I started a mildly successful car business. Need advice!

[mhcapa1]

Hello everyone, I wanted to share a bit about my new business and also get your thoughts on improvement. I am an ex automotive tech, I worked at a dealership for several years before branching off on my own.

I started off by doing fix and flips but the margins can be thin if you try and do any amount of volume, as well as being capped at what one person can do by themselves. This was my experience at least. Hiring help is out of the question as I don’t have a shop nor could I afford to offer the pay or benefits a real shop would offer. I would not want to be working for myself under this conditions, so certainly don’t expect anyone else to either.

I’ve also looked into starting my own mini-shop but the capital investment needed was high, and I wasn’t sure I wanted to buy myself a job having to work on cars 24/7 again.

A couple of months ago, I decided to put a couple of my vehicles on a popular car-sharing platform and to my surprise they were rented out almost instantly. I currently have three cars being rented out, and I’m repairing a 4th one to get onto the platform as well. These are all fully depreciated economy cars that I’ve repaired and brought up to shape. They’re well under market value so even a wreck should put me a bit ahead if insurance pays out.

Being able to get these cars under market as well as my mechanical skills is really the only thing making me profitable, I see many others on this car sharing platform and unfortunately I don’t really see how they are making a whole lot after depreciation and maintenance, especially those that rent out luxury cars. But hey, what do I know I have no idea what their numbers are just my observations knowing cars a little.

Now from here, I’d like to scale up to 8-10 cars at minimum. I’ve used up most of my cash buying these last 4 cars, how should I approach a bank with this? Do I make a business plan and try and acquire a business loan? The cars are making money and I’m getting a great return on investment as I am able to acquire the cars for a good price, and reconditioning and maintenance costs are low as I do the work myself and get most parts at wholesale pricing. I think the business is solid, just need to start scaling. Any advice?

My goal is to net at least 100k a year. I think I can do it, I just need to add more cars to my fleet. My only sticking point at the moment is lack of money. Would appreciate anything from some more business minded folk here.

 

[andyprays]

@mhcapa1 I would just save up and buy them one at a time with cash, a loan with interest would hurt your margins. Plus a car getting totaled would eliminate that income to pay back the loan. This is a great idea though, where are you looking to find cars that only need some work? (Also run a niche auto service business)

 

[mhcapa1]

@andyprays That would be the safe way to go I agree. Unless I find a good financing option that makes sense I might just have to go the slow and steady route.

As for where I find the cars, mostly auto auctions. 90% of the stuff I look at is hot garbage dumped by the local used car dealer. I pick through and find what works for me, and I specifically focus on what I’ve been trained on and what I have experience working with (mazda/ford).

 

[krista123]

@mhcapa1 I don't think you should do this, or at least you need an exit strategy.

The thing about asset light businesses like Turo is you take all the risks on the assets. Turo can up and change their mind about the business as a whole, or change the rental economics in their favor at any time. See how Uber has treated drivers, DoorDash has treated drivers, Lyft has treated drivers, etc etc etc.

You should proceed with caution.

You sound skilled; I just think you should build a business that can't get the rug yanked out from under you at any time. A good business likely has a direct relationship with the ultimate buyer, not a relationship intermediated by an intermediary (Turo, here) that can screw both parties...

 

[exjwstudent]

@andyprays This makes no sense. Surely he'd make more renting the cars then waiting to save up to afford them.

Car getting totalled he'd lose the money regardless is a loan or his cash

 

[pj76]

@mhcapa1 Congratulations. From your storyline, it seems you don't need money, you need cars. See if any friends want to contribute their older model clunkers to your process. Your equity is your work to bring them up to snuff, theirs is their vehicle. Maybe rental fees can buy out their equity over time.

Eventually you should have a fleet of cars, the value of which you can leverage for loans.

 

[mhcapa1]

@pj76 No friends to contribute cars but I have had family offer to give me some money, although they are a demanding bunch so I have been on the fence about it.

As for leveraging your fleet to get loans, I think that’s what all of these 20+ vehicle hosts are doing. There are a few guys in my area that haven’t been on the platform more than a couple years yet they have anywhere from 10-50+ cars on their profile.

 

[pj76]

@mhcapa1 I imagine finding a banker that understands the business model makes all the difference.

Just spitballing here: what about Gov deals style vehicles? Former police cars are always for sale in my area that need some work, but often have solid miles still left. And cheap!

 

[exjwstudent]

@mhcapa1 I'm assuming you're talking about Turo or something similar.

How much are you making an hour? Also how much is your insurances, not just commercial auto but liability? You're putting yourself in a huge liability renting out cars you fixed and aren't in perfect conditiob

 

[mhcapa1]

@exjwstudent Everything I rent out I make sure is solid, I do not want to be the slumlord of cars. I inspect and repair everything the same way we did when I worked at the dealer, except I don’t have to argue with my service advisor/customer about what should be done so that is nice.

The rental platform (don’t wanna blatantly advertise them, but rhymes with churro) provides limited insurance and I also have an umbrella policy although I am not going to try depend on it. But good point I should look into it before I screw myself.

As for how much I’m making hourly, I have not added that up yet but so far it’s easier and less stressful than what I was doing before so that’s a plus? I’m really just trying to find out how I can get the most out of my skillset, so far hasn’t been the most fruitful doing it alone but I am learning.

 

[exjwstudent]

@mhcapa1 Sure but regardless of how well it's maintained it's still an older car and more issues and risks. That's why rental car companies use new cars and sell them after a year or so.

Much more likely for a brake caliper to freeze up or brake line leak or maybe an airbag is defective. You can be the best mechanic but you're not going to test everything after every single rental.

Split the company up and charge your repair work to yourself and see if you're making more repairing the car or renting it. Times I've used this platform it was a pain and idk how the person renting makes decent money, after paying to clean and deal with all the issues.

 

[mhcapa1]

@exjwstudent Yes, I agree with that as well. If I were to expand, I would look into newer and lower mileage cars. It’s safer and better for the customer as well, but I would need to see how financing affects my numbers and if it’s still profitable.

There are a lot of newer cars on the platform renting for fairly cheap, I do wonder sometimes if the owner is making decent money or they are just covering their car payment/insurance/maintenance.

 

[exjwstudent]

@mhcapa1 Like many others in the gig economy they can't properly calculate costs so likely think they're making more than they really are and actually working close to nothing.

 

[don720]

@mhcapa1 Without significant time in business it's going to be fairly difficult to get a loan this early into the game.

My recommendation would be to explore some 0% APR Credit card options in your personal name. Obviously you're going to be more at risk going this route and potential negative implications to your finances if things go south.. but you run a risk no matter which route you take. Make sure you find cards that don't begin accruing interest at day one. I'd explore r/churn for some assistance with options too.

Realistically - with a large enough balance you should be able to buy 5-6 cars, get them out and making money, pay down your balance back to 0, rinse and repeat.

 

[trustmaster]

@mhcapa1 Congrats on your business!

One question an investor may have is how they can get their return on investment.

If an investor lends you $100,000 then how can you pay that back as $200,000, and within what timeframe?

On a smaller scale, if someone lent you $100 today, and expected to get back $200 next week, would you take their money?

Is it worth it to borrow that $100 with a one-week turn around?

How much would it be worth to borrow and for what timeframe?

An investor may also want to see how you have profited from your current business.

How much do the cars generate income vs expenses, plus your time maintaining them, over what period of time.

Let's say you start recording in month 1 but by month 6, the numbers don't really change. So your business may not scale with your current fleet of cars.

If you are able to secure more cars, then you would have to factor how much they would cost to buy, before calculating revenue.

At some point your cost to revenue ratio may be different than what you had imagined.

There is a model of car sales that are junk cars. The buyers know they are buying junk cars but will buy them because they desperately need a clunk to drive in the immediate future.

You may be able to try a few different car related business models and diversify.

 

[nothingtoknow]

@mhcapa1 Do you have an LLC yet? Business bank account? You can build up your LLC credit separate from your personal, and write off all interest on taxes, as well as all maintenance for the vehicles. Once you build it up to get a vehicle financed, you could quickly finance another 10+ vehicles under the LLC. Don’t grow too fast though

 

[nothingtoknow]

Another option, for the cars you own outright, you can “lease” them to your business for a similar cost to what you’re renting them for, so with all the maintenance and expenses you could possibly owe nothing at tax time

 

[popdave4011]

@mhcapa1 Why not make a website/brand/phone for yourself?

You get traffic/clients from Turo, but after the first meet, they meet with you directly right? So you can give your phone/brand/website and they can rent your cars directly from you.

Removing the turo comission should increase your margins.

You do need to make a really good contract tho, so you must spend some cash with lawyers.

I would keep getting clients ONLY from Turo, and not advertise outside. That way Turo filters people for you.

 

[snipergosh]

@mhcapa1 Yes, you definitely need a business plan, as well as profit and loss statements and projected earnings for your business. You need to basically write a book about your business and either get a bank loan or a private equity partner or investor. My questions to you on this are as follows:

How long have you been doing this?
Where are you located?
Do you know your gross, net, cost of goods, and break even numbers?
Do you have a company or LLC?
Do you have an ein?
A company bank account?
A resume?
Do you have competitors?
Who are your customers?
What are the risks, and what are your risk contingencies?
Is your company sustainable?
What is your future growth plan or timeline?
How do you obtain your vehicles?
What platforms do you rent on?
What fees and costs do you pay?

Those are the preliminary questions you need to answer for a short pitch deck or 1 page business plan.

Some questions I would ask you are:
1. How could you potentially maximize your return on these vehicles?
2. Could you potentially make more money in the future by eventually opening your own rental agency?
3. Are you on multiple platforms to increase your rental times?
4. Are you renting to rideshare drivers or individuals for private rental?

If you need help, I have experience with transportation companies and writing business plans. DM me if you need help.

 

[mhcapa1]

@snipergosh This is very helpful, thank you! I think I can confidently answer only half of those if that, so I certainly I have some work to do.