How to Turn Your Car From a Money Pit Into a Money Tree
Many of you here on BiggerPockets have read Robert Kiyosaki’s ground breaking book, Rich Dad, Poor Dad. You understand the difference between an asset and a liability. For those who don’t know the difference, in Kiyosaki’s words, “an asset puts money into your pocket, while a liability takes money out of your pocket.”
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While the words look and sound the same, the definitions are quite different from what most people think when they hear assets and liabilities. The generally accepted definitions suggest that an asset is anything that you own that you can sell, whereas a liability is any debt owed to someone else.
In Set for Life, Scott Trench differentiates these two by calling Robert Kiyosaki’s definition real assets and the more conventional interpretation fake assets.
One of the most common fake assets is your car. While you can likely sell your car, it takes money out of your pocket every single month by way of gas, insurance, maintenance costs, etc.
In this article, I am going to show you how to turn your car from a fake asset to a real asset. Here’s how to take your car from an expense to a money-maker.
For most of you, the suggestions in this article cannot be executed overnight. The strategy in this article is for the folks who have an extra car or are thinking about alternative ways of transportation. If you are one of these people, read on — and learn how you can turn your car from a money pit into a money tree.
Turo is a short-term car rental service. It is just like AirBnb, but for cars. Car owners who have an extra car (or use theirs sparingly), put a listing on the Turo app, and then various user can rent it out for a selected period of time. The driver of the car pays the owner through the app, and Turo, of course, takes a cut of up to 35 percent.
That may sound like a lot, but 35 percent covers Turo’s insurance costs (more on this later) as well as the cost to advertise your listing to a mass group of people.
In order to list your vehicle, it must be younger than 12 years old (15 years if it’s German made). All potential listings must pass the eligibility requirements. You’ll need valid personal insurance, and the car must pass maintenance and safety requirements.
Once your car checks all of the above boxes, it’s time to create the listing. Making the perfect listing is another topic in itself. Here’s a brief overview of what to double check:
- The calendar is correct, and you have marked the vehicle as “unavailable” during any times you may need the car.
- The price is right. Take a look at similar nearby cars to see what they are charging.
- Pictures: Take your pictures on a sunny day, and make your car look nice. Get it washed. Clean it out. In the past, I have taken my pictures with my iPhone and they’ve come out nicely. If there’s a lot of competition, you may want to take the photos with a nicer camera or hire a photographer.
Rent it Out
Once the car is listed, it’s time to rent it out.
Create a set of instructions for check-in and check-out that you can easily copy and paste into Turo’s messaging system. In the message, I like to include where they can pick up the car and where the key is. I also remind them to take pictures. Ensuring that your customers take pictures before and after their ride will help you track damages and hold drivers accountable.
Here is a sample message that I use:
“Hey [guest first name]— I hope you arrive safely! Please see instructions below!
You can pick the car up at [address].
The car will be on the street. The key is [explain where the key is hidden]. Please put it back there when the trip is over.
Please take pictures before and after your ride to make sure you are not credited for any prior damages.
Enjoy the vehicle and let me know if you have any questions!”
Once they have the car, it’s pretty much smooth sailing. Occasionally, drivers will have a question. But in most cases, I have found that using a car is pretty intuitive. They come, they drive it around, they return the vehicle, repeat.
Insurance with Turo
One of the most common questions I get with Turo is what about insurance? What if someone cracks up your car? What do you do? There are a million different scenarios that could happen, and whether the insurance company will cover it or not has always been a mystery to me. However, as a car owner on Turo, you have three layers of protections.
The first is the renter’s car insurance. If the incident is the renter’s fault, their insurance should cover any damages. If not, then there is Turo’s car insurance (part of the 35 percent fee you pay). Turo covers your car up to the cash value of it. Learn more about this insurance here.
If the first two layers fail you, then you still have your own car insurance. Make sure you do not try to skirt around this with your current insurance agent. Let them know that you plan to rent the car out to other people. In order to get approved as a driver on Turo, you need to have a clean driving record. Be sure to let your insurance team know that the drivers will be responsible with clean records
How Much Will You Make?
I have had my car on Turo for about a year now. My car is a 2013 Toyota Prius C. It rents for about $30 per day. I keep $21.75 of that after the Turo fee. This is certainly not a life-changing amount of cash, but it’s great if you do not use your car and are just beginning to build your early retirement nest egg.
In Denver, summer months are better than winter months for Turo. In the winter, Turo nets me $100–$200 of additional cash per month. But in the summer months, it’s closer $600 after all expenses and fees.
This additional cashflow easily covers all of my insurance and maintenance costs and provides me with a little additional cashflow each month. My car is now a real asset.
My favorite part of the Turo business is the tax savings. In the second half of 2017, I made approximately $3,000 with the app. Because I am allowed to take the standard mileage deduction for every mile my renters ride, I actually showed a $2,000 loss on my tax return. This loss was carried over to my W2 income, allowing me to see a greater tax return than ever in April 2018.
Uber & Lyft
Does renting out your car make you feel a bit nervous? Another way to turn your car from a liability to an asset is to drive it for Uber or Lyft—two of the most popular ride sharing services.
In order to do so, your car will have to be a 2007 model or newer. You’ll need to pass a background check, and your car will have to pass inspection. The requirements for Uber and Lyft can be found here and here, respectively.
When I first moved to Denver in April 2017, I drove for Lyft for about three months. Left claims that drivers make up to $35 an hour. That’s complete hogwash! Unless you drive someone to the airport after a Jay-Z concert, you aren’t going to make $35 an hour. In my experience, it was closer to $12–$17 per hour. Over the course of a month, I’d make around $1,000—but I was driving a lot! Close to 20 hours per week.
Because you make more per hour driving for Uber or Lyft than you do with Turo, the tax advantages aren’t as attractive. In 2017, according to the IRS, even with the standard mileage deduction I still had a $1,000 gain. Guess who had to pay taxes on that difference?
Uber & Lyft or Turo?
So what do you do? Would you prefer to rent your car out? Or would you prefer to drive people around? That’s a decision you need to make. I can help by laying out a few pros and cons.
- Make more money
- Meet a lot of different people
- Learn your way around your area
- Stay in full control of your vehicle
- You must trade your time for money
- You have to be friendly
- Fewer Tax Advantages
- Occasional drunkards
- Car truly becomes an asset that’s working for you; your dollar-per-hour amount is virtually infinite because you aren’t working
- Tax benefits
- You don’t need to meet your customers
- No drunkards (we hope)
- Giving a stranger access to your car
- Make less money overall
It really boils down to how much you value your time. If you feel as though you can do better, more productive things than drive people around, then Turo is your answer. If you’d prefer the extra couple-hundred bucks a month and are OK sacrificing your time, then Uber and Lyft may make more sense for you.
In either scenario, you’re turning your car into an income-producing asset. If you are able to do this, it’s a giant step forward in completely eradicating (or significantly reducing) one of your largest monthly expenses.
Have you tried these apps?
What did you think? Share your experiences below!