Starting a Rent to Own Business: Everything You Need to Know
When starting a rent to own business, it is important to consider which sector you want to do business in.3 min read
2. Steps to Starting a Rent-to-Own Business
3. Advantages of a Rent-to-Own Business Purchase
4. How Rent-to-Own Works
Updated November 18, 2020:
When starting a rent to own business, it is important to consider which sector you want to do business in. Rental sectors that have typically shown success include those that sell electronics, automobiles, and furniture. Consumers are always on the hunt for ways to save money. Through rent-to-own businesses, consumers can rent name brand items on a weekly or monthly basis. In turn, the owner can sell these high-priced items for more than what the typical asking price would be in a traditional store.
Rent-to-own occurs when a tenant or consumer rents a property that has the option to purchase it attached. The rental company will set a purchase price at the beginning of the contract, and the tenant will pay a fee for the option to purchase the property in the future. A portion of the rental income is used as a credit towards the purchase of the property.
There are typically two paths that tenants may take to rent-to-own: property first and tenant first. Both paths will generate additional cash flow for the rental company because the renters are paying an increased market rate for the property in exchange for a credit that they can use towards the purchase of the property.
Steps to Starting a Rent-to-Own Business
There are several steps to take when starting a rent-to-own business.
- Create a business plan: Many new business owners make the mistake of not creating a formal business plan for their rent-to-own business. A well-written business plan is like a roadmap for your company. It establishes a framework for the new business. Part of this process will be creating a mission statement.
- Consider your competitors: Before starting a rent-to-own business, it's important to understand the competition in the area. Consider if the market is in need of another rent-to-own business. If not, it is necessary to strive to do better than the competition.
- Network: Network with those who are already established in the business. Speaking with people who have been successful in the rent-to-own business is a good idea. They can offer insight and insider tips from someone who already has experience in this type of business. However, remember that local competitors may not be the best individuals to seek out. Why would they want to offer valued advice to a future competitor?
- Franchise: Consider purchasing a franchise. Before starting a rent-to-own store, consider if a buying a franchise may be a good option for you. Franchises offer new business owners an edge by providing a proven business formula and brand recognition.
Advantages of a Rent-to-Own Business Purchase
Typically, rent-to-own stores attract a wide variety of customers with various needs. Individuals with poor credit often shop at rent-to-own stores because no credit check is required to rent merchandise. Some customers appreciate the opportunity to try out an item before making a commitment to purchasing it, while others only need goods on a short-term basis.
How Rent-to-Own Works
Essentially, a rent-to-own purchase works like a payment plan. Through weekly cash installments, consumers can purchase brand-new merchandise such as appliances, electronics, furniture, and computers. There are many advantages to making purchases using a rent-to-own system:
- Consumers can own new, brand-name merchandise without having to take out credit or make a substantial cash payment.
- Renters are permitted to return the item whenever they would like because there is never any obligation to make the next consecutive payment.
- Those using a rent-to-own service will never face a credit check. Bad credit history or a history of bankruptcy will not prevent individuals from renting desired items or products. Additionally, since these are non-credit transactions, if renters are unable to make a payment their credit score will not be affected.
- Renters may also appreciate a lifetime of reinstatement that many rent-to-own stores offer. If an individual cannot continue to make payments for an item, the funds spent will be credited toward the future borrow. For example, if you must return a rented couch, you can regain possession once you have the available funds to cover the rental cost. It is not necessary to start back from week one.
If you need help with starting a rent-to-own business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.