Buying a Car for Turo: Finding The Sweet Spot (Age, Make, Model)

So, you’re considering the Turo side-hustle?  You want to specifically purchase a car to rent on Turo?  Exciting!   You want your Turo car to give you the biggest bang for your buck, so how do you decide what car to buy?  I’m going to try and help with that by analyzing various car costs and the money you could earn on Turo.  But first, some limitations:

• I’m only looking in my locale (West Palm Beach, FL), so my data will be biased toward this market
• I’m not including extra delivery revenue and extras, if you choose to add those to your listing
• I’m assuming the car is paid with cash, so varying costs of financing are not considered

Of course, before embarking on the Turo journey, you should consider if it’s even worth it.  Generally, the more days a car is rented per year, the more Turo makes sense.  Also, before tying up your money and time, think about opportunity costs.  Would you be better off just investing your money in something more traditional like stocks, bonds, or real estate?

Anyway, let’s dig in.  Here’s the basic formula for profit on Turo:

Depreciation is Not Your Friend

Cars lose value over time due to obsolescence and use.  Ideally, you want a Turo car which retains its value over time, so you’ll recoup some money when it’s time to sell.  Cars typically lose between 10%-20% of their value per year.  Total depreciation is closely linked to mileage, so a one-year-old car with 100,000 miles is worth significantly less than one with just 10,000 miles.

Brand

Some brands retain value better than others.  Motortrend’s analysis indicates Subarus, Jeeps (Wranglers, specifically), and Toyotas lose their value slower than other brands.  Electric cars tend to depreciate very rapidly since buyers of used electric vehicles can’t rely on the tax credits available to new car buyers (these can be worth $7,500 or more to a new vehicle buyer).

As a percentage of purchase price, luxury cars and full-size SUVs also tend to lose value very quickly.  A study by iSeeCars highlights this fact.  In their analysis, top mainstream luxury brands and models consistently show up as losing their value fastest.  Below is a snippet of the cars with the highest depreciation rates.  See all the luxury cars and large SUVs?

Cars with Highest 5-Year Depreciation Rates

Finally, pickup trucks of all sizes and sports cars tend to hold onto their values better than most cars and sedans retain their value marginally better versus SUVs.

Bottom line:  To minimize depreciation, buy a truck, sports car, or small/mid-size non-luxury sedan

Age

Finding the sweet spot for the age of your Turo car is tricky.  On one end, a newer car will command a higher price on Turo.  On the other, the cost per mile in the form of depreciation and maintenance costs is higher.  Let’s assume a 16% depreciation rate on both cars

And to complicate matters, depreciation is not in a straight line.  Newer cars lose value faster than older cars and more expensive vehicles lose value faster than less expensive ones.

Therefore, if one only wanted to minimize depreciation, they would purchase the cheapest, oldest car they could find to rent on Turo.

Turo Revenue is Higher for Newer & More Expensive Cars

Newer cars and luxury cars command a higher price point on Turo.  Based on regressions of 234 of my local listings (I included their “everyday driving,” “family friendly,” and “fast & fun” categories), it looks like the daily rate one can charge increases by about 7% for each model year newer the car.  Unfortunately, as the chart below shows, there is so much more that determines a car’s daily Turo rate than its model year.  I included both the linear and exponential regression equations – it shows there’s a relationship, but not nearly as strong as I expected. 

What also surprised me is that the relationship between model year and Turo rate seems linear, except for the high end “fast & fun” category.  This category also has a much higher dispersion of rates because, say, there’s a bigger difference between a Tesla Model S & Porsche 911 than a Nissan Altima & Ford Fusion.  This speaks to the power of a brand name and suggests exotic cars could be very profitable to buy and rent.

But yes, car depreciation isn’t linear, it’s logarithmic.  That means the extra revenue for a very new car might not be worth the extra depreciation loss one would face.

Summed Up:

• Linear relationship – each model year gets you a roughly 7% bump in rate/revenue
  • The increase is most noticeable for the “family friendly” category (11.3%) and least for the “everyday driving” category (3.2%)
  • I suspect the “everyday driving” category is geared to those looking for the cheapest rental car possible
  • Bottom Line:  If we assume a 16% depreciation rate and that a car is rented for 150 days a year, a newer car will earn you more revenue BUT an older car will earn you more per dollar of capital tied up (you do need to purchase the car remember)
    • A newer car starts making more sense as we rent more days per year while the older car is the best if you plan to only rent part time

Repairs & Maintenance

This should come as no surprise; maintenance costs are higher for newer cars.  There was a comic floating around that someone fixed their 20-year-old car with spare parts laying around the garage while another with a new car had to spend $5,000 to fix their car’s sophisticated electrical system.  In addition to the fact that newer cars are more complex, the availability of generic parts is much greater for older cars versus newer cars.  Older cars win again.

And yes, different brands are more reliable than others.  This article from Kelley Blue Book, for instance, highlights Lexus, Mazda, and Toyota as the most reliable car brands.  Meanwhile electric vehicles generally performed poorly in reliability, while Jeep (which did great at retaining its value) scored dismally in reliability.  Fewer repairs mean more of your Turo revenue in your pocket.   Here’s the chart from the article:

The Turo Sweet Spot:  Older “Regular” Cars & Newer Exotics

This was a crude analysis, I’ll admit.  I would love for someone to pick up on this and do a national study of various contributing factors.  But, based on this, the best Turo entrepreneur would rent a fleet of older, cheaper cars.  While a tragic reality, I would not suggest trying to have the cheapest car on Turo, since there may be a higher probability of your car getting damaged with this (unfortunately, studies confirm a link between income/net worth and probability of accidents).

Another reasonable strategy is to purchase an exotic car that you would enjoy driving, but you would also like for someone else to defray its cost.  Additionally, it’s a nice perk to be able to deduct some of your car-related costs on your tax return, especially if you wanted to buy your Turo car anyway. 

Finally, considering depreciation rates and reliability, the best brands for Turo appear to be Toyota, Subaru, and perhaps Honda.  As for me, it looks like I’ll be purchasing myself a Toyota Camry or Mazda CX-3 soon.