Howdy (said in my best Texas accent)!
This Buy Here Pay Here Manual will help you add “buy here pay here” to your profit model without screwing it up. This Manual is 117 pages & the only one of its kind in the country.
The truth is…. no one wants to tell you how to do it. This manual WILL get you going down the right path!
Heck, I even taught my mechanic how to do it!!
He has 256 people bringing him $75 a week…That’s $19K a week!
If they don’t pay, he picks up the car immediately. No pay – no play.
If their car breaks down, he repairs it and keeps the payments rolling in!
I recommend starting small with just one car. Then do two cars, then three, then four. Make sure this business is for you! This ain’t for everyone! Before you know it, you will have 50 cars on the street.
Buy Here/Pay Here (BHPH) dealers deliver basic transportation to thousands of Americans everyday who couldn’t get it any other way. They allow people to find jobs, get their kids to school and doctors, and pursue their version of the American Dream. What a great story. Usually cash is king BUT in the BHPH business CASH FLOW is king!
BHPH is a HUGE business. Its estimated that the BHPH business is a 70 BILLION dollar a year business. Get your piece of the pie!
BHPH finances the “unbankable” customer. No traditional lending institution will lend them money. They do not fit the traditional lending profile. The customer needs a car, the dealer wants to make a profit, and no one will lend the customer the money – so guess what the entrepreneurial car dealer did – that’s right – he financed the deal! He makes profit on the front end (the car) and the back end (the financing)!
The BHPH business is nothing but consumer finance at its finest. Customers agree to make a average down payment and to make weekly payments to the dealer. The dealer is in the LENDING business really – the car is just something he uses to create a note!
They are in every town. “We finance” “Your job is your credit” They serve an important service to the community. They sell cars to people who could never get financed at a traditional dealership. However, this service is at a price, a BIG price. They will pay high interest rates, usually at the maximum state limit. Around 18 – 22%!
I have one friend who owns a “But Here/Pay Here” lot (also called a “Note Lot”) in Texas. He has 300 people bringing him $40 a week. That’s $12,000 a week. That’s serious cash. It takes years to build the business to that level. He has MANY repeat customers and tons of referrals because he treats his customers “right”. In fact, if the car breaks, he fixes it with NO up front cost to the customer. He just adds the cost to the end of the loan! The makes the customer SO happy. Plus the dealer keeps collecting weekly payments! He is in the business of collecting payments (also called notes. Hence the name, Note Lot), not making repossessions.
Your goal is to get many people paying you each week. After you sell the car, you have to get them to keep paying you (that is the tough part of the business).
One reason BHPH lots are so profitable is because this is truly a vertically integrated business. You are the dealership and finance company. You make ALL the profit on the deal, the front end gross and the back end gross. Of course, there are greater risks involved but the financial rewards can be outstanding to say the least.
If there two common reasons people failed in the BHPH business is 1) lack of cash and 2) lack of a disciplined collection system.
Operating a successful BHPH lot requires a well thought out plan. Particular attention given to personnel, underwriting, collections, and financial management.
The cash flow is incredible. And the financial risk is relatively low. You buy a car for $500 and get $500 down. You get all your money back! And you collect $40 a week for 100 weeks. (If they loan is paid off in full, you will net over $3500!) And if you have 100 people paying you $40 a week, that’s $4000 a week! Not too bad! Plus, if you repossess a car, that’s FREE inventory to make more money! It’s FREE because the first buyer paid you a down payment that was equal to the amount you originally paid for the car. Some buy here/pay here guys can’t wait until you miss a payment so they can get some FREE inventory. See Resource Guide for a Note Lot Profit Projection Analysis.
If you want to do it right, you need $50,000 – $300,000 for inventory. You will need a great location with lots of traffic.(this will cost a lot of money!). Have an average inventory of 30 – 40 cars. Buy cars for $300 – $2000 each. Retail the cars for $995 – $4995. This is BIG business. Remember though, once you run out of money, you are out of business.
You will finance everything. You tell your customer, “When you get paid on Friday, I get paid on Friday. If I do not get paid on Friday, I will come get the car on Saturday”. Look at them straight in the eyes with a serious tone and voice and face. It can be dangerous! People need their car to get to work and get to the grocery store. You are taking their ride!
To determine the wholesale price of cars on Buy Here/Pay Here lots, also called “note lots”, take the selling price and cut the price in HALF and perhaps even by two-thirds. Most successful note lots ONLY buy cars that they KNOW they can double or triple the price they paid. The goal is sell the car for THREE times the price you paid. In a HOT market, you might only be able to sell it at twice the price you paid. PLUS, you make interest payments on the financing at rates of 18% and UP.
Some wholesalers specialize in visiting large dealerships asking the used car sales manager if they have any note cars in the back they want to sell. The wholesaler buys the car and sells it to a note lot for a couple hundred dollars profit per car. And then the note lot dealer doubles and even triples the price and finances the deal. Everyone wins!
You do need a dealer license! Your main focus needs to be on Location, Location, Location. The dealer license is not big deal if you are going to get a car lot! To reduce cost, let a mechanic rent out a portion of your lot for his business. He will do all your mechanical work for free in exchange for free rent. All you have to do is buy the parts! (and with a dealer’s license and a sales tax number, you will buy all parts TAX FREE)
If you know you want to own a Buy Here/Pay Here, start small buying and selling cars on your own. Parlay your profits until you have an inventory of 10 cars. Keep buying and selling until you have enough money to afford a decent location! Then keep building your inventory until you have 30 – 40 Buy Here/Pay Here cars.
You simply buy cheap cars from the used car sales manager at dealerships. Stop by each dealership once or twice a week asking if they have any “note cars” on trade they want to sell. Always be on the lookout for cars. From time to time, you will find a steal. (Do not get caught with no inventory. Even if your lot is full, keep looking for cars!)
The retail price is THREE times the amount you paid for the car. (Some note notes double the price and add $1000). The down payment is basically the amount you paid for the car (thereby eliminating your financial downside). Most note lots charge the maximum interest rate your state allows you to charge. The standard is to charge about 18 – 22%. You collect about $50 weekly (when the customer gets paid at work, you want to get paid the same day) until the loan is paid off.
Example: Car retails for $4,995 (PLUS tax, tag and title), you will finance about $3800 after a $1500 down payment. At 20% interest, you will finance the loan for two years at $48.35 a week. (use a financial calculator)
Ten commandments to note lot success
The basics of a note lot
How much profit can a BHPH make?
Advantages and disadvantages
Income tax problems explored
RFC’s in more depth
Increased profits through note creation
Where can you sell your notes?
What to do when things are slow
Management information systems (MIS)
Your BHPH customer
What about salesmen?
Interviewing the BHPH customers
Can you pull a credit report?
Is the customer credit worthy?
How does down payment affect default rate?
Closing the loan
Collect your money
Fair debt collection
Need more money for growth?
BHPH Final Advice
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