Turo recently entered the car sharing market alongside Uber Car Share (formerly Car Next Door) and Evee (which I am a shareholder in) and I’ve read reports on Reddit and Facebook of people building car rental businesses on these platforms, kinda like what people have done with apartments and Airbnb.
As someone with a bit of cash looking for cheeky investment opportunities and likes cars, I thought I’d have a look into any potential profits to be made with a car purchased solely to rent out on these platforms. Consider this post my due dilligence on the idea.
Insurance & Damage
The first question on anyone’s mind when renting a car out to strangers is what happens when someone inevitably fucks the car up while driving it.
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If it’s stolen/damaged while it’s rented out, the rental platform has coverage for that. How much of a pain in the arse they make it to claim is debatable.
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If something happens outside of a hire (e.g: hail damage, crash into parked car, stolen), then you need your own comprehensive insurance.
Most car insurers do not want to insure you if you use the car as part of a carsharing program - even for personal use outside the times the car is hired out. If you list the car on Turo/Uber Carshare, your entire insurance policy is invalid. There are insurers that will cover you, it’s just you’ve got a much smaller range of insurers to choose from and you have to get on the phone to get quotes and let them know you’ll be using the car 100% for car sharing.
Uber has a list of insurers and their policy codes for carsharing that can help when getting quotes.
Some people get a bit precious about their car and don’t want it damaged, but this is a second car I only use for the purposes of renting it out. It is a tool to me. If it takes a hit, insurance covers it and while it sucks its off the road, that’s part of the business.
Stuff likes fines are sent to the owner of the car, but can be nominated to the person who hired the car as you have their licence details and the time & date they were in possession of the vehicle.
Carshare host service
What makes carsharing particularly interesting as an investment to me is that there’s a cottage industry of professional hosts that can do everything for you. Give them the car and they do the rest. Think of it like the car is a house and the host is a real estate agent/rental manager you use to manage the mundane day to day stuff.
The car is listed on their account and they’re responsible for dealing with the bookings, making drop offs for an extra fee (e.g: airport), cleaning the vehicle, taking it to the mechanic for servicing (but the owner pays for it) and storing the car when not in use.
They send me the Turo statements each month and then I invoice them for whatever the car made on Turo, minus their fee. So for example, if Turo pays out $1,700 to their account for the month and the host charges me $200/m, I send them an invoice for $1,500+GST that they then pay me.
Pro hosts typically advertise their services in Facebook groups for carsharing hosts. There’s usually one or two in each capital city.
The main attraction to me is that they can keep the car in Melbourne where it would get more use, than where I live. The costs of the host are also tax deductible and I’d save time not dealing with bookings. Giving the professional host a cut seems like a good deal in return for their services.
The downside is that I have to trust this person to do the right thing by me. If they get lazy (don’t clean the car properly, get slack meeting guests, etc), or worse, ghost me, the only recourse I have is the courts and upholding any contract we have. That’s expensive and slow.
- Can outsource all of the day-to-day operations of hiring the car for a monthly fee.
- Places car in Melbourne where there’s far more renters.
- Virtually no effort on my part, hand over car and just send an invoice once a month.
- Risk the host fucks up and doesn’t look after my car or their customer service slips.
How much can I make?
Bit like how long is a piece of string - depends on the car, where it is and how much you rent it out for. Inner-city locations make the most coin as lots of people there don’t own a car and just want to temporarily rent one for a day or two.
Turo reckons cars on their platform are booked for an average of 15 days a month - 180 days a year for an average of $72 a day.
Browsing around what’s available to hire in Melbourne for a single weekday next week is quite enlightening and I’m surprised how cheap some of the cars are. For example, these cars from All Star Hosts on Turo are really cheap:
- 2022 Kia Stonic - $59
- 2024 Hyundai Kona - $72
- 2023 Kia Picanto - $87
- 2023 Hyundai i30 - $72
That said, most cars seem to be in the $65-$85/day range.
Turo doesn’t have many EVs in Melbourne that aren’t Teslas (a single LEAF for $88/day) and the range of hybrids is slim too with just a handful of Corollas and a single Camry.
Hosts have the option of unlimited kilometers, or charging a fee per kilometer driven after a certain amount of free driving - e.g: 250km/day free then 30c/km after that. Personally I don’t know why you’d bother, just give unlimited kilometers and make it easier for everyone.
Turo’s cut depends on the level of “protection” (it’s not insurance) you take out. The more of a cut you give Turo, the more damage they’ll cover you for and a lower excess you pay should something happen. It varies from 35% to 10%.
Let’s say I get a car I can rent out for $60/day and it’s rented out for 3 days a week (152 days a year) on average - which would put my car in the bottom 50% of cars on Turo - that’s a gross income of $9,360. Turo takes 10% of that, leaving me with $8,424 for the year.
If the car is popular (180 days a year) and I can rent it out for $75/day instead of $60, my income after Turo’s cut would be $12,150.
- Turo claims the average of the top 50% of cars on the platform are rented out for $72/day for 180 days a year.
- Prices are a bit all over the place but a common price for a small-medium car is around $65-$85/day
- Turo takes a 10% cut at their lowest level of protection/insurance.
- If my car is below average at $60/days and 152 days a year (3 days a week), income after Turo’s fee is $9,360
- If car is popular, 180 days a year, $75/day, income after fees $12,150
- Turo advertises its rates ex-GST, so income listed here is ex-GST
What are the costs involved?
Cars aren’t free to run, so what’s one of these cost to run?
Regardless of car, these are the startup costs for an imported LEAF as an example (all excluding GST):
- Car - $16,667 (approx 1.5m JPY)
- Importer service fee - $1,100
- Import fees - $2,500
- Compliance - $2,300
- Hardwired front & rear dashcam - $500
- Stamp duty - $840
Total of $23,807 “invested” ex-GST in this asset to get started. I can buy one locally for $25,533 ex-GST & inc-stamp duty, but that would mean I can’t claim the instant asset tax write-off as the base cost of the car ($24,500) exceeds the threshold. I could depreciate the car over 5 years but that’s fucking messy.
Operating costs: assume the car is driven 20,000km/yr and is an EV:
- Host service fee - $2400 ($200/m)
- Public liability insurance - $630 (a requirement of the host, not the platform)
- Registraton - $680 (EV & regional discount)
- Insurance - $1500 (approx, need to get some firm quotes)
- Tracking device - $200 (another requirement of the host)
- Tyres ($800 per 60,000km) - $267
- Servicing (brake fluid & air filter every 2 years) - $150
Total = $5,927 or $5,388 ex-GST
- $9,360 of income, $5,388 of expenses, $3,972 a year of profit
- $12,150 of income, $5,388 of expenses, $6,762 a year of profit
So that’s betwen $4,000 and $7,000 a year of taxable income off an imported LEAF that cost me $24,000 to buy.
I also haven’t included any money for bodywork maintenance. It’s highly likely the car will be scatched or dented, get some sort of interior damage or similar that’s more than simple wear and tear. The costs of that should be able to be recouped from the driver who did it, so that’s why I didn’t include it. It might however, take the car off the road until the repairs are done.
Opportunity cost
$24,000 in a term deposit for 5 years at 5.10% with Rabobank gets me $30,850 - I’d pay 37% tax on the $6,850 interest, for a total return of $23,563.91 with zero risk.
$24,000 in my preferred DHHF ETF for 5 years, assuming at least 7% YoY growth on average would value those ETFs at $33,661, which if I sold would also get me a 50% discount on the capital gain (37% of $4,830 instead of $9,661), so the total return would be $31,873 after tax, with a risk that the markets don’t get any return and go backwards.
$24,000 in a private credit fund for 5 years (e.g Remara), assuming at least 10% YoY growth would get me $38,652 pre-tax and $35,941 after tax. There’s obviously higher risk here as private credit funds aren’t tightly regulated and could be full of shit.
Assuming I keep the car rented for 5 years and make an average profit of $5,500 a year (mean of low end $4,000 and high end $7,000 income estimates), that’s $27,500 of income. I can then sell the car for $18,500 for a pre-tax profit of $46,000. After tax that’s $28,980, or $31,015 if I count the difference in the tax deduction between buying the car and selling the car. If the car performs better than expected and rakes in $7,000/yr, that’s an after-tax total return of $35,740.
So while better than money in a term deposit, it’s possibly worse than DHHF depending on the market and worse than a private credit fund assuming it doesn’t do a rug pull unless the car is quite popular and used 15 days a month every month for 5 years.
Other risks
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JPY keeps tanking and cost to import car increases (it was 110 JPY for 1 AUD just a few weeks ago, currently at 90 JPY!)
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Host and I have a falling out, car is “lost” and I have to go through the courts to enforce our contract and get my car back or money owing to me.
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Insurance hassles trying to claim minor renter damage that I’d be on the hook for.
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Carsharing platform and/or host keeps jacking up fees and/or expenses go up like insurance.
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Lack of demand for car, sits idle most of the time not earning money.
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Turo don’t invest in promotion, loses customers to alternative platforms or does dumb rule changes.
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Car off the road more often than expected due to maintenance or accidents.
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Car depreciates more heavily than expected (e.g: LEAF takes a shit in value due to perceived battery issues)
Is it worth it???
The main risk is that the car just isn’t rented anywhere near enough. To at least not lose money the car needs to earn at least enough to cover expenses - $5500 a year, for 100 days a year (2 days a week) for $55, making it one of the cheapest cars on Turo. I honestly don’t know what’s realistic for car utilisation. Feels like one of those things you just have to try out.
The positive side is that the cheapest LEAF e+ G on Carsales at the moment is $27,500. By importing one myself for $24,000, if I was to bail in a year after getting no traction for the rental I could sell it for not much less, or maybe even more, than I paid for it. I could even use the car myself for Uber instead of the Tesla with its doors people can’t figure out how to open.
I’m not locked in to anything and can quit at any time and the car is pretty easy to sell, so I’d say it’s relatively liquid, particularly compared to a private credit fund or even a term deposit, which doesn’t really like you withdrawing your money before the term.
Risk doesn’t feel that high to me, but I could be underestimating how often the cars are in accidents that exceed the insurance excess or have damage that takes it off the road for weeks.
The potential return (~$29k) is a bit low considering the risk I reckon. If the car is used around the average Turo state, it’s better (~$35k), but there’s no guarantees on utilisation.
The worst case is I wasted time, but I would have learned how to import a car. So that’s something? My gut tells me to just have a crack, $24,000 is a single digit percentage of my overall portfolio, but I’m also lazy and could just leave that $24k in DHHF and pray line goes up.