Investment Car Advice Please

djprima on 20/09/2018 - 09:15

Hi,
I know the title sounds like a click bait and I'm not working in Westpac, sorry :)

I'm seriously wondering if this can be done. We're a young family living in Sydney suburbs with kids and still feel that we don't need to own a car. We live within walking distance everywhere and take public transport for longer journeys. On the occasional rare event requiring a car (places far from public transport, picking up large items), we just hire goget or car next door. Perfectly fine.

Being an ozbargainer, just exploring the idea if its worth the hassle to own a car but renting it out all the time? The additional income would be nice and we could use it when the need comes. Anyone doing this? What vehicle do you suggest? From my research, automatic 7 seaters seems to be in high demand and perfect for us to use occasionally, but really open to suggestions.

Many thanks!

tldr: want to buy a car to rent it out, worth it?

Automotive Investment Car

Comments

  • kerfuffle on 20/09/2018 - 09:24
    +3

    I wouldn't say it's worth it; people will thrash your car

    • djprima on 20/09/2018 - 09:29

      I don't mind personally, insurance will take care of it

      • Donaldhump on 20/09/2018 - 09:37

        until they stop insuring you

      • HighAndDry on 20/09/2018 - 09:45

        I'm sure renting it out will constitute commercial use that I would be worried about insurance denying claims for.

        • djprima on 20/09/2018 - 09:54

          With the myriad of car sharing options now with insurance included, I'll probably be going that route

        • HighAndDry on 20/09/2018 - 11:07
          +1

          @djprima:

          now with insurance include

          Have you read the relevant PDS for their insurance? As Hellfire said below - there may be a lot of things their insurance doesn't cover.

      • Hellfire on 20/09/2018 - 10:50
        +11

        I rented my 2nd car out with Car Next Door (CND) for a while. I didn't really feel like it was worth it. The included insurance is mostly limited to accidental damage with some minor coverage for mechanical issues.

        • Someone left the boot ajar so the interior light drained the battery. CND paid out $50 of the $300 cost plus nothing in lost revenue or wasted time.
        • Someone left P plates on the car. CND confirmed that any damage by that driver would not be covered by insurance and I'd need to chase them privately.
        • ABS/ESC had been activated a few times. Never happened to me while driving it.
        • A couple of small mechanical issues that may have been a coincidence but an indicator of being thrashed.
        • HighAndDry on 20/09/2018 - 11:03
          +2

          Great points - OP, please take note. It's one thing to "have insurance", another entirely whether that insurance will actually cover you for anything useful.

        • djprima on 20/09/2018 - 12:21

          Thanks! Appreciate to get a first hand experience from CND user. Need to search more like this

      • redvaldez on 20/09/2018 - 16:00
        +3

        It's not just the obvious (and insurable) things like spilling a milkshake on the seat or rubbing the wheels up against a gutter.

        People don't respect cars that aren't theirs. Things like not revving harshly when the car is cold, not bottoming out the suspension on speedbumps, etc. It's not something that will be immediately noticeable after one hire, but what about in the long run? Will your engine/suspension/tyres etc need replacement or repairs earlier than if the car was only driven by you and driven with respect?

        Also, People hiring your car are unlikely to care if there's a bit of a pull in the steering, if there's an unusual knock, etc. If it's your car and you're driving it regularly, you'll probably take it to a mechanic to get investigated. But what if you don't drive it for a few weeks and a minor repair has escalated to a major repair?

      • MrBear on 21/09/2018 - 09:35

        Insurance takes care of accidents, not mechanical issues.

        • GG57 on 21/09/2018 - 10:31

          Only if correctly insured for the purpose the vehicle is used for

        • djprima on 21/09/2018 - 15:22

          Planning to buy one still under warranty, and might sell it when about to expire

        • redvaldez on 21/09/2018 - 16:23

          @djprima: But your depreciation is sharpest as soon as you drive out of the dealer. If you're seeking to sell within warranty just in case the car's had a hard life, then would it not be more cost effective to not rent the car out, and keep it long-term?

        • djprima on 21/09/2018 - 17:26

          @redvaldez: Several manufacturers have 7 years warranty now, if I bought it at it's 3rd year, I should avoid the 1st 2 years depreciation and still have 5 years left. Anyway depreciation can be claimed, should help offset the costs

    • Oz8argain on 20/09/2018 - 13:40

      Why is Turo so popular in USA? I don't get it…

      • HighAndDry on 20/09/2018 - 15:59

        This is a……

        I really know it from Doug DeMuro's videos. I can see the attraction from the borrower's perspective. Not so much the lender.

  • GG57 on 20/09/2018 - 09:26
    +9

    The words 'car' and 'investment' should never be in the same sentence.

    The proposal that you have outlined is purely a small business proposal, and should be approached that way. It will need to make money/profit after all expenses, depreciation, etc.

    • djprima on 20/09/2018 - 09:31

      Thanks, yes that's what I'm planning. Getting the car in missus name to minimize taxes, claim for expenses and depreciation, etc

      • GG57 on 20/09/2018 - 09:43

        I wouldn't put the car in your wifes or your name.
        My suggestion is to register a business (individual or partnership) and undertake all dealings in the name of that business.
        That should include bank account, GST, purchase/registration, insurance, rental agreements, etc.

        • djprima on 20/09/2018 - 09:55

          Good suggestion, will work the math

        • HighAndDry on 20/09/2018 - 11:06
          +2

          OP would have to register a company. A sole-trader or partnership is only for tax purposes (if that), and not a separate legal entity that you can register a car under - that would still be under OP or his wife's name in that situation… including any legal issues and liability.

      • plmko on 20/09/2018 - 09:43

        Won't work, because you won't make any profit in the 'business'.

    • Piranha2004 on 20/09/2018 - 10:24
      +3

      To be fair, cars CAN be used as an investment. I knew a person who bought an older Porsche (from the 90s) which has doubled in price since he bought it. Then there are also classic cars that can be classed as an investment. In the OPs case, yeah I wouldnt say that is an "investment".

      • ihbh on 20/09/2018 - 10:50

        I did a sticky beak inspection a few years ago of a ~$10m famous house near us. It's owned by the founders of a well known homewares chain. Inside the garage was a $2m Ferrari. I doubt it ever gets used because the owners are old; so think of the opportunity cost of just owning that beast.

    • peterpeterpumpkin on 20/09/2018 - 12:56
      +4

      I disagree with your first sentence. Here's an example:

      "The words 'car' and 'investment' should never be in the same sentence."

    • Hoju on 21/09/2018 - 19:42

      Made $22,000 in classic car resales in the last 2 years

      Pretty good investment
      Tax free too

  • dasher86 on 20/09/2018 - 09:36

    How much will you spend on the car?
    How much will maintenance cost to keep it in a rentable / roadworthy state?
    How much income do you forecast?
    How much time will you put in to keep the car in a good state to rent - clean / inspect ready for next renter?
    How much is insurance and registration?
    What are your assumptions based on?

    If you cannot answer these consider doing more research…

    In my opinion probably not worth it.

    • djprima on 20/09/2018 - 10:04

      Thanks. I would say budget is less than 20k and income to at least cover the costs. Rego, maintenance, cleaning, routine inspections, what else? Insurance is covered if I choose the car sharing option

      • boomramada on 20/09/2018 - 10:15

        Have you try to plug some numbers to those questions and came up with the cost vs profit and how much is your rental price is?
        Then compare with similar car hire within well known rental car company?

        You be struggling to make a decent profit compare to those companies. They have fleet discount on buying cars, servicing, and insuring. And your car rental should be way cheaper than those. Why would anyone want to hire your car against well known car rental?

      • HighAndDry on 20/09/2018 - 11:10

        what else?

        Depreciation.

        Accidents that aren't covered by insurance/Insurance excess amounts.

        …and that's just off the top of my head from someone who's never rented out a car in my life. I'm almost 100% certain there are costs I'm forgetting.

      • dasher86 on 20/09/2018 - 11:32
        +1

        I'm probably missing a crap load of stuff and so many unknowns and assumptions
        Investment 3 years
        Capital outlay
        20k ~<100km
        Resale value $10k

        Rego - ~$1000
        Servicing / Maintenance/ Cleaning $2500
        Major repairs fund $1000

        Expenses
        Year 1: $3500 + $5000 Depn
        Year 2: $4500 + $2500 Depn
        Year 3 $4500 + $2500 Depn

        Income required $7500
        Average hourly rate $6
        Hourly Hours required pa 1250
        Days 156

        • djprima on 20/09/2018 - 13:12

          That's a good starting point there, thanks. Roughly need to be rented out every other day to get back to 0 with those numbers

        • kennyboi on 17/02/2020 - 00:03

          There might be tax expenses on top.

  • Bid Sniper on 20/09/2018 - 09:52

    No just no

  • Ryanek on 20/09/2018 - 09:55
    +1

    Sounds like your current situation works best for you.

  • boomramada on 20/09/2018 - 10:03
    +1

    We're a young family living in Sydney suburbs with kids and still feel that we don't need to own a car.

    Best investment for you, just don't have a car :) you automatically save around 3k/year

    • djprima on 20/09/2018 - 10:06

      Thats why we're happy, but looking at increasing that to >3k/year + added convenience when we occasionally need it

  • Euphemistic on 20/09/2018 - 10:08
    +3

    Best investment for a car is a classic car. Think GT falcon, Monaro etc. the prices are rising. Other older collectible cars have pretty decent value. All other cars are not an investment, they will cost money.

    Although, big future concern is how electric cars and pollution control will affect the value of these currently collectible cars.

    Also, if you buy a car to rent out and use yourself on occasion, you’ll need to be careful about how much you use it yourself because it is convenient. When you don’t have a car, you find ways not to use one. When you have a car, you find excuses not to use public transport.

    • HighAndDry on 20/09/2018 - 19:06

      Or a supercar.

      Pagani Huayra was apparently only $2mil USD in 2014 when it released, and is now worth $3mil USD today. That's a 50% gain over 4 years, which is a respectable 10.67% annualised return over that period.

  • 2jzzzz on 20/09/2018 - 10:26

    It isn't income if you have outgoings that eat it all.

  • maybeamacy on 20/09/2018 - 12:43

    A200 AMG

  • brendanm on 20/09/2018 - 13:10

    Have a good look at the going rates people pay. I was going to buy a few utes and leave then around the place and rent them out, but the rental prices are pretty low. Also check similar cars around where you are, when I looked on carnextdoor, all the cars had only been rented out a few times.

    So low price, along with large terms of non-use, equals not much return. Plus you still have rego, maintenance etc to look after, plus people will probably great it like shit.

  • brad1-8tsi on 20/09/2018 - 14:16
    +1

    NAB P/E 12.7 Div yield 7% fully franked
    CBA P/E 14 Div 6% FF
    HVN PE 11 Div 8% FF

    Any of them and a dozen more would have to be better than the invest/rent car idea.

    • SlickMick on 21/09/2018 - 12:50

      Honestly. I only came here to see if this guy was serious. I've never heard of a car being seriously considered an investment, and no-one here has changed my mind.

      • djprima on 21/09/2018 - 14:57

        I am serious, and still considering it now based on the replies. Will update this thread with the outcome if I ended up doing it

      • Oz8argain on 24/09/2018 - 10:06

        There are many cars you can buy as an investment, but they all start around $1M

  • djprima on 27/02/2019 - 15:20
    +1

    An update as promised, just in case someone is still reading this thread

    I ended up doing it. Bought a used car less than $10k and currently earning ~$400 a month after costs. Not too bad actually, still need to see how it goes after a year to get the average returns. I've also met someone who actually do this as his main income, bought 13 vans to be rented out earning roughly $700 a month per car

    Will update again after a year…

  • djprima on 31/01/2020 - 15:47
    +3

    One year update as promised :)

    Income varied a lot, dropping significantly in winter and through the roof during Christmas period. In the worst months, I got ~$100 a month after costs. ~$800 in best months. Car got additional wear and tear, but no issue mechanically so far. One borrower lost the key but replace it immediately at his own cost.

    The fact I didn't realise before is tax - in a good way. If I'm not doing this, all car related costs comes out from my pocket. By doing this, I claim everything as deduction and got roughly 50% back as tax return.

    All in all, there's a slight profit, about 10%. This is on top of having access to a car ready for emergencies, so I could safely say that this is good 'investment' so far!

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