Don’t calculate your return based on revenue
Let’s say you buy a car for 3 million forints.
On average, it generates 200,000 forints in revenue per month.
At first glance, the math seems simple:
3,000,000 / 200,000 = 15 months.
In other words, it pays for itself in a little over a year.
But that would be too good to be true.
From that monthly revenue of 200,000 forints, you still have to pay for things like insurance, maintenance, tires, cleaning, and taxes, along with any service fees. You also need to account for depreciation over the longer term.
If an average of 120,000–140,000 forints of that 200,000 is actually left in your pocket, the payback period could be closer to around two years.
That’s a much more realistic way to think about it.
Utilization changes everything
Imagine two identical cars. Both were purchased for 3 million forints. One is rented out for 8 days a month. The other for 18 days.
Same car, same purchase price, but a completely different return on investment.
That’s why, in car rental, utilization is often more important than a high daily rate.
A car rented out consistently at 12,000 forints a day can often be a better investment than one rented at 25,000 forints a day but parked for most of the month.
A 2–4-year payback period can be a realistic goal
For a reliable used car chosen carefully, I think it’s reasonable to consider a 2–4-year payback period a perfectly acceptable result.
If it pays for itself faster than that, that’s obviously excellent.
If, however, it would take 5–6 years, while the car continues to age and lose value, it’s worth rethinking the plan. However, it’s important to remember that the car doesn’t become worthless once it has paid for itself.
Let’s say you bought it for 3 million forints, it generated enough to cover its purchase price over three years, and you can still sell it afterward for 1.5–2 million forints.
That amount is also part of your investment’s return.
Don’t overlook depreciation
This is one of those costs that’s easy to forget because you don’t get an invoice for it. But the car is constantly losing value. And as a rental car, it will probably rack up miles faster than the average privately owned car.
So it’s not enough to say:
“It earned back its purchase price in three years.”
You also need to consider how much the car itself will be worth three years from now.
A model that holds its value well can often be a better choice from a business perspective, even if you paid a little more for it.
Major repairs can easily change the numbers
Everything goes perfectly for a year. Then you get hit with:
- a turbocharger,
- an automatic transmission repair,
- a clutch,
- a major suspension repair,
- or a higher insurance deductible.
A single unexpected expense can wipe out months of profit.
That’s why it’s worth thinking in terms of annual averages rather than month by month.
If the car earns 150,000 forints one month and you get a 300,000-forint repair bill the next, that doesn’t necessarily mean it’s a bad business.
The full-year results are what count.
The first year is still a learning period
You probably won’t have ideal utilization when you first start out. You won’t have many reviews yet. You’ll be looking for the right parking spot. You’ll be testing the price. You’ll be refining the listing.
That’s why it’s not always a good idea to project the next five years in a straight line based on the first year.
As you build up positive reviews and repeat renters, the second year can be significantly stronger than the first.
When can you say it was a good investment?
Not necessarily when your total revenue reaches the car’s purchase price.
Rather, when your net earnings after expenses have recouped the capital you invested, while the car still retains market value.
That’s why it’s worth drawing up three scenarios before buying:
- one with lower utilization,
- a realistic middle-ground scenario,
- and an optimistic scenario.
If the car only looks like a good deal in the most optimistic scenario, I wouldn’t buy it.
But if even with moderate utilization it shows a realistic payback period of 3–4 years, it’s probably worth running the numbers further.
In car rental, after all, the question isn’t whether the car makes money.
It’s whether it makes enough money relative to the capital you’ve invested and the risk you’re taking.
