Before deciding if you should buy, rent or lease your next piece of construction equipment, there are a lot of questions to answer and pros and cons to consider. Aaron Kleingartner, marketing manager, Doosan Infracore North America, provides these tips.
Think about how the equipment will be used and how often. Be honest about how well you can service and maintain it. And consider all the extra costs that come along with the choice you make about buying, renting or leasing.
Sometimes owning is the right answer. Other times, renting or leasing is a better choice. Here are a few considerations to help you make an informed decision to meet your needs.
Even with the growing trend for companies to rent or lease construction equipment, there are times when purchasing equipment is the right choice. Purchasing can save you money over time if your business has a high demand for a particular piece of equipment, you use it all the time and you have the resources to store and maintain it effectively.
Benefits to buying construction equipment:
When you own equipment, you know it will be there when you need it.
You control the maintenance and service.
Your crew will be familiar with how the equipment works for improved efficiency and productivity on the job.
Some costs, including taxes and interest on equipment loans, insurance, repairs and depreciation, may be tax deductible. Your tax situation may vary; please consult your tax advisor.
Before you buy, think about this:
A purchased machine can’t be returned, unlike a rental or leased unit. You buy it, you own it. So consider resale value in case you decide to sell or trade down the road.
Buying large construction equipment requires a substantial outlay of capital that will not be available to invest in other areas of your business. Or it can tie up lines of credit, which may be needed for other expenses.
Owning equipment requires the resources and expertise to store it, and maintain and service it regularly. If your company can’t do this, renting or an operating lease might be a better choice.
There’s a growing trend in the construction industry to rent equipment, and there are many reasons renting can be a good business decision. Renting offers tremendous flexibility, as you can pay for equipment only when you need it – daily, weekly or monthly. It is an easy way to supplement your current fleet without a long-term commitment.
Benefits to renting construction equipment:
Many rental companies will deliver equipment to your jobsite, so you don’t need to worry about transportation issues.
It’s easy to supplement your current fleet as needed to keep up with busy times or specialty projects. Renting allows you to say “yes” to projects even when you don’t own the equipment to handle it.
You can alleviate long-term storage costs.
In some situations, rented equipment can be written off as a business expense. Your tax situation may vary; please consult your tax advisor.
Some rental companies offer rental-purchase options (RPO) where a percentage of the monthly rental dollar may go toward the purchase. Or you can return the machine at any time if business needs change.
Often, you can try out newer equipment, attachments or technology and return it when you’re done. It’s a great way to test it out, see if it improves productivity and decide if it’s worth purchasing. Or you can walk away.
For short term rentals, you don’t have to keep parts in inventory or keep track of maintenance schedules.
Before you rent, think about this:
Although machines can be rented for a shorter term than lease alternatives, the trade-off is rental rates are generally higher than leasing rates.
Rental equipment is not always available when you need it. You’ll have to plan ahead when possible or establish a good relationship with your rental resource.
When possible, you’ll want to plan for ways to use the equipment on multiple jobs to get the most bang for your buck.
Machine utilization and length of term are key decision factors. High machine usage rates over a long period of time may not make good financial sense in a traditional rental agreement. Figuring out your rental “tipping point” can help you decide if your rental investment could be applied to a rent-to-purchase option from a dealership – possibly offering the best of both worlds.
For long-term rentals, you may be responsible for maintenance.
The fastest growing finance option in the industry, leasing combines the flexibility of the rental option with the equity-building characteristics of an equipment loan. Plus it presents different tax implications than more conventional forms of financing.
Benefits to leasing construction equipment:
You can get the most technologically advanced equipment instead of settling for what you can afford. And you can get a new model every few years.
Leases can help you improve business cash flow. Without the capital outlay of a purchase or a down payment, cash can be available to strategically reinvest in your business. Because payments are spread out over time, leasing also improves cash flow, so that resources can be allocated to other operating needs.
Leasing typically provides the best hedge for potential declines in equipment values and is a viable alternative if you don’t have an appetite for depreciation.
Leasing can help you reduce risk and the downtime that comes with keeping obsolete equipment.
You have the flexibility to defer a buying decision until the end of the lease when you’ll know what your equipment needs will be and can explore options such as purchasing, returning, renewing or continuing to lease the equipment month to month.
It’s the most economical option for optimizing uptime due to its flexibility to return or trade up aging equipment and to avoid costly maintenance.
Before you lease, think about this:
Leases may have penalties assessed if you break the lease early.
Depreciation benefits are exchanged to the lessor for lower payments.
Leases often include total hour usage limits within the lease period.
As with any major equipment decision, you should consult with your financial advisor. Given the diversity of financing solutions today, you may be well-served to use more than one option depending on available tax benefits and accounting implications. Each solution has its unique advantages.