Friday, September 8, 2017

Economics of The Car Share Side Hustle

Is peer-to-peer car rental right for you?  It certainly can be rewarding but you owe it to yourself to take the time to know what you're getting into. This blog is devoted to discussing the risks and rewards in this enticing Side Hustle.

Depending on who you talk to and what you read, you might have outsized expectations over what you can earn and undersized expectations over your risk. On the other hand, you might have it perfectly figured out, in which case Kudos to you. If not, I invite you to take advantage of my research in the hope that you might save yourself some time. 

It goes without saying the we each have our own risk vs reward threshold. Risk in this case takes many forms, the biggest of which I believe is personal liability and other aspects of insurance.  Insurance is covered in great detail in a series of posts starting with "What you need to know about Insurance, Part 1."

There are other risks: wear and tear on your car, damage to your car, actually making a profit, loss of use of your car, diminished resale value in case of an accident, the time you have to spend on cleaning and maintenance and meeting the customer to hand off keys and not to mention any time you might need to handle issues while the car is rented.

If you search Quora for Getaround or Turo you'll hear from people that say they routinely make $500 - $1500 a month. However,  I believe some people are a bit too exuberant (aka bragging) over the numbers they're reporting. They tend to talk in terms of gross profit or their biggest month or that 3 one time 2 month stretch during the summer months where they knocked it out of the park.

You can get a realistic sense of what profit to expect given your own unique situation by clicking on the "Cash Flow Calculator" icon and filling in your numbers. The calculator accounts for factors such as estimated occupancy rate, taxes, loan fees, annual fees, maintenance fees and others.

Here are some additional considerations.

Should I rent my primary car?

If you had a spare car you could rent it out to get a feel for the service. However, not too many of us have an eligible spare car sitting around with which to experiment with. That leaves your primary car.

In general, I'm not a big fan of using a primary car for rent. The hassle factor is too high with regards to managing your calendar. You have to block off the dates when you know you'll need the car. Invariably you'll forget the car is reserved and will end up having to either reject a request or cancel a reservation. In both cases, your "reputation" suffers and you may be penalized in search result standings. In the case where you outright have to reject a reservation, there's an actual charge to your credit card (and it ain't cheap).

A quick napkin calculation might lead you believe you can get a loan for a second car and cover it's cost with some profit to spare. This might even be the case but there are certainly some risks and rewards to consider.  This site should help provide some insight into those risks and rewards.

What Cars are Best to Rent Out?

First, not every is eligible, thank goodness!

Click on Turo, Getaround or Outdoorsy to check out their respective eligibility requirements. Outdoorsy is a bit different in that their focus is on RV's and other over-night sleeping oriented vehicles.

According to the this blog post at Turo, the best used cars from 2014 were Kia Spectra and Saturn S-Series. However, you'll notice that this post is a bit dated.

There is no one-size-fits-all answer though. While San Francisco renters might be more inclined to rent a high mpg car like a hybrid, a properly crafted listing can do wonders for almost any car. If you have a particular class of car in mind, go to the service you're most likely to use and see what's popular. This tends to be very subjective but it is a starting point.

While demographics are not available form the car sharing services, my guess is that the numbers skew heavily towards 21-35 year olds. The 21 year olds because they can't get cars at traditional car rental companies and the older ones because of the availability of more interesting cars. Keep in mind that with a traditional car rental company and assuming you reserve far enough into the future, you can get a highly competitive price for a virtually new car. The peer-to-peer market is competing with that reality.

In my research, I've seen a large number of rents made to listings withYaris, Mini Cooper, Kia Soul, Prius and even Chevy Bolt and BMW i3.

There are also people movers like Dodge Caravan, Sienna, Odyssey that tend to do real well.

And of course, specialty cars, especially new (or newer) vehicles that people are excited to try out tend to do really well. For example, you can find a large number of listings for Tesla and Tesla X that have been rented out while also claiming the highest daily rates.

How is the Car Share Side Hustle different from Uber and Lyft?

It's probably obvious that with Uber, you're the driver and your payment is some mashup of your time and your vehicle's. In the case of Turo, the payment is based solely on your vehicle's time.  Although you're making less money per hour,  it's wonderful that you're able to put your car to work for without you in it.

However, insurance companies are just getting their arms around Uber/Lyft and are willing to insure your car since you, as the owner, are also the driver and therefore a known quantity.

Unfortunately, with Turo and other services, the insurance companies are yet to embrace this newer model primarily since they don't know who the driver is.  As I talk about extensively under "insurance" topics, most of you will find that your insurance companies will drop your personal insurance like a bad habit should they find out.

Specialty Car Strategy

Cars that are considered specialty cars (e.g. $55K or more in value or certain other criteria) are only available to drivers that are 30 years or older. Renting out a high end car in this category might give you a little more piece of mind.

One Possible Strategy

You have read up on the risks associated with insurance and personal liability and have decided this fits within your comfort zone. You're ready to go. What next.

Let's say you decide that you want to purchase a second car for your side hustle. You can use the cash flow calculator to work backwards in order to determine the purchase price you're comfortable with by putting in a monthly loan amount and other loan parameters. You can even step back a little further and fill in the occupancy rate and daily rate you expect to calculate the maximum monthly loan rate for breakeven.

Now, do some research to narrow down the type of car(s) you're interested in.  Once you have that, check both owner only and non-owner only listings to get a sense for the year and mileage you're able to afford. Make sure to check the Kelly Blue Book value as well.

I suggest a minimum of 2010 and maximum of 80K miles in order to get a few years out of eligibility out of the car.

You'll then want to talk with an insurance agent to get a quote for an actual car or an estimate for a similar car. This also might be a good time to take the opportunity to ask the agent if their insurance provider will actually cover a car that you're renting out on a car sharing marketplace.

With the car details in hand including purchase price, talk to a lender to get a sense for loan rates and monthly costs. In order to qualify for the lowest rates, your car will need to be 2008 or newer. Of course, your credit history needs to be factored in as well.

Once you have a sense for all your numbers, you should go back to the cash flow calculator and plug them in to get a refined look at your net profit.

Once you know that you can get insurance for your car and a loan, you can start shopping in earnest. You may want to get pre-qualified for the with your bank or credit union.

Pre-qualification will simplify purchasing from a car dealership but from an owner only purchase. For an owner only purchase, you may want to pay cash and then finance the car with your credit union or other lender.

Now, create your listing and you're off to the races!

Can I List with Multiple Car Share Services?

This may seem like a no-brainer as it appears to extend your reach. However, my experience with VRBO and Airbnb is that managing two calendars is a pain in the arse. You'll be super detail oriented in the first few weeks or months but eventually it will get away from you and you'll forget to mark down a booking. 

If you do forget and end up doubly booked, be prepared for both financial and reputation penalties. Not to mention it's really not fair to the people counting on your vehicle.

Highly recommended:
What you need to know... Part 1 (as Owner) Make sure you understand the risks associated with insurance as a car owner.

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