Getting cars for your Turo business is a fairly easy process. If you have a decent income and credit score, getting approved for a traditional car loan from a bank or dealership isn’t hard at all. That’s how we started out. But what if I told you there was a better way by using your M1 Finance brokerage account?
So, how can your stock account be used to purchase cars for Turo? Well, every M1 account comes with instant access to M1 Borrow – a margin account that uses your stock holdings as collateral. You can access up to 50% of your portfolio value as a line of credit that can be used for any purpose, not just buying more shares of stock.
Here’s how you could make yourself into a bank for your Turo business using the M1 Borrow account:
1. You’re going to want to save up $30k-40k in your M1 Finance brokerage account
I’m not a financial advisor, and I don’t give specific investing advice, but for this to work well, you don’t want to invest in really volatile stocks. Broad-based index funds or a well-diversified portfolio of individual stocks would help in this regard.
2. Access the funds available in your M1 Borrow account
With $30k-40k invested in your M1 Finance account, you’ll have instant access to $15k-20k – enough to purchase a decent car for your Turo business.
3. Buy your car “in cash”
Save time (and a credit inquiry) at the dealership by buying in cash. This should also give you some negotiating leverage.
4. Pay yourself back
Use your Turo profits to pay back the M1 Borrow account.
What are the advantages to using M1 Borrow versus just getting a traditional car loan?
1. Minimum payments decrease as you pay down the loan
With a traditional auto loan, your monthly payment is fixed. Even if you make an extra payment to principal, your minimum payment won’t change. There’s really no incentive to making extra payments. With a line of credit, your minimum monthly payment decreases as your loan balance decreases. This can really help during slower months in your Turo business. You have the option of making additional payments during busier months, that way you’ll have lower minimum payments to make during slower months.
2. No credit checks to access your M1 Borrow margin account
Did I mention that you don’t need to apply for the M1 Borrow margin account? You get instant access. It’s backed by the stocks held in your M1 Finance account, so you’re technically just borrowing from yourself. Be aware that if the value of your portfolio goes down, M1 can issue a margin call where you’ll either need to deposit additional funds into your brokerage account, or sell some of your shares. Never borrow more than you an afford to pay back. Also, if you plan to title the car(s) in your business’s name, there’s no need to personally guarantee any loans.
3. Use dividends to help pay down your line of credit
If you hold some dividend paying stocks in your portfolio, you can use those dividends to make additional payments to your credit line which helps to pay it down even faster. With enough dividends, you might even be able to cover the minimum payment, allowing you to keep more of your Turo profits. Note that doing that won’t actually decrease your principal balance, you’d just be making interest-only payments.
4. Become a “cash” buyer
Buying in cash gives you flexibility. Whether you want to purchase from a traditional dealership, Carvana or another online dealer, Craigslist or Facebook marketplace, you have all the options at your disposal. It also gives you added leverage to negotiate on price. Buying in cash also makes it much easier to title cars in your business’s name.
5. You can’t overextend yourself
Because the M1 Borrow line of credit is backed by other assets, it’s nearly impossible to overextend yourself when purchasing a car. You could always sell some stock to raise cash if something should go wrong. Just don’t use the margin account for a down payment on a car loan! That could be a recipe for disaster. Pay cash and you’ll be fine. It also offers an easy way to slowly grow your Turo business over time. As you pay down the line, you’ll have funds available to buy another car. Growing your business becomes a simple process: save, borrow, buy a car, pay down the line, borrow again, buy again. Rinse and repeat until your fleet is the optimal size.
If you’re interested in opening an account at M1 Finance, use this link to get $75 to invest (I get $75 too, so you’ll be supporting the site as well).