I love thinking about new and creative ways to make passive income. It may be fun to talk about how close I am to investing in real estate, but it's even more fun coming up with new ways that I haven't heard of (at least in a while, if ever). Recently, I have been on a mission to help a close friend lease a car. At the beginning of this journey, I didn't even know how to lease a car, but I learned quickly. By the end of the few weeks of investigating and doing research, I starting asking myself if there was a way that I could earn some passive income by leasing the car to my friend.
How to Earn Passive Income with a Car
My friend was set on the type of car that she wanted. She didn't want anything fancy, but she did want to lease a 2012 Honda Fit. To get a new Honda Fit with nearly the basic options is about $17,000. Let's imagine I had the cash to buy the car outright for $16,500 (I expect them to give me a little bit of a deal) including all taxes and fees.
She was willing to trade in her car, which I could sell for around $3500-$4000 and then pay a monthly payment of $200 for 24 months. If I were to buy the car, I would basically be paying $12,500 out of pocket and earning $2400 each year in income. That's a 19.2% return per year on the initial investment. But, that doesn't factor in the depreciation of the car.
Another way of looking at it is to determine how much money I would have made at the end of the two years. After investing $12,500, at the end of the two years, I would have received $4,800 in monthly payment and would be able to sell the car. Looking at the value of Honda Fits from 2010 with about 24,000 miles (I would have a 12,000 mileage limit to protect my investment), they are listed at about $13,500 minimum. This gives me an idea of what the 2012 will be valued at in 2 years.
This tells me that I can expect to have about $5,000 profit before the fees (like registration, etc). Earning even a clean $4,000 in two years on a $12,000 investment seems like a great deal.
Why I didn't Do it
While it does seem like a great deal, there are too many uncertainties. I am not interesting in figuring out how to do a private leasing agreement or a contract that would mirror a lease. More importantly, I am planning on getting into real estate soon and would hate to tie up my liquid assets in a car, which is depreciating in value. While the profit margin may be favorable, I would much rather invest in real estate that is probably going to stay the same value or increase in value.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.