Construction equipment involves a significant investment. It’s not uncommon for equipment to sell for five or six figures. In extreme cases, it can be even more expensive.
While buying gives you the benefit of owning a piece of equipment, this alone might not be worth the outlay. To decide whether you should rent or buy equipment, consider the following factors.
1. Associated Costs
Buying construction equipment requires a large upfront lump sum. But that’s not the only cost you’ll incur.
Let’s say you landed a new project a few hundred miles away from your business. If you own construction equipment, it’s your job to transport it, meaning you need to pay for shipping costs. Check out www.a1autotransport.com/shipping-construction-equipment/for specifics of the professional shipping service.
While there are ways to make this cost-effective, renting equipment at the project’s location may be better.
Then there’s maintenance. Maintenance costs can add up with time and significantly affect your bottom line. To minimize their effects, you can follow the best maintenance practices.
Of course, cost-effectiveness will depend on many factors.
2. Length and Frequency of Use
Not every piece of equipment is used equally. Some machines, like forklifts, excavators, and loaders, are highly versatile and let you use them for various projects. If you expect to use a piece of equipment for different jobs, it might make sense to buy it.
Purchasing specialized equipment outright might not make financial sense. The same is true for equipment that involves specific handling if you don’t have any trained professionals in-house. In that case, renting via outsourcing is a great way to complete the project without large investments or lengthy training.
As a general rule, it pays to buy a piece of equipment if you’ll use it more than 60% of the time. There are different thresholds depending on whom you ask, but it usually doesn’t make sense to buy equipment with a lower utilization rate.
3. Tax Incentives
Taxes might not be the most important factor in your decision, but they are worth considering. The last thing you want is to get an unpleasant financial surprise at the end of the year.
If you rent your equipment, you can write it off as a business expense. In contrast, the equipment you own is eligible for depreciation deductions. There’s no right or wrong here, it all comes down to how these tax implications impact your ROI. It’s best to reach out to your accountant when making the decision so they can provide you with the input you need.
4. Resale Value
Another important factor in the buy vs. rent decision is resale value. If you buy equipment, you can sell it as it depreciates or you no longer have a need for it. You can get some of your investment back and put the money toward business growth.
This isn’t possible with rented equipment. But then again, the upfront investment is significantly lower than if you buy a piece of equipment.
Factor in the resale value if you plan on selling your equipment while it’s still in good condition. Completely amortized equipment won’t be worth much. If you plan on using a piece of equipment so much it reaches this state, buying makes more sense than renting anyway.
5. Five-Year ROI
Numbers don’t lie, so crunching them is a much better way to make important decisions than using qualitative data. To see if you should rent or buy a piece of equipment, you can conduct a comprehensive five-year ROI analysis.
It’s pretty straightforward. All you have to do is factor in the key costs and considerations.
- Estimated revenues
- Operation costs
- Storage costs
- Fuel costs
- Utilization rates
- Depreciation costs
- Maintenance and repair costs
If the ROI on purchased equipment justifies the investment, there’s no need to think about renting, especially if you’re talking about core-business equipment. You can rest assured knowing that purchasing was the right decision.
Now that we’ve covered the main factors to consider when making your decision, let’s see some of the benefits of renting and of buying your equipment.
Benefits of Renting Construction Equipment
The main advantage of renting equipment is that you get to test it before making any major financial commitments. You can see if a machine is as useful as you thought it would be, in which case, you can consider buying it.
Renting can be more convenient. You don’t need to worry about maintenance or storage, as the company you’re renting from takes care of that. You will also avoid the associated costs, which can do wonders for your bottom line.
Benefits of Buying Construction Equipment
One of the main ways owning a piece of equipment helps your business is by eliminating uncertainty. Construction equipment can be scarce at times, and not having the equipment you need can cause major disruptions and financial losses. If you can’t find the equipment you need, you might miss out on many lucrative opportunities. When you own equipment, you don’t have to worry about this.
Another thing to keep in mind is that buying doesn’t necessarily have to involve massive expenditures. Today, you can find plenty of used equipment that will get the job done. Major manufacturers offer used equipment in excellent condition, so the difference between new and used equipment can be minor.
The Final Word
Buying vs. renting is a decision you shouldn’t take lightly. Take your time to weigh the pros and cons of both options and decide what makes the most sense for your business.
Every construction company is different, so neither option is universally better than the other. It all comes down to your business’s specifics, financial situation, and needs.
Remember to rely on cold data when making the decision. List all the costs, calculate your potential ROI, and make decisions based on facts. Keep in mind the 60% threshold, and think about how much you’ll actually use the equipment.
At the end of the day, these options aren’t mutually exclusive. You can always rent first, and then buy the equipment if you believe it’s worth it.
2 thoughts on “Should my Construction Business Rent or Buy Equipment?”
It’s an amazing content for those people who want to know about The Future/benefits of Construction Equipment. More inventive ways are available to make our work more comfortable and effective in this era of immense and quick development. Meanwhile, construction equipments are more crucial for jobsite to boost your workers productivity. You can also more information by visiting this site.
Amazing article, Ruckus.
It all depends on the situation and the size of the budget; both options are viable. For example, some businesses rent EOT Crane while others buy them for a longer-term investment.