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Financial Jiu Jitsu will teach you how to gain leverage in the real world, step by step, until you are confident you no longer need more.

Turo Update 2: And The Gears Start Turning

Turo Update 2: And The Gears Start Turning

This is a follow up to two former posts: How to Afford A Tesla Model S, and My First and Second Experiences with Turo.  I was inspired to write this article in part because as of recent I have been making a largely passive killing renting out my car through Turo.  As your rental history increases, your credibility as a host rises in tandem with your ability to respond quickly to requests and obtain 5 star ratings.  These factors all contribute to more people wanting to rent your car more frequently.  The first month of 2017 has resulted in me renting out one of my cars for about 50% of the time - or nominally 15 days. The car is listed for $35 a day, of which Turo takes their 25% cut off of that, leaving me with $26.25 per day earnings.  All of us are fully capable of math, but I'll save you the trouble.  If this rental frequency continues, I will be making approximately $400 per month from renting out my extra used car, which has a retail value of about $6000.  Extrapolating that out to a year, we have the car nearly already paying for itself, at $4800 total in 2017 alone.

Rented time is marked in green. Days and corresponding advertised prices to potential renters.

Rented time is marked in green. Days and corresponding advertised prices to potential renters.

You are issued a 1099 form by Turo for your earnings, as they are taxable.  It is important to take this into consideration as you will have to take a cut of your gross earnings and send it to the feds come tax time.  I plan on saving an additional 20% of my earnings in order to take that hit when the time comes.  Which brings my annual after-tax earnings to $4040.

Maintenance.  A lot of people may fly in on business and have an appointment in a nearby city that they want to use the car for.  Although you can set your own mileage limits regarding what the user is allowed to put on the car per day/ week/ month, I expect miles to rack up on the car faster than they otherwise would if I was using the car as a daily driver.  So given that I'm putting probably 4000 miles a year on the car, driving it to work and back when it isn't rented, I expect my clients to put easily twice that many miles on the car - so we're talking between   12,000 and 15,000 miles annually.  In my case this is close to the national average anyway, because I have the luxury of being able to use different cars, or my motorcycle, when I feel like it in order to avoid putting miles on the rental.

So let's plan on 3 oil changes a year, and probably new tires every other year.  I use full synthetic and Z rated tires, so I'd say a reasonable cost associated with that would be $450 a year.  But that's maintenance you'd have to do anyway (although a little more frequently) so I don't feel it's fair to include that whole cost in deferring your income.  Let's say you'll spend less than half of that per year due to the additional miles that would be put on the car, say $200.  That brings my net earnings to $3820.00.  As with any older car, with mileage slowly ticking above the 135,000 mark for my particular vehicle, there will be unforeseen maintenance in addition to the regular check ups and fluids that the car requires.  It is a robust Acura, so most of it I can do myself, and again, it's most likely things that were going to go wrong whether I was renting the car or not.

Now, this entire process got me thinking:

I get to drive my little Acura about 50% of the time, and since I own the car outright, I have come to the conclusion that people are paying me to drive my own car.  Now, this is dangerous thinking because it made me wonder how luxurious of a vehicle I could drive and not have to pay a dime for it.  That original idea inspired me to write "How to Afford A Tesla Model S" but realistically the situation could apply to any luxury, exotic, or balls-to-the-wall fast vehicle.  As I already have a Corvette, I decided to delver deeper into the investigation of purchasing a used luxury car that could rent in the price range of $120 - $150 per day.  Most cars in this region tend to be higher end Lexus', Cadillac, etc that are 2014 or newer.  But I wanted deeper.  Darker.  More expensive.  More....German.

This car cost around 150,000 new, almost the median home price in the USA as of 2017.  Now they can be had for... cheaper.

This car cost around 150,000 new, almost the median home price in the USA as of 2017.  Now they can be had for... cheaper.

Inevitably I arrived at the Mercedes S Class, of the 2009 vintage.

The S63, specifically.  Surprise, the used market for extreme high end luxury cars isn't very dense.  People who can "afford" an S Class buy them new, not used.  As a result, the resale value of some of these cars that had sticker prices exceeding $150,000 can be had for right around $30K.

Wait.  That's ughhhhhh.  Math.  Hmmm.  YES! Wait, WHAT?

80% depreciation from original purchase price in the span of 7 years.  They reach rock bottom in terms of % decrease per year right around this mark, with only mileage contributing to further decreases in value.

This puts them in a prime position for someone like myself who is looking to drive what was once the pinnacle in European engineering, potentially for free.  Most of the used S63s of 2009 have between 40000 and 70000 miles, were garaged their entire life, and are utterly lacking in dents, dings, scratches, and overall wear and tear that might be present on say, a Honda with the same mileage.  Drivers are more careful with them, other people are more careful around them, and owners spend a lot of money to keep them looking brand new.  And who wouldn't?  No sense in spending over 6 figures on a car so no one looks at you, it's gotta sparkle like a diamond no matter what!

So I have a figure to shoot for.  I don't have 30K just lying around (yet) so I'd have to take out a loan.  The shorter the term, the better the rate.  But the shorter the term, the higher the payment, too.  Which necessitated a deep dive into the potential earnings that could be had renting out a car such as this, and balancing that with a loan term that makes it so I wouldn't be paying anything out of pocket.

A 5 year term would be about $550 a month.  Renting at my proposed $120 per day, I'd need to rent out the car for a minimum of 8 days a month in order to break even.  That doesn't account for maintenance, but it does account for taxes and interest on the loan.  8 days doesn't seem so bad.  Barely more than a week a month, right?  But of course, there's the caveat of a totally unknown market.

The risk is that I take the plunge and buy the car, put it in a business name so I can write off everything as a business expense (and rightfully so), but am totally unable to rent the car for that duration of time per month because there is not a luxury rental market big enough to support it.  So what's the solution?  Get a longer term to lower the financial obligation?  I could probably get it down to $400 a month with interest, that may be a 72 month term which could be a really tough sell to a loan agent for a used car.  Even then, there is a good chance I'll be fed up with this car long before 6 years is up.  Would I really be able to commit to providing this rental service for that long?

There's a lot of unpredictable aspects to taking on an opportunity such as this.  The benefits, of course is that you get to drive a car that you otherwise can't afford, and when it's paid off at the end the resale will be 100% profit on your pat - you didn't pay for the car, your clients did.  The write offs from the depreciation of the vehicle could be beneficial for your business.

I guess I won't know until I try, but the short term plan is to build a bigger buffer fund to support it.  Until that happens, I'll have to continue market research and get more informed.

Quit when you've had enough

Quit when you've had enough

The downside of pay-to-play (advertising)

The downside of pay-to-play (advertising)