How to Run the Numbers on a Car for Turo
Your goal with Turo is profitability, right? Ideally, you would like to make money with a car you have when you aren’t using it. Otherwise, why would we do it? Why else would we subject our cars to increased mileage, wear and tear, and potentially being totaled by strangers?
I briefly mentioned running the numbers in my previous post, so now I want to go into much more detail into what helped me decide whether getting the Tesla Model S was going to be worth it in the long run.
This doesn’t have to be incredibly complicated, but it will take a number of steps to figure out what to list the car for, how many miles to allow each day, and what to charge an a per-mile overage fee. I’ll do my best to break down exactly how I came to my numbers and do it in a way that you can follow along (hopefully).
Let’s get started.
Gathering the starting numbers
I looked at a lot of different cars when trying to decide what kind of car to buy. I wanted to make sure that I had a good understanding of what cars were being listed for on a daily basis, what hosts offered as extras, what the per-mile overage charges were, etc. I probably spent 40-50 hours just looking at listings and estimating what people were making to figure out if they were covering their costs for a car on Turo.
For the rest of this article, I’ll be running the numbers on a used Tesla Model S (like I did with my car), and we’ll see how they come out and whether it will be (hypothetically) profitable. This process will work on any car you look at, even if you aren’t buying a Tesla, Porsche, or Mercedes. It will be harder to get good numbers if there aren’t a lot of cars of that Make and Model, so you may have to look at comparable cars.
There are a handful of numbers we want to look at when we consider a new car, and there is one extra number to consider when considering a used car. They are:
- “Out the Door” price of the vehicle, including all fees related to purchasing the car (tax, title, delivery, etc.). This is only necessary on a car you are looking at purchasing.
- What the monthly payments for the vehicle will be (loan/lease and insurance payments).
- What that year-make-model is renting for on average on Turo in your area.
- What the standard “allowed” mileage is.
- What the per-mile overage fee is.
- What the odometer reading is (Optional, only needed for used cars).
After we’ve gathered these numbers, we can start to make some pretty good guesses. All we need to do is run the numbers. This isn’t a complicated process, but it does have multiple steps. The easiest way to do this will be with a spreadsheet software like Microsoft Excel or Google Drive Spreadsheets. I’ll do this example in a Google Drive Spreadsheet so you can follow along.
Getting the “Out The Door” price, monthly payments, and odometer reading
As I learned when I was digging into real estate investments, the less you can put down when financing/leasing the car in the beginning, the better. If you already have a vehicle, then you already have some money spent. The hope in this case is to try to make all of your money back, if not more.
If you haven’t bought a car yet, spec out the options and what it would potentially cost. If you are looking at a new car, you could simply call up a dealership that sells that make and ask them what the “out the door” cost would be. Make sure they include all of the options you want and also include every fee they charge. Some dealerships will try to weasel around this question and not mention tax, title, document, or delivery/transport fees. Make sure they give you the “OUT THE DOOR” cost. If the dealership won’t give you this number and require you to come in, thank them for their time, tell them you aren’t interested in buying from them anymore, and call the next dealership.
As I’m looking at a used Tesla Model S in this post, this should be pretty easy. Let’s see what’s currently available in the Bay Area:
The image may be a little hard to read, but we can see that there are 6 cars there with a variety of price points, and no two cars are alike. Some are older (2013), others are newer (2015). Some have the smallest battery pack (60kwh), while others have a larger capacity (85kwh). Practically all have different options specified and are different colors.
We have to trim this down a bit so we can start comparing apples to apples. I’m going to specify a few options. We’ll look at cars that have the following options:
- Black exterior
- Black interior
- 85kwh, 90kwh, or 100kwh battery
Let’s see what we get now.
That looks much better. The prices are more consistent, the mileages have less variance, and we are already seeing similar options and year. In fact, only ONE of these six cars is a different year (two if you count the other 3 cars at the bottom). All but one of these cars have the Performance package (indicated by the “P” in the name, i.e. P85D). There are a couple of outliers here though, one being that the most expensive car we can fully see has roughly 10,000 miles less than the cheapest car and 22,000 miles less than the car with the highest mileage, but it’s almost $9,000 more expensive than the cheapest car, which will cut into our profitability. These little differences are where we can save some money if we do our research and wait for the right deal to come along. For this article though, we’ll look at just these six cars.
If I had to pick one car immediately, I’d pick the cheapest one. The car has 38,441 miles on the odometer, which isn’t too bad, the options are about right, and when I dug into the detail view, I noticed that it had a consistent, single-color interior. I’m pointing out the interior color scheme because a lot of Tesla Model S cars have a two-tone or three-tone color schemes (black seats with tan headliner and wood-color dashboard inlays), which I think looks less professional and may be less desirable to renters (purely guessing here though).
Here’s what I mean:
Now, back to the important stuff. I happen to know roughly how much the out-the-door fees will be as I just bought a used Tesla Model S in this price range, so I’ll round up the price of the Tesla Model S we picked from $58,000 to $63,500. This price of $63,500 will be out “out the door” price. We’ll finance the full cost of this 2015 Tesla Model S for 72 months at 3.5%, which gives us a monthly payment of roughly $981/month. We’ll also have to get comprehensive insurance because we are financing the car, which we’ll say costs $150/month. This brings our total monthly payments to $1,131/month. That’s not cheap!
Determining the average daily rate, mileage allowance, and per-mile overage fee
Now that we have a car in mind, let’s look at what a 2015 Tesla Model S is renting for in the Bay Area. We’ll mostly be looking at San Francisco, but we’ll also do a broader search to see what kind of competition we are up against.
What I found on the cheap end was three Tesla Model S cars being rented for about $100/day. One of these three cars was a 2013 Tesla Model S with a 5-star average rating across 75 trips, and the other two cars had 0 trips and 3 trips. I’ll only consider the Model S with 75 trips as that person seems to know what they are doing. I’ll open this car listing in a new web browser tab so I can see how they are marketing the car a little later.
On the expensive end, I found a couple of high-trip-count vehicles. One of them was a 2017 Tesla Model S with a 5-star average rating across 18 trips being offered at $219/day and the other was a 2016 Tesla Model S with a 5-star rating across 130 trips for $169/day. Based on my previous research, I have a feeling the $130/day to $150/day range is probably going to be the sweet spot for our 2015 Tesla Model S. In fact, as I got into that range, I found a number of 2014-2016 Tesla Model S cars that had 20+ trips that were being offered at $139/day. Since this was the most common price and had the most cars with a decent number of trips, we will use $139/day as our daily rental rate for our example.
The next part of this is to pull up a bunch of these high-trip-count listings to see what they are allowing each day for miles and their per-mile overage fee. I pulled up every Tesla Model S that had at least 5 trips (regardless of listing price) and looked at how many miles they allowed per day. Most of them allowed 200 miles per day and averaged about $1.30/mile as the overage fee, so that’s what we’ll stick with for our mileage allowance and per-mile overage fee.
Putting all of this together
Remember how I said we need to make the numbers work? This is where the price of the car will make or break this endeavor.
An ideal scenario is we make money on top of the total cost of the car (car payments, insurance payments, and maintenance). If we break even completely, then that’s nice because we get a free car in exchange for letting strangers rent it for awhile. We never want to be underwater on value the car, otherwise we haven’t made any money and we could have leveraged our money in better ways, besides the fact that we still owe money on the car if we sell it. If we end up spending money to do this, then we should reinvestigate this idea completely by choosing a different car or looking at doing something other than Turo altogether.
Another aspect of this whole arrangement is that Turo takes a cut of each rental. The size of the cut they take is dictated by the amount of insurance that is carried. If the car is rented with Premium insurance, Turo takes a 35% cut of the total booking. If Standard insurance is chosen, the cut is 25%. Here’s all the available cut variations:
- 35% - Premium Insurance
- 25% - Standard Insurance
- 10% - Provide your own Commercial Insurance
This means that if you were to charge $100/day to rent the car, Premium Insurance was used to cover the car, and the car was rented for just one day, the host’s take would be $65. With that in mind, we have to make sure that we are charging the right amount to make sure that we make back enough money to cover the payments, maintenance, etc. without having to have the car rented for most of the month.
With all that said, the fewer number of days it takes to get in the black as the host for a given car, the better we are doing. If it takes a host 20 days to cover all of the payments, they are probably only going to net about 30%-40% as the car will have turn-over tasks (cleaning the car for the next guest, documenting any damage, responding to inquiries, etc.). If we were to put this into numbers, it might look a little like this.
Let’s say the host rents out their car for $50/day net profit. The host also has $1,000/month in monthly costs they need to cover for the car they are renting. $1,000 divided by $50 means it will take 20 days to cover the cost of the car for a given month. If the host was somehow able to have the car rented for a full 30 days in a 30-day month, they would make a profit of $500 for that car for the month. That would be a 50% return on investment for that car for that month.
Now, what if the monthly costs were only $400/month and the host was still able to rent out the car for $50/day net profit? It would take only 8 days to recover the monthly cost of the car. Now, we have another 22 days to make pure profit. This means that the car could potentially return $1,100 per month in profit (assuming all months have 30+ days, which is true for all but 1 month).
Going back to our example of the used 2015 Tesla Model S, we are guessing that we will be able to rent it out for $139/day before Turo’s cut. Just to be on the conservative side, we will use Premium Insurance with Turo, which means that Turo takes a 35% cut. $139 multiplied by 0.65 (100% - 35% = 65%) bring our cut of the daily rate down to $90.35, which we will round down to $90 to make the math a little simpler.
Now that we have factored our cut of the daily rate, let’s see how many days it takes us to cover the cost of the monthly payments. As a reminder, our monthly payments come out to $1,131. When we divide $1,131 by $90, we get 12.56 days, which we will round up to 13. We just figured out that we will need to rent out the 2015 Tesla Model S for 13 days to cover the cost of the payments. Every day that we have the car rented after that is pure profit. I’ve read a variety of reports that hosts who have their car available for every day of the month on average have their car rented out 80%-90% of the month, which comes out to 24-27 days out of the 30 days month. If that’s the case, we may be able to get up to $1,260 per month in profit (minus other operating costs). Not too bad!
There are other factors to consider as well like maintenance and mileage, which I’ll get into in a future post. For now, you should have a good idea of how to determine how many days it will take to recover the cost of the car and how to determine the profit potential of a car you are interested in renting. I hope you found this article helpful, and if you have any questions, feel free to leave a comment below.