In the storage shed business, the rent-to-own market has caused quite a stir. You can hardly drive through any city these days without seeing multiple roadside displays of rent-to-own storage sheds, most of which advertise “Built by Mennonites.” I would like to point out some of my personal observations and feelings regarding this marketing tool being used, and I might add quite successfully.
We have been in the storage shed business for almost 20 years, I have personally taken the time to investigate the possibility of taking advantage of this additional market and have been approached by lenders who are more than willing to work with me in this endeavor. but I have a problem with offering this, mainly my conscience.
Let me explain this rent-to-own agreement in a little detail. Most business offers promote no credit check and low monthly payments. This sounds good, doesn’t it? It’s not until you actually start looking at these offers that you really get an idea of what you’re signing up for. Typically, the Rent to Own offer will require you to pay a deposit (depending on size, $100.00-500.00 down), plus your first month’s payment. All of these agreements have a fairly long and detailed contract that you have to sign, you really need a lawyer to go through all the fine print. All the contracts I’ve seen include:
a) paying payments for 36 months
b) Prepayment is allowed, but any payment that has paid only 60% will be applied to the original purchase price
c) In case of repossession of the shed, lose all deposits and payments
d) If your shed is repossessed, you will be reimbursed for the cost of shed removal.
e) Any contents of the shed, if repossessed, will become the property of the company.
f) Any damage to your property during delivery or collection, or yard is your responsibility
g) At $15. 00/month A late payment fee is charged for any late payment
At first glance this doesn’t seem so unreasonable, although most of the people doing these deals will probably never understand or care about these details, but the real trick is that the interest rate on these buildings is usually around 35-40%. of finance charges.
Let’s break it down for you:
$2900.00. storage shed
$284.00 in sales tax
$3184.00 total cost of the barn
Doing a rent to own at a $3184.00 will cost you about $145.00/mo times 36 months, you would actually pay about $5200.00 for that same barn. I now build 75-100 of these storage sheds each year and my profit margins on this same storage shed would be around $500.00 if I was lucky. Something is off here, I can make $500.00 or about 20% and the rent to own companies are making about $2000.00 and that is if you make all the payments. If you don’t make the payment and they get it back, they keep the money you paid and resell it in the same barn, same deal. Talking about compound interest
I certainly have no problem with companies making a profit, but my real problem with Rent to Own is that I feel like we are taking advantage of people. Let’s face it, anyone with financial knowledge can see this as a scam. In most cases, these are people who have little or no credit. Most of the time they are putting what they want before what they really need. Like the “You Tote The Note” car lots and the “Cash Advance” businesses, the “Rent To Own” business preys on people who have made poor decisions, don’t know better, or unfortunate circumstances have caused them. They have put you in bad financial situations. In any case, I think making money with the people who can least afford to pay absorbent interest rates. If they can’t get reasonable financing or save and pay correctly, then they probably don’t need it.