Turo arbitrage? The 3 best performing vehicles on Turo.
Turo arbitrage is a concept I heard about around 6 months ago, where investors finance vehicles for the sole purpose of renting them out on apps like Turo. I didn’t even think this was an effective way to offset the costs of owning a vehicle, let alone a way to make money, but after doing some digging, you may be surprised with what I came up with.
According to TURO.com, the top 3 vehicles (ranked based on the lease payment costs) are The Jeep Wrangler, The ford Mustang, and the Fiat 500.
The Jeep wrangler ranks #1, and according to Jeep.ca, a new Jeep wrangler sells for $37,855. According to Turo, this same vehicle is rented out an average of 14 days per month, for an average of $91 per day. A total of (14*91=) $1,274/month.
The Ford Mustang ranks #2, and according to Ford.ca, the ford mustang starts at $26,080. According to Turo, this same vehicle is rented out an average of 17 days per month for an average of 66 per day, for total revenue of (17*$66=) $1,122/month
The Fiat 500 ranks #3, and according to FiatCanada.com, the 2020 500L’s starting price is $25,495. According to Turo, this same vehicle is booked for an average of 17 days per month for $38 dollars per day, for a total of (17*38=) $646 per month.
Of course these revenue numbers do not account for common costs such as: insurance & maintenance, however Turo does allow the people interested in renting their cars the option to request a cleaning deposit (much like AirBnB).
Assuming the cost to ensure a vehicle is around $150 a month, and the cost to maintain this same vehicle is another $150 a month, Turo arbitrage may be a sweet way to make some extra money (and buy the vehicle you want.)
Lets assume, for the sake of argument, that you will end up spending 1% of the purchase price of the vehicle per month in insurance and maintenance.
For the Jeep Wrangler, and owner can expect to spend around $380 per month. For a Ford Mustang, an owner can expect to spend around $260 per month. Lastly, for a Fiat 500L, and owner can expect to spend around $255 per month.
That means, Turo arbitraging a Jeep Wrangler would put (1270-380=) 890 in your pocket every month, for an ROI of (890/3800=) around 2.3% per month, or 27.6% per year (before your cost to acquire the Wrangler). A Ford Mustang would put (1120-260=) around 860 in your pocket every month, for an ROI of (860/26000=) 3.3% per month or 39.6% per year. A Fiat 500L would put around (650-255=) 395 per month, for an ROI of (395/25500=) 1.5% per month or 18% per year.
It’s not arbitrage when you put your money on the table to purchase an investment, thats just plain investing. For a 5 year lease, at 5% interest, you are looking at paying 1.85% of the money you borrow every month, for 60 payments, or a total of 111% of what you borrowed to begin with.
Now, let’s assume that the resale value of the vehicle after 5 years is 40% of the purchase price.
That means, after 5 years of owning the Jeep Wrangler, you would have made (890*60=) $53,400, the ending value of the asset would be (38,000*40%=) $15,200 and you would have paid (38,000*111%=) $42,180 to finance the vehicle. That’s a gross profit of (53,400+15,200-42,180=) $26,420 over 5 years.
For a Ford Mustang, the numbers are even more exciting. After 5 years, you would have earned an income of (860*60=) $51,600, the ending value of the asset would be (26000*40%=) $10,400, and your financing cost to purchase the vehicle would have been (26000*111%=) $28,860. That’s a gross profit of (51600+10400-28860=) $33,140.
If you combine all of this, with car hacking (like house hacking where your tenants pay the rent, and you live in a suite in the house), you are able to not only get the car you want without having to pay for it, but you are also able to use the vehicle for the 50% of the time that it isn’t being rented.
Talk about a winning proposition.
Sources:
https://turo.com/ca/en/top-earning-cars
https://shop.ford.ca/build/mustang/?intcmp=vhp-360cta#/select/
https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MCCalc-CHCalc-eng.aspx