Rent my car: Is Turo worth it in 2021?

Crunching the numbers: Is Turo worth it?

Airbnb for cars: How you 100K+ per year carsharing!

 

Are you someone who is on the fence about listing your car on Turo or other carsharing platforms like GetAround, ZipCar, or Hyrecar and want to make sure it’s worth doing before investing your time and money?

If that sounds like you we know this article will help you to make a financially sound decision when it comes to renting your car out on various carsharing platforms.

As long as you have good credit, you can start this business without anything other than the time you spend managing your fleet.

While I want to be as comprehensive as possible, conducting a thorough financial analysis will require many unique inputs that change based on your market. Use this as a guideline to structure your business.

Are you a hobbyist or are you wanting to start a business?

Before we begin, you need to make sure you are managing your expectations correctly. Are you someone who is looking to just rent out their personal car to subsidize the cost of ownership or are you someone that wants to eventually run a full-time fleet? The answer will have a considerable impact on how you want to build your business.

Renting your own car can be extremely stressful, but in turn, can be extremely profitable.

While financial considerations run very close for both options, the actual car you will buy to rent out should be influenced based on your answer. The soundest financial decision can be apparent in a vacuum, but factors like your time, enjoyment of cars, and other intangible costs need to be analyzed before selecting a car.

Now that we’ve got that out the way, let’s begin on this next Turo article. See you at the end!

Implications of the sharing economy

Turo is a platform that has allowed thousands of individuals around the country to subsidize the ownership of their vehicle by matching renters with owners. Dubbed the “Airbnb for cars”, the platform has seen as a dramatic increase in usage over the last few years as more and more consumers find out about it.

The sharing economy phenomena that have resulted in the introduction of apps like Airbnb, Uber, and Turo has never been experienced before. The dawn of the digital age introduced market disrupters that have allowed consumers to cut out the middle-man and transact between each other.

Industries are being disrupted left and right

The reduction in the overall supply chain has resulted in significant decreases in cost of services and products which has been enjoyed by consumers all around the world. Critics argue that the consistency of service and uniform quality expectations has seen a decline, but as consumers become more experienced with operating a business, these concerns should become less common.

Of course, you will need to analyze the demand and adoption of these opportunities in your area. A business model that works in California may not work in rural West Virginia. Identifying potential issues before you begin your business will be a huge factor in reaching profitability.

Subsidizing the cost of ownership

Take a look at your current financial situation and ask yourself what is your 1-year goal. Some of you are probably looking for a way to earn more money as a necessity. Others might be looking for ways to invest the money they have saved. Both types of readers have a lot of value to be gained by considering various income opportunities in the sharing economy.

The host who is looking to earn side-hustle money

Let’s begin with the first type of reader. You have a car that’s sitting around at home and you want to find out a way to utilize it to subsidize the cost you have already incurred. In this situation, any additional profit would likely be attractive. However, you need to consider the wear and tear expense that others would place on the car. Another concern you should acknowledge is that you need to understand that you have to view Turo as a business. You should not rent out your car if you will be constantly worrying about the car.

Remember that insurance has you covered. Don’t attach sentimental value to any car that you rent out because it’s only a matter of time before it’s crushed. The reasoning why I am pointing this out is because when that time comes, you need to be able to respond in a professional manner. Small scuffs and scratches should not cause you to go into panic mode!

Renting out a personal vehicle

If you’re someone who only has 1 vehicle that you need to use for work, I highly recommend making sure Turo is the right fit for you. If you need to pay for Ubers or rent a car due to long bookings you will likely wipe out any profit you make by renting your car out. Should you decide to rent out your primary vehicle, you will need to arrange for temporary transportation in order to make it work.

This method of renting out your own car as a test is very popular amongst newer hosts. Even though they lose money due to additional transportation expenses, renting out a personal car allows the individual to get a feel for their market. If they see acceptable demand, adding a full-time carsharing vehicle becomes a possibility.

Another consideration you must make is that a personal car generally holds a level of sentimental value to the owner. Your “baby” will likely not be treated by the customers the same way you would. This means you need to accept that the car is now a business asset. Don’t hold any emotional attachment to the car and treat the operation as a business.

Estimating costs before listing your rental car

Once you have decided to begin your Turo journey, you will need to perform some simple calculations. These calculations will be the framework that your business will operate upon. Incorrectly estimating these expenses can obfuscate a scenario to look profitable when it’s not.

A few expenses: 1. Estimated life of the vehicle (in Miles) 2. Planned maintenance costs (averaged out) 3. Value of labor 4. Estimate resale value at liquidation 5. Insurance cost

These expenses are by far not all inclusive but will be a good indicator to differentiate between absolute failure and break-even scenarios.

Life of the rental car

In order to accurately assess the profitability of a car, you will need to assign a useable life to the asset. Because I run a fleet of new cars, I set my mileage life to 60,000 miles. This is just personal preference; any amount is acceptable, you will just need to adjust the expected maintenance cost over the course of the life. I use 60,000 miles because that’s when most new car manufacturers’ powertrain warranty ends. The risk of a large repair bill is something I would prefer to not have to worry about but if you have connections with shops then this would be less of a concern.

Cost of ownership: Turo rental car

Let’s illustrate the life of a rental car principal. Presume we purchase a 2018 Honda Accord Sport with an MSRP of $26,675 at the dealership for $22,800. If you haven’t read our car buyers guide, read it. The time you spend reading that will save you thousands when it comes time to buy a car.

I just wanted to take this moment to point out that by negotiating correctly, we are saving nearly $4,000 from the beginning (this doesn’t even include accessories that dealerships will successfully push on people).  By maximizing the savings that we realize at the point of sale, we will reduce the overall cost of ownership of our rental car.

What will we get when we sell our car?

Now that we have an acquisition price, we can move on to the liquidation price. An easy way to find out what your car will likely sell for after our useful life is by viewing used car listings of the same model.

Assuming we use an expected life of 60,000 miles and average 15K miles per year (you can adjust higher if you are renting economy cars and lower for exotic/luxury) we will have a useful life of 4 years. In order to find comparative vehicles, we will look on Carmax for a 2014 Accord Sport with around 50-70k miles.

Resale value after expected life

You can see that a 2014 car is still retailing for almost 18K! You might be thinking that you’ve only lost 4.8k over the past 4 years. Stop right there. You need to account for many expenses before you can estimate an accurate number. Settling at a 4.8k cost will make the investment look too good to be true.

This issue occurs a lot when people are trading in their vehicle. They see the retail price of their trade-in and expect to receive the same offer. What people don’t realize is that unless you paid off your loan in full at time of purchase, you will have a balance remaining on the car note. In California, consumers are required to pay a 9.5% sales tax! The tax is tacked on with DMV fees in your initial car loan balance. Because your payments are amortized, buyers will be incorrect if they perform simple arithmetic to get their payoff amount.

Don’t forget the spread between selling price and loan balance

Adjust your unrealized equity to account for these added fees. I generally get a  5-year loan (allows for early positive cash flow), so using a car loan calculator we can find that our payoff after 4 years at 2.9% interest is $4918 (assuming 11% tax, title, DMV).

Another consideration is the resale value of your vehicle. If you don’t have a retail license you will need to sell it private party or trade it in at a dealership. For simplicity sake, we will allow the dealership a 2.5K spread between retail and purchase price. This means our car is worth 15.5K. Our unrealized equity over 4 years comes out to be $220/month. This will go on our financial analysis as “unrealized equity”.

Estimating cash flow generated

In our example, now that we have accounted for unrealized equity we need to estimate our monthly cash flow. In my market, the competition is very stiff so a 2018 Accord will only bring in around $45 per day. Although the average daily rate is lower, the utilization rate is relatively high coming in at 80%. In your own financial analysis make sure you account for multiple scenarios and find out cash flow for multiple utilization levels.

With a 45$ per day rate and an 80% utilization, our vehicle will generate $1,012.50. This is the baseline number that we will be working with. If you offer extras (car seats, one-way trips, prepaid fuel, post-trip cleaning) you will on average make 10% more per month. If you offer delivery to your guests this number will also increase accordingly.

Let’s just run the analysis using our base numbers. The monthly payment on our car note equates to $454 per month.  Our pre-adjusted income will be $558.50 each month.

Estimating Expenses incurred

Now that we have a number to work with we will need to account for expenses associated with running a Turo fleet.

Here are a few things we need to assume: 1. The insurance cost of $100/month 2. Average turnover of 5 3. Turnover expense: $10

That means our expenses will be $150 extra per month. Note: these numbers do not include delivery expense – we assume you will be turning a profit for deliveries.

Accounting for expenses leads us to a net income of $408.50 before accounting for unrealized equity. Once that is factored in we net $628.50 each month on our 2018 Accord Sport.

Using Turo’s insurance packages

Note: We will be using Turo insurance for trip related issues and for coverage outside of trips. Remember, Turo only provides liability coverage when you are delivering a car. This means you are opening yourself up to significant risk if you don’t “double-insure” your fleet.

I personally use the 85% plan as most of my clientele have the means to work out damage claims without involving insurance.

Time Investment

A big question many hosts have when they first get started is the time commitment required for running a Turo fleet. If you’re a pick up only host your actual time investment will be extremely low. Assuming each car turnover takes you 30 minutes (includes check in and out) you will be spending 3 hours each month managing the car.

Add on 1.5 hours for messaging and customer support and you will be at a total time investment of 4.5 hours for this vehicle. This means our Turo car is generating a $139/hour income!

Spending your time wisely: Automation through Streetsmarts

If you want to automate the process even further you can implement programs like Streetsmarts and GetAround. Streetsmarts allows hosts to set up automated messaging that will send customers pickup information and other relevant trip information. This type of program will take care of the vast majority of customer questions!

Using multiple platforms to maximize utilization

GetAround is another car sharing platform but I want to mention it in this analysis because it offers a very affordable way to add GPS tracking/engine shutoff for your fleet. The initial installation is free and it will only cost $20/month for each vehicle after a 6-month FREE trial. The GetAround addition will allow you to facilitate smooth remote handoff, further reducing the overall amount of time you spend managing your fleet. As an added bonus, during slow months you can use GetAround to find customers to avoid having your car sit unutilized.

Expanding your Turo fleet: Commercial and beyond

Now that we have the basics down on performing a financial analysis for Turo, I want to talk about expanding your fleet once you have decided to scale your operation.

Please read this part carefully as this is one of the biggest mistakes I made when starting out on Turo.

Acquiring cars correctly: Business entity formation

While you can purchase cars under your name using your personal credit, I would highly recommend AGAINST doing so as you will eventually hit a point where your personal credit is exhausted. Even if you have ample income and a high credit score, most states will limit the number of cars you can register (usually under 10). An example of this would be: you have purchased 3 cars under your personal credit but want to purchase a 4^th. The bank denies your loan based on the fact that you have 3 existing auto loans that are labeled for “personal use”. Now your only way of expansion is via cash purchases and for most people, this is not feasible.

The workaround solution for this problem is registering an LLC or Corporation and acting as a guarantor for the loan. Because you are acting as a guarantor, your company does not require business credit. By expanding your fleet from day 1 using a business entity proxy you will not be capped when it comes to expansion.

Banks that don’t report a loan to your personal report

Banks like BMW Financial, Mercedes Benz Financial, and Wells Fargo do not report business lines of credit on personal credit statements (not guaranteed, please check with the specific bank before obtaining financing). This means as long as your personal credit isn’t exhausted, you will be able to continue to expand your fleet accordingly.

Your window to purchase more vehicles!

If you do not wish to go the business entity route, you can structure your purchasing to maximize the number of vehicles you can get for your fleet. When you purchase a car, that account won’t hit your credit report until 30 days after the date of signing. This means you can expand in a short period of time before the loans show up. Example: You currently have 2 cars in your name. You have submitted your credit at BMW and they have approved you for a loan. If that loan hits your credit (30 days later) you will not be able to buy another car. This means you have 30 days to go to other dealerships and purchase cars before the first loan hits.

Importance of Diversification

In addition to conducting a thorough financial analysis, a potential host must consider the seasonality trends of their market. Colorado may see a decrease in traffic during the summer months for SUV’s. Renters in Ohio may not look to rent convertibles in the winter. Each market has its nuances that need to be accounted for when structuring a fleet for success.

Another thing hosts should consider is taking on an acceptable amount of risk. Hosts need to make sure there are multiple income streams in their fleet. This is to prevent insolvency if a few cars become inoperable due to accidents or maintenance. If you have all your eggs in one basket you may find yourself struggling to make your car payments should a car become out of service.

Setting yourself up for success: Stay busy throughout the year

Structuring your fleet to target customers year round will reduce the overall risk that a host will face. Make sure you add cars that have demand throughout the year like mid-sized economy sedans. No matter the season, there will always be renters for cars like Honda Accord, Camry’s, and other affordable daily commuting vehicles. Yes, you want to make sure you make the most amount of money but if you purchase the same car because it’s very profitable you are in essence cannibalizing your own rents!

Make sure you offer a wide variety of vehicles to prevent your customers from looking for alternative options. If they decide to rent from another host you risk losing them forever! Be their one-stop shop for all their car rental needs.

Considering your expenses

This step must be taken seriously in order to ensure your financial analysis is indicative of the market. The first expense you will need to account for is the purchase price of the vehicle. Your car payment is an output that is entirely based on the selling price and interest/money factor you receive. You want to make sure you get the best deal possible when you are buying a car.

Remember, each dollar you save here will go directly to your bottom line. A profitable venture starts with a strong foundation and the car buying process will be something you should put careful research into before making a purchase. If done improperly, you risk lowering your ROI significantly.

How can you calculate depreciation in rental cars?

Another expense that you will need to account for will be depreciation. This is extremely hard to accurately measure due to a large number of variable expenses that arise from selling a vehicle. To simplify this step, I personally disregard depreciation when analyzing a potential addition to my fleet.

How is this possible? I will establish a usable life for each vehicle. For this example, I will give a car a 50,000-mile limit. Once it hits those miles I will liquidate the asset. To estimate the amount you can receive for your used car, go on a platform like CarMax and find a vehicle that is similar to your own. I generally estimate that a car will take around 3 years to reach that limit.

Once you have found a price you will need to deduct around $3,000 to account for dealer profit (those buildings don’t pay for themselves!). Now that you have an effective residual value you can determine how much-unrealized equity you generate each month.

Unrealized equity: the light at the end of the tunnel

To calculate unrealized equity, you will need to find a car payment calculator. Input your selling price, capital cost reduction (down payment), tax rate, interest rate, and term. Remember, car payments are simple interest but are still amortized. This means that your interest/principal spread will be weighted towards interest at the beginning of your loan. Open up the chart where it shows how much principal is remaining after 36 payments. Find the difference between this number and the trade in value. The result is the realized equity upon liquidation. Take the realized equity and spread it over the 36 months you paid on the loan.

While some may consider this to be revenue, I have classified it under expenses because I use it as an alternative to depreciation.

Insurance for your Turo fleet

Obtaining insurance on a car to rent out on Turo is a huge consideration that many hosts (some veterans too) fail to properly implement. While it is easy to add a Turo car to your personal policy, you are engaging in activities that could result in claims being denied!

By operating a commercial enterprise with personal insurance, you are basically classified incorrectly by the underwriters. Many hosts think they are smooth when they put 5+ vehicles on their policy but they don’t realize that in the event that they have a totaled vehicle the insurance adjuster will investigate. How will you explain the fact that you were at work and your car was totaled by an international tourist?

Paying premiums that won’t even cover you is wack.

While you may acknowledge that in trip claims would not be covered and are okay with that, prospective hosts must also know that they may not be covered even for personal driving time! Insurance companies will deny coverage even for accidents that occur during personal driving. If they find out you violated the policy they will consider the policy null at the time of the violation. This means that you potentially could be denied coverage even if you would otherwise qualify if you had not rented it out on a car sharing platform.

Don’t pay for insurance that won’t even cover you. These days many popular insurers will accept carsharing use as long as you indicate it to them at time of policy creation. You are playing with fire if you decide to use personal coverage.

Commercial insurance for commercial activity

There are many options for people that are looking to properly insure their vehicles. I personally use a group insurance policy that is specifically made for car sharing entrepreneurs. I pay around 125/month per vehicle (this is actually lower than personal insurance for me as I am a young driver). This enables you to comfortably know that you are protected in the event of an accident.

An added benefit is that you would also be able to write rental contracts for organic customers/referrals! By using my own insurance for customers that I find off the platform I am sometimes able to make 50% or more on the same rental!

Car Turnover

As you become a more seasoned host, you will find yourself optimizing your processes to increase the profitability of your Turo business. If you’re just getting started, you will, unfortunately, need to invest a chunk of money on cleaning supplies like this awesome car wash set. Rest assured, as the trips fly by, you will have recouped your entire investment and have access to cheap turnover options.

I have personally even enrolled in detailing courses and invested in orbital polishers to make sure my fleet stays in amazing shape for my clients.

Professional car washer?

When I first started operating on Turo I was never in the habit of routine car washes. As you can probably predict, that quickly changed. As I expanded my fleet I quickly acquired an arsenal of cleaning supplies. Items like Shop vacuums, foam cannons, and microfibers became sprawled out on my property from seemingly endless use.

These will be your secret weapons in reducing cost – as you begin more experienced the total time investment will drop as well. Keeping maintained cars will encourage your renters to take care of the rental. They know that any significant change in cleanliness will incur a cleaning fee so if you have a spotless car they will try their best to keep it that way!

It’s a hard sell to say they didn’t cause the dirtiness in the rental car if it was spotless when they picked it up.

Sourcing car rental turnover out

If you are someone that doesn’t have much time or just considering Turo as a side-hustle, you will need to find a car wash that either allows monthly passes or self-service. If you go this route, you will need to find a local car wash that will work with their fleet customers.

I’ve found that car wash managers and owners love to work with fleets. It never hurts to ask and while a savings of $2 per wash doesn’t seem like a lot now, it will be a nice bonus once you operate for several months.

Maintenance

This one is rather tricky. There are two routes that a host can take. The first one makes calculating your maintenance costs very simple. Hosts who choose to rent out leased vehicles will be able to accurately estimate their maintenance cost. These days most new cars will have free maintenance for the majority of the lease. Prepaid maintenance can also be purchased by the lessor as a back-end product.

Of course, these hosts will be paying the expenses but because it has already been calculated by the manufacturer, it makes financial planning a breeze for hosts with fleets that consist entirely of leased cars.

If you’re a host that prefers to buy cars this will be harder to accurately estimate. Maintenance items like tires, brakes, and oil changes can be estimated with high confidence, but large-scale repairs will heavily skew certain financial reports. The high variance nature of catastrophic engine failure can cause the car’s entire income history to be wiped out.

This won’t happen too often but when it does, a host may be at risk of not making any money.

Time is money

Whew. You’ve made it this far. Pat yourself on the back.

This next portion of our analysis is a part that few will consider. The other expenses and revenues are all quantifiable in terms of monetary cost. The time you put in your car rental business is something that you will never get back. Thus, you will need to place a monetary value on a subjective principal to determine if the venture is worth it.

Accurately valuing your own time investment

While you can easily calculate the hourly rate you earn from the operation, it is wise to put a number on the time you spend managing your business. I assume that you will eventually want to retire from the late night deliveries and backbreaking car washes (if you enjoy doing these activities, please call me now! I have a large fleet for you to manage ?). If this is the case you should write down how many hours you spend for each part of the business and estimate the expense as if you hired someone in your place.

Find out the going rate for this type of labor in your area and add it to your financial analysis. As your rental fleet grows you will need to hire a team to help you manage the business. By accounting for this expense before it even arises you will be better prepared to tackle any opportunities as they arise. Correctly analyzing an opportunity will prevent you from taking on more than you can chew!

Reimbursements and additional wear and tear

This part will be one of the most uncomfortable responsibilities of running a Turo fleet. Every host that sees Turo as a long-term business will be overly concerned over the reviews they receive. Speaking from personal experience, there are times where I have let renters take advantage of my due to my fear of receiving a retaliatory review.

Don’t go too far to please your customers!

There is a limit to how far you can bear in terms of comping expenses. When you first start off on the platform it is extremely important to set up a strong foundation of reviews. This might mean you have to let customers return unclean cars or not fill up the gas. By establishing a good reputation to start, you will be able to place higher on Turo’s search results as well as establish credibility when it comes to customer confidence. Remember, most of Turo’s users are very new to the platform and they would pay a premium to ensure a smooth experience.

Being a fair host to build relationships

That being said, make sure you identify the reimbursements that are crucial to profitability. If they damage the car make sure your time, loss rental income, and actual damages are all covered by the payout. Don’t take this opportunity to gauge your customer – use it as a way to recoup the lost income due to the accident.

Even though we have performed a thorough financial analysis, we will need to make sure the additional wear and tear on our rental car are compensated for. By making sure we provide a fair price as well as fair overages, hosts will be able to establish long-term relationships with their customers. As hosts, we need to convince the general public to see car sharing apps like Turo, GetAround, and Hyrecar as the future of car rentals. Only then can we place our dedication towards becoming full-time car rental owners.

Your Turo journey begins                          

You’ve made it to the end. Good job! If you liked the article I would greatly appreciate if you could drop a comment or share it on your social media. I want to make sure people are prepared before tackling an exciting business venture. Whether you want to build a rental car fleet on Turo, GetAround, or Hyrecar the lessons you have learned today will help maximize your chance of success. If you have any questions or comments on the article I will be happy to address them. Thank you for taking the time to visit my blog and I hope you have learned valuable information that you can apply to your own business.

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