to pick up cars for more than 50% OFF their original market value.
This can apply to most makes and models of cars but we generally tend to favour the luxury cars which are heavily optioned and look more expensive than they actually are.
If we apply the car flipping 101 methods to each purchase, we can get in and out of beautiful cars and flip them for profit before Depreciation can catch us.
The trick really is to keep the car no longer than around 6 months and keep the mileage relatively low so it’s still appealing to the next buyer.
Be sure to use our awesome guide on how to value cars in order to pick up the car at the correct price, this will allow us to have a built-in price buffer which should keep us safe for a few months whilst we drive, enjoy and sell
Let’s talk through one of your Real life examples of this in action.
We managed to track down a beautiful 2009 Range Rover Sport HSE 3.0 TDI in March 2017
The reason we went for this year is that it has a few upgrades including a newer looking modern interior.
The car was decently optioned and at a very respectable 80,000 miles (check out our article on how to determine how genuine a cars mileage is)
The seller listed the car for £16,500 and using our skills on how to correctly value and formulate an offer we managed to pick the car up for £13,000
The car did require new discs and pads all round which were replaced at an independent specialist costing £500.
We drove the car for 8 months, which is a little longer then we recommend and managed to put around 3k miles on it.
The car was sold on eBay in Nov 2017 for £14,000
To Recap These Figures
We drove a beautiful Range Rover Sport which when new would have been around £55,000 and paid £13,000 for it, that’s almost 76% off the original price for a car that still looked modern today.
We drove it for 8 months and made a £500 profit on its sale, we could have potentially sold it for more had we flipped it sooner, but we just enjoyed it too much.
So that’s like being PAID £62 a month to drive a Range Rover!
Would you rather be paid to drive a Range Rover then paying £300+ a month for a lease on a base model Mondeo?
We used the money from the sale to buy another luxury car and rinse and repeat the process.
Note: This system does not apply to exotic supercars, whilst exotic cars do depreciate, they have a completely different scale on which they work. That is a completely different subject.
This method works fine for all cars up to exotic car level.
Don’t be afraid of Depreciation, if you understand Depreciation you can use it to your advantage.
From the details we have provided you here we hope you can begin to understand the ways in which you can start to use this method.
If you are apprehensive then you can start off smaller with smaller budgets to see how the process works in real life.
There are always people out there who will still walk into dealerships and will pay £50,000+ to buy a car which is fine! it only allows people like us from the car flipping 101 community to come along in a few years and buy that same car for peanuts.